2021 (9) TMI 954 - AT - Income Tax

Disallowance of interest u/s. 57(iii) - interest expenditure Set off against the interest income - HELD THAT - We find force in the contention of the ld. counsel for the assessee. In A.Y. 2012-13, on a similar quarrel, the Tribunal 2018 (7) TMI 2208 - ITAT DELHI set aside the matter to the file of the Assessing Officer for fresh adjudication and we find that the Assessing Officer, vide assessment order dated NIL, framed u/s. 254 of the Act giving effect to the directions of the Tribunal has accepted the contention of the assessee and allowed set off of expenditure against the interest earned. Considering the facts in totality, we direct the Assessing Officer to delete the impugned addition. Assessee appeal allowed.

Summary

Issues: Interpretation of section 57(iii) of the Income Tax Act, Disallowance of interest claimed under section 57(iii), Nature of interest payment, Set off of interest expenditure against interest income

Interpretation of section 57(iii) of the Income Tax Act:
The appeal was filed against the order of the Commissioner of Income Tax [Appeals] regarding the interpretation of section 57(iii) of the Income Tax Act. The assessee contended that both the CIT(A) and the Assessing Officer had misinterpreted the provisions of the Act, leading to a flawed decision. The Tribunal noted the grievances raised by the assessee regarding the incorrect interpretation of the law.

Disallowance of interest claimed under section 57(iii):
The Assessing Officer disallowed the interest claimed by the assessee under section 57(iii) after finding discrepancies in the set off of interest income and interest expense. The assessee's justification for the interest payment was based on a discounted cash down plan for property purchase, which the Assessing Officer deemed as capital expenditure. The matter was taken to the CIT(A) but without success.

Nature of interest payment:
The Assessing Officer considered the interest payment as capital expenditure, leading to its disallowance. The assessee's argument regarding the direct nexus between the interest income earned and the financial pattern adopted was not accepted. However, the Tribunal referred to a previous decision in the assessee's favor for a different assessment year, where the matter was remanded back to the Assessing Officer for fresh adjudication.

Set off of interest expenditure against interest income:
In light of the previous Tribunal decision and subsequent acceptance by the Assessing Officer of the interest expenditure set off against interest income, the Tribunal directed the Assessing Officer to delete the impugned addition. The Tribunal found merit in the assessee's contention and allowed the appeal, emphasizing the importance of considering the facts in totality.

In conclusion, the Tribunal allowed the appeal filed by the assessee, directing the Assessing Officer to delete the addition made towards the disallowed interest expenditure. The decision was based on a comprehensive review of the facts and previous rulings, highlighting the importance of proper interpretation and application of the Income Tax Act provisions.