2023 (8) TMI 69 - AT - Income Tax

Disallowance of interest expenditure as against the interest income earned during the year - HELD THAT - We noticed that the assessee at the time of hearing before CIT(A) could not able to controvert the fact to substantiate its claim by filing any documents or papers and similarly even before us by the assessee nor its representative appeared to controvert the fact. Therefore, it is clearly established that the borrowed fund has been utilized by the assessee to procure the shares of such known and related companies and most of them are unquoted shares, therefore, the interest expenditure as claimed by the assessee as business expenditure is not established and on this ground CIT(A) sustained the order passed by the AO. Therefore, the net interest expenditure in the case of assessee remained as expenditure but the assessee failed to use entire loan fund in business. CIT(A) correctly affirmed the addition made by the AO in the hands of assessee. We examined all the facts from the findings of the authorities below and viewed that there is no infirmity in the order passed by the ld. CIT(A). Accordingly, grounds taken by the assessee are rejected.Decided against assessee.

Summary

Issues:
1. Disallowance of interest expenditure and its capitalization against business income.

Analysis:
The appeal pertains to the assessment year 2012-13, where the assessee challenged the order of the Commissioner of Income-tax, Appeals, NFAC, Delhi regarding the disallowance of interest on borrowed funds and its capitalization against business income. The assessee contended that the interest on borrowed funds was not excessive and should be allowed as a business expenditure. The Revenue argued that a portion of the interest paid was excessive and should be disallowed, with another portion to be capitalized to the cost of shares. The Tribunal noted that the effective issue was the disallowance of interest expenditure of Rs. 21,99,986/- against the interest income of Rs. 2,48,227/- earned during the year. The Tribunal proceeded ex-parte as the assessee did not appear, and after considering the facts, affirmed the decision of the CIT(A) to disallow the interest expenditure. The Tribunal found that the borrowed funds were used to procure shares of related companies, and as most were unquoted shares, the interest expenditure as claimed by the assessee was not established as a business expenditure. Therefore, the net interest expenditure of Rs. 19,51,759/- was upheld as an expenditure, and the appeal of the assessee was dismissed.

In summary, the Tribunal upheld the decision to disallow a portion of the interest paid as excessive and to capitalize another portion to the cost of shares, thereby rejecting the appeal of the assessee. The Tribunal found that the borrowed funds were not entirely used in the business, specifically for procuring unquoted shares of related companies, leading to the disallowance of the claimed interest expenditure against business income.