2024 (1) TMI 1074 - AT - Income Tax

Allowability of Interest Expenditure - disallowance on the ground that the borrowed funds were utilized for non-business purposes - Condonation of delay of 418 in filing the appeal - AO observed that the assessee had claimed deduction on account of interest expenditure - AO proceeded to disallow the entire interest u/s 14A of the Act on the ground that borrowed funds were utilized for making investments in securities and shares which had yielded exempt income to the assessee and completed the assessment - CIT(A) however, addressed the entire dispute on the ground that the borrowed funds were utilized for non business purpose in terms of section 36(1)(iii) HELD THAT - The assessee was pursuing an alternative remedy available with him legally before the ld. CIT(A) by waiting for disposal of rectification application. - The reasons adduced by the assessee for the delayed filing of appeal is sufficient cause - Delay condoned. The assessee had furnished the complete details of borrowed funds together with its utilization thereon before the ld CIT(A) and pleaded that the interest paid on borrowed funds would be eligible for deduction. CIT(A) sought for a remand report from the ld AO who indeed submitted the remand report, clearly giving the details of utilization of borrowed funds. This remand report has not been properly appreciated by the ld CIT(A) while dismissing the appeal of the assessee. Considering the fact that the ld AO had given the remand report and that remand report was very much available before the ld CIT(A), CIT(A) ought to have considered the observations given by the ld AO in the remand report. Hence, we deem it fit and proper to restore this quantum appeal to the file of ld CIT(A) qua the issue in dispute before us with regard to disallowance of interest for re-adjudication in the light of remand report submitted by the ld AO. Accordingly, the grounds raised by the assessee are allowed for statistical purposes.

Summary

Issues:
The judgment involves the delay in filing the appeal, condonation of delay, rejection of rectification application, disallowance of interest, utilization of borrowed funds for non-business purposes.

Delay in Filing Appeal and Condonation of Delay:
The appeal in ITA No.2164/Del/2018 for AY 2007-08 was filed with a delay of 418 days. The assessee provided reasons for the delay, stating that the order of the ld CIT(A) was received without considering the observations made by the ld AO in the remand report. The assessee pursued an alternative remedy by filing a rectification petition before the ld CIT(A). The Tribunal found the reasons for the delay sufficient and decided to condone the delay in filing the appeal.

Rejection of Rectification Application:
The assessee, after the rejection of the rectification application by the ld CIT(A), preferred another appeal. Since both appeals involved identical issues, they were taken up together and disposed of by a common order for convenience.

Disallowance of Interest on Borrowed Funds:
The main issue in the appeals was whether the ld CIT(A) was justified in confirming the disallowance of interest on the grounds that the borrowed funds were used for non-business purposes. The assessee dealt with the purchase and sale of securities and properties, utilizing borrowed funds for property purchases. The ld AO disallowed the interest under section 14A, while the ld CIT(A) disallowed it under section 36(1)(iii) of the Act. The Tribunal noted that the ld CIT(A) did not properly consider the remand report submitted by the ld AO, detailing the utilization of borrowed funds. Consequently, the quantum appeal was restored to the file of ld CIT(A) for re-adjudication based on the remand report. The appeal in ITA No. 2164/Del/2018 against the rectification proceedings was deemed infructuous.

Conclusion:
The appeal in ITA No. 2165/Del/2018 was allowed for statistical purposes, while the appeal in ITA No. 2164/Del/2018 was dismissed as infructuous. The order was pronounced in the open court on 23/01/2024.