2013 (4) TMI 262 - AT - Income Tax

Tribunal denies interest deduction for lack of business fund usage. Assessee's appeal dismissed.

The Tribunal upheld the disallowance of interest expenditure claimed in the Profit & Loss Account for the AY 2009-10, amounting to Rs.3,03,30,262. The ... Disallowance of entire interest expenditure claimed in the Profit & Loss Account - assessee company is in the business of financing and investment - Held that:- As from the balance sheet of the assessee, it is evident that the total loans and advances are only Rs.8,212/-. The sundry debtors is also only Rs.1,38,574/-. As already stated that the onus is upon the assessee to establish that the money was borrowed for the purpose of business. The assessee has not established how the huge sum of Rs.34 crores was utilized for the purpose of business because the total investment in business of trading in shares/financing is in lakhs. The total investment in shares, sundry debtors, cash and bank balance and loans and advances taken together is only Rs.2,65,323/-. Thus agreeing with the finding of the lower authorities that the assessee has not been able to discharge the onus which lay upon it to establish that the borrowed money has been utilized for the purpose of business. The various decisions relied upon by the assessee are altogether different on facts - against assessee. Issues:Disallowance of interest expenditure claimed in the Profit & Loss Account for the AY 2009-10.Analysis:The assessee contested the disallowance of Rs.3,03,30,262 interest expenditure, arguing it was for business purposes, not due to lack of business activity. The Assessing Officer assessed income under 'business income' but disallowed interest income. The assessee cited cases to support continuous business operation despite temporary inactivity. The DR argued interest can be allowed only if used for business. The Tribunal noted interest deduction under Section 36(1)(iii) for capital borrowed for business purposes. The balance sheet showed high borrowing but minimal current assets and investments, with no clear link between borrowed funds and business activities. The assessee's explanation lacked evidence of fund utilization for business, leading to disallowance. Various court decisions cited were deemed irrelevant due to differing facts. The Tribunal upheld the disallowance as the assessee failed to prove borrowed funds were used for business, dismissing the appeal.This detailed analysis of the judgment highlights the key arguments, legal provisions, financial evidence, and court decisions considered in the case, leading to the final decision to dismiss the appeal.