2018 (3) TMI 1777 - AT - Income Tax

Tribunal Upholds Disallowance of Broken Period Interest Expenses for Tax Years

DCIT-2 (1) (1), Mumbai Versus M/s Bank of Baroda

The Tribunal upheld the order of the Commissioner of Income-Tax (Appeals) disallowing broken period interest expenditure for Assessment Year 2008-09, ... Addition of broken period interest expenditure - allowable revenue expenditure u/s 37 - HELD THAT:- The Hon’ble Bombay High Court in CIT Vs. HDFC Bank Ltd [2014 (8) TMI 119 - BOMBAY HIGH COURT] while relying on the ratio laid down in its earlier decision in American Express International Banking Corporation Vs. CIT [2002 (9) TMI 96 - BOMBAY HIGH COURT] which in turn, had distinguished the ratio laid down by the Hon’ble Supreme Court in Vijaya Bank Vs. CIT [1990 (9) TMI 5 - SUPREME COURT] and CIT Vs. Bank of Rajasthan Ltd [2008 (3) TMI 325 - RAJASTHAN HIGH COURT] and had held that broken period interest is allowable as deduction. Following the same parity of reasoning, we hold that the assessee is entitled to the claim of broken period interest. As in case of CIT vs. Citi Bank [2008 (8) TMI 766 - SUPREME COURT] held that broken period interest expenses are allowable expenses. We have noted that the order passed by ld. CIT(A) is based on the decision of Hon’ble Bombay High Court in American Express International Banking Corporation (supra) and the decision of Hon’ble Supreme Court in Citi Bank (supra). The decision relied by ld. DR was distinguished by Hon’ble Apex Court in Citi Bank (supra). No other contrary decision is brought to our notice. Thus, no infirmity in the order passed by ld. CIT(A) in deleting the disallowance of broken period expenses. In the result, grounds of appeal raised by Revenue are dismissed. Issues:1. Disallowance of broken period interest expenditure for Assessment Year 2008-09.2. Consistency in decision for Assessment Year 2009-10.Issue 1: Disallowance of broken period interest expenditure for Assessment Year 2008-09:The case involved an appeal by the Revenue against the order of the Commissioner of Income-Tax (Appeals) regarding the disallowance of broken period interest expenditure incurred on the purchase of securities by a Banking Company for the Assessment Year 2008-09. The Assessing Officer disallowed the expenditure, stating that the bank was not a trader in securities and thus not entitled to claim the broken period interest expenses. The Revenue contended that the bank was not entitled to the deduction based on legal precedents. However, the assessee argued in favor of the order of the Commissioner of Income-Tax (Appeals) and cited relevant legal judgments to support their position. The Tribunal considered the arguments and legal precedents cited by both parties. It noted that the Bombay High Court and the Supreme Court had allowed broken period interest as a deductible expense in certain cases. The Tribunal held that the assessee was entitled to claim the broken period interest based on the legal precedents and dismissed the Revenue's appeal for Assessment Year 2008-09.Issue 2: Consistency in decision for Assessment Year 2009-10:The Tribunal, having dismissed the appeal for Assessment Year 2008-09, also dismissed the appeal for Assessment Year 2009-10 on the grounds of consistency in decision-making. Since the issues and grounds of appeal were identical to those of the previous year, the Tribunal applied the principle of consistency and maintained its decision. The appeal for Assessment Year 2009-10 was thus dismissed with similar observations as the previous year.In conclusion, the Tribunal upheld the order of the Commissioner of Income-Tax (Appeals) regarding the disallowance of broken period interest expenditure for the Assessment Year 2008-09 based on legal precedents supporting the allowance of such expenses. The principle of consistency was applied in dismissing the appeal for Assessment Year 2009-10 due to identical grounds and issues.