2017 (2) TMI 1442 - AT - Income Tax

Tribunal upholds CIT (A) decision on interest nexus & business loss treatment, dismissing Revenue's appeal.

The Tribunal upheld the CIT (A)'s decision in favor of the assessee regarding the nexus between interest-bearing borrowings and interest-yielding ... Disallowance of interest expenses - AO disallowed the entire interest expenditure stating that the related borrowings are not incurred for business purposes - AO invoked the provisions of section 36(1)(iii) and 57(iii) - HELD THAT:- CIT (A) granted relief to the assessee complying with the directions of the Tribunal in the assessee’s own case for the earlier AY 2011-12. CIT (A) gave finding and there is no change on the facts. Considering the above, the decision of the CIT (A) is fair and reasonable and it does not call for any interference. Accordingly, solitary ground raised by the Revenue is dismissed. Issues:1. Nexus between interest bearing borrowings and interest yielding advances.2. Allowance of interest expenditure as business loss.Analysis:Issue 1: Nexus between interest bearing borrowings and interest yielding advancesThe appeal was filed by the Revenue against the order of the CIT (A) for the assessment year 2012-2013. The Revenue raised the issue of whether there was a nexus between 'interest bearing borrowings' and 'interest yielding advances.' The Revenue argued that there was only a partial nexus, as evidenced by the difference between interest earned and interest paid. The AO disallowed the entire interest expenditure, invoking sections 36(1)(iii) and 57(iii) of the Act, stating that the borrowings were not incurred for business purposes. The CIT (A) allowed the appeal of the assessee based on the Tribunal's order for the AY 2011-2012 in the assessee's own case. The Tribunal, after considering the submissions and relevant material, found that the decision of the CIT (A) was fair and reasonable, as there was no change in facts compared to the earlier assessment year. Therefore, the Tribunal dismissed the solitary ground raised by the Revenue, upholding the CIT (A)'s decision.Issue 2: Allowance of interest expenditure as business lossThe second issue raised was whether the entire interest attributable to borrowings not utilized for making interest yielding advances could be allowed as a business loss. The AO had disallowed the interest expenditure on the grounds that the borrowings were not utilized for business purposes. The CIT (A) granted relief to the assessee based on the directions of the Tribunal in the assessee's earlier case for the AY 2011-2012, where no appeal was filed by the Department. The Tribunal, considering the consistency in facts and decisions, upheld the CIT (A)'s decision, stating that there was no need for interference. As a result, the appeal of the Revenue was dismissed, and the decision was pronounced in the open court on 06th February 2017.