Tribunal allows appeal, rejects disallowance under Section 36(1)(iii) & directs deletion of additions under Section 68

The Tribunal allowed the appeal partly, ruling that no disallowance under Section 36(1)(iii) was warranted, and directed the deletion of additions made under Section 68 of the Income Tax Act. The decision was pronounced on 25.07.2019.

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Issues Involved:
1. Disallowance under Section 36(1)(iii) of the Income Tax Act.
2. Addition under Section 68 of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Disallowance under Section 36(1)(iii) of the Income Tax Act:

Facts and Arguments:
The assessee, an individual engaged in business through a proprietorship concern, claimed interest expenses of Rs. 12,53,670/-. The Assessing Officer (AO) disallowed Rs. 2,20,164/- under Section 36(1)(iii) on the ground that the interest was paid for capital borrowed for an industrial plot at Greater Noida, which was not put to business use. The CIT(A) not only upheld this disallowance but enhanced it to Rs. 6,39,600/-, without giving a show-cause notice, which was challenged by the assessee.

Key Findings:
- The CIT(A) observed that the property was purchased using funds from an overdraft account with PNB, which had a persistently negative balance.
- The CIT(A) concluded that the proviso to Section 36(1)(iii) applied as the property was not put to use and the borrowed funds were used for its acquisition, justifying the enhanced disallowance.

Tribunal's Decision:
- The Tribunal noted that in past and subsequent years, no disallowance under Section 36(1)(iii) was made for the same investment.
- The Tribunal upheld the rule of consistency, citing various judicial precedents, including decisions from the Hon'ble Karnataka High Court and Delhi High Court, which emphasized consistency in tax assessments.
- It was observed that the assessee's own capital funds were significantly higher than the investment in the industrial plot, and the income for the year was substantial.
- The Tribunal concluded that no disallowance under Section 36(1)(iii) was warranted, allowing the assessee's appeal on this ground.

2. Addition under Section 68 of the Income Tax Act:

Facts and Arguments:
The AO made an addition of Rs. 34,50,000/- under Section 68, questioning the creditworthiness of two parties from whom advances were received: Mahesh Finsec Pvt. Ltd. (Rs. 5,00,000) and Indian Probuild Pvt. Ltd. (Rs. 29,50,000). The CIT(A) upheld this addition.

Key Findings:
- The assessee provided confirmations, bank statements, ITR copies, and audited financial statements for both parties.
- For Indian Probuild Pvt. Ltd., the assessee had received and repaid substantial amounts, and the AO did not make similar additions in subsequent years.
- For Mahesh Finsec Pvt. Ltd., the assessee provided detailed financial documents showing significant capital and reserves.

Tribunal's Decision:
- The Tribunal found that the assessee had discharged the onus of proving the identity, creditworthiness, and genuineness of the transactions.
- The Tribunal noted that the AO did not make similar additions in subsequent years for the same parties, reinforcing the assessee's position.
- The Tribunal directed the deletion of the addition of Rs. 29,50,000/- from Indian Probuild Pvt. Ltd. and Rs. 5,00,000/- from Mahesh Finsec Pvt. Ltd., allowing the assessee's appeal on this ground.

Conclusion:
The Tribunal allowed the appeal partly, holding that no disallowance under Section 36(1)(iii) was justified and directing the deletion of the additions made under Section 68. The decision was pronounced in the open court on 25.07.2019.

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