2022 (1) TMI 627 - AT - Income Tax

Tribunal Decision: Interest Deduction Disallowed, Cash Withdrawals Remitted for Verification

M/s Niyant Heritage Hotels [P] Ltd Versus The I.T.O Ward - 13 (3) New Delhi

The Tribunal upheld the Assessing Officer's decision to disallow the interest deduction claimed by the assessee under section 24(b) of the Income-tax Act ... Deduction for interest on borrowed funds u/s 24(b) - assessee stated that the said property is a let out property which was purchased out of borrowed funds from M/s Perfect Turner and, therefore, interest paid by the assessee should be allowed as deduction - HELD THAT:- The assessee may have purchased the property out of borrowed funds, but the onus is upon the assessee to demonstrate that the said borrowed funds have been fully utilized for purchase of the said property and further demonstrate that the payment of interest is in respect of the said borrowed funds. No documentary evidences were furnished before the lower authorities nor before us. Therefore, we do not find any reason to interfere with the findings of the ld. CIT(A). Unexplained Cash withdrawals from bank - introduction of cash entries in its books of account - assessee explained that the said amounts were withdrawals from the bank - HELD THAT:- We find force in the contention of the ld. counsel for the assessee. The entries have been made in the cash book on the date on which the cheque was issued but the same was presented in the bank at subsequent date and therefore, the withdrawal date from the bank is different from the entry date in the cashbook. But at the same time, we do not find do not know whether on entry date in cashbook any benefit has been taken by the assessee in respect of cash in hand. We, therefore, remit this issue to the file of the Assessing Officer. The Assessing Officer is directed to verify whether on the date of entry the assessee has utilized the alleged withdrawal of cash for making the payment/investment or for any other purpose and if the AO does not find any utilization of cash, then the addition should be deleted. Disallowance of depreciation claimed - AO was of the opinion that the assessee is claiming deduction on lease rent as expenditure and is also claiming depreciation on the said building, accordingly, disallowed the claim of depreciation - HELD THAT:- Assessee vehemently stated that on the leased property in the assessment year 2008–09, the assessee has made substantial addition which was capitalized by it and on such capitalized expenditure, the assessee has claimed depreciation as per provisions of law. We are of the considered view that the assessee is eligible for claim of depreciation as per Explanation 1 Proviso 6 to Section 32 of the Act but, at the same time, it needs to be verified whether in the year of expenditure, the same was claimed as revenue expenditure or was capitalized by the assessee. The Assessing Officer is directed to verify the same and if he finds that the amount of addition was capitalized, the depreciation should be allowed. Ground No. 6 is allowed for statistical purposes. TDS u/s 194C - Disallowance on account of building maintenance - HELD THAT:- It Is true that on payment of pest control expenses, the assessee has deducted tax at source and has fulfilled the conditions laid down in section 194C of the Act. To this extent no disallowance should be made. In respect of balance, no details of day to day expenditure have been furnished before us. We, therefore, set aside the issue to the file of the Assessing Officer. The Assessing Officer is directed to furnish details of day to day expenditure on account of building maintenance and the AO is directed to verify the same in light of provisions of section 194C of the Act and decide the issue afresh as per the provisions of law. The assessee gets relief of ₹ 3,01,510/-. Ground No. 7 is partly allowed. Depreciation on account of building - assessee stated that the assessee is an hotelier and he is running a resort which has seasonal business but the resort is used for the entire year, and, therefore, the claim of depreciation cannot be restricted to 50% - HELD THAT:- There is no dispute that the assessee is running a resort at Raj Niwas Palace, Dholpur. It Is also not In dispute that being a tourist place, the occupancy is not throughout the year but only in seasons favourable to the tourists. Therefore, basis the revenue of some months, it cannot be construed that the asset was used only for less than 180 days. We, therefore, direct the Assessing Officer to allow depreciation for entire year. Addition is directed to be deleted. Ground No. 8 is allowed for statistical purposes. Issues Involved:1. Disallowance of interest deduction under section 24(b) of the Income-tax Act2. Disallowance of cash withdrawals not matching bank statements3. Disallowance of depreciation claimed on fixed assets4. Disallowance of building maintenance expenses5. Disallowance of depreciation on assets used for less than 180 daysIssue 1: Disallowance of Interest DeductionThe Assessing Officer disallowed a deduction claimed by the assessee for interest on borrowed funds under section 24(b) of the Income-tax Act. The assessee purchased a property using a loan from M/s Perfect Turner and claimed the interest as a deduction. However, the AO believed that the deduction cannot exceed a certain limit and made an addition to the income. The CIT(A) upheld the AO's decision. The Tribunal noted that the assessee failed to provide documentary evidence to prove that the borrowed funds were fully utilized for the property purchase and that the interest payment was related to those funds. As no evidence was furnished, the Tribunal dismissed the appeal.Issue 2: Disallowance of Cash WithdrawalsThe Assessing Officer disallowed a sum representing cash withdrawals made by the assessee, as the bank statements did not match the cashbook entries. The Tribunal observed that while the cashbook entries were made on the date of cheque issuance, the withdrawals were made from the bank on subsequent dates, causing a discrepancy. The Tribunal remitted the issue back to the AO for verification to determine if the cash was utilized for any purpose on the entry date. If no utilization is found, the addition should be deleted.Issue 3: Disallowance of Depreciation on Fixed AssetsThe AO disallowed depreciation claimed by the assessee on fixed assets, specifically on a property claimed to be leased. The AO believed that claiming both lease rent as expenditure and depreciation on the building was not permissible. The Tribunal directed the AO to verify if the expenditure in question was capitalized by the assessee in a previous year, as this would impact the eligibility for depreciation. If the amount was capitalized, depreciation should be allowed.Issue 4: Disallowance of Building Maintenance ExpensesThe AO disallowed building maintenance expenses claimed by the assessee under the head 'Administration and General Expenses' due to TDS issues. The Tribunal noted that tax was deducted at source on payments to M/s Pest Control, meeting the requirements of section 194C of the Act. However, details of other day-to-day maintenance expenses were not provided. The issue was remitted to the AO for verification and a fresh decision based on the provisions of the law.Issue 5: Disallowance of Depreciation on Assets Used for Less Than 180 DaysThe AO disallowed a portion of depreciation claimed by the assessee on the grounds that the assets were used for less than 180 days. The Tribunal disagreed, stating that seasonal business operations do not imply asset use for less than 180 days. The AO was directed to allow depreciation for the entire year, leading to the deletion of the disallowed amount.