2022 (7) TMI 1151 - AT - Income Tax

Tribunal decision on business loss set-off, interest on FDs, and accrued interest on loans.

Shri Krishna Kumar Agrawal Versus The Income Tax Officer-1 (1), Bilaspur (C.G.)

The Tribunal upheld the disallowance of the assessee's claim for set-off of business loss under Section 44AD and the addition of interest on Fixed Deposit ... Loss from other source [wrongly shown as interest] and set off u/s.71 - assessee had opted for the deeming provision contemplated u/s.44AD of the Act but had separately raised a claim for deduction of certain business expenses - HELD THAT:- As we find substance in the view taken by the A.O that now when the assessee had opted to disclose his income under the deeming provisions of section 44AD of the Act, then, it was not permissible on his part to have separately claimed set-off of the aforesaid expenses as the same were to be deemed to have been already given full effect while computing his income under the aforesaid deeming provision. The mandate of law to the said effect can safely be gathered from a perusal of sub-section (2) of Section 44AD any deduction allowable under the provisions of sections 30 to 38 shall, for the purposes of sub-section (1), be deemed to have been already given full effect to and no further deduction under those sections shall be allowed. We, thus, in terms of our aforesaid observations uphold the view taken by the CIT(Appeals) who had rightly sustained the disallowance made by the A.O. Thus, the Ground of appeal No.1 raised by the assessee is dismissed Estimation of assessee’s income from business as that of civil contractor a/w. a consequential disallowance of interest on loans raised from bank u/s.43B(e) - HELD THAT:- CIT(Appeals) had rightly concluded that now when the A.O had not placed on record any material which would substantiate his conviction that the assessee had generated contract receipts of Rs.1,15,73,522/-, therefore, there was no justification on his part in estimating the income of the assessee at Rs.6,93,488/- i.e. @8% of the said impugned receipts. At this stage, we may herein observe that the Department had accepted the aforesaid view of the CIT(Appeals) and had not carried the matter any further in appeal before us. Sustainability of the impugned disallowance of bank interest u/s.43B(e) - we are unable to find favour with the same. In our considered view, now when the assessee had disclosed his income u/s.44AD of the Act, therefore, no disallowance of the aforesaid amount was called for in his hands. As the disallowance u/s.43B presupposes raising of a claim for deduction, therefore, now when in the case before us the assessee had not sought any deduction of bank interest of Rs.23,21,099/-, there could have been no justification in disallowing the same. We, are unable to sustain the disallowance of bank interest made by the A.O u/s.43B(e) of the Act. Accordingly, the order of the CIT(Appeals) qua the aforesaid issue in hand is set-aside with a direction to the A.O to vacate the disallowance made by him u/s.43B(e) - Ground of appeal No.2 raised by the assessee is allowed in terms of our aforesaid observations. Addition of interest on FDR/deposits held by the assessee with bank - HELD THAT:- As transpires from a perusal of the records that the assessee had sought to telescope/include the same in his deemed income that was disclosed u/s.44AD of the Act. As the aforesaid interest income by no means would fall within the domain of the deemed income of the assessee worked out under Section 44AD of the Act, therefore, we concur with the view taken by the A.O who had separately made an addition of Rs.25,914/- under the head “Other sources” in the hands of the assessee. We, thus, in terms of our aforesaid observations uphold the aforesaid addition made by the A.O. Thus, the Ground of appeal No.3 raised by the assessee is dismissed. Issues Involved:1. Disallowance of the assessee's claim for set-off of business loss under Section 44AD.2. Addition of accrued interest on loans under Section 43B(e).3. Addition of interest on Fixed Deposit Receipts (FDR).Detailed Analysis:1. Disallowance of Business Loss Claim under Section 44AD:The assessee, engaged in the business of a civil contractor, filed a return of income under Section 44AD of the Income Tax Act, 1961, disclosing an income of Rs. 2,32,393. However, the assessee also claimed a deduction of Rs. 2,72,157 for various business expenses. The Assessing Officer (A.O) disallowed this claim, stating that under Section 44AD, all expenses mentioned in Sections 30 to 38 are deemed to have been already given full effect. The CIT(Appeals) upheld this disallowance. The Tribunal agreed with the lower authorities, emphasizing that the assessee, having opted for the deeming provisions of Section 44AD, could not separately claim these expenses. The Tribunal cited sub-section (2) of Section 44AD, which clearly states that no further deduction under those sections shall be allowed. Thus, the Tribunal dismissed the assessee's appeal on this ground.2. Addition of Accrued Interest on Loans under Section 43B(e):The A.O observed that the assessee had incurred interest expenditure on secured loans from the Bank of India but had not paid the interest before the due date of filing the return of income. Consequently, the A.O disallowed Rs. 23,21,099 under Section 43B(e). The Tribunal, however, found the A.O's basis for this addition to be misconceived. The A.O presumed that the increase in interest liability indicated undisclosed contract works, which was not substantiated by any material evidence. The Tribunal noted that the assessee's bank guarantee of Rs. 12.75 lakhs had been invoked, a fact overlooked by the lower authorities. The Tribunal concluded that since the assessee had disclosed income under Section 44AD, no disallowance of the interest amount was warranted. The Tribunal set aside the disallowance and directed the A.O to vacate the addition of Rs. 23,21,099. Thus, the assessee's appeal on this ground was allowed.3. Addition of Interest on Fixed Deposit Receipts (FDR):The A.O added Rs. 25,914 as interest on FDRs held by the assessee with the Bank of India, treating it under the head 'Other sources.' The assessee contended that this interest should be included in the deemed income disclosed under Section 44AD. The Tribunal upheld the A.O's addition, stating that the interest income on FDRs does not fall within the domain of deemed income under Section 44AD. Therefore, the Tribunal dismissed the assessee's appeal on this ground.Conclusion:The Tribunal partly allowed the appeal, upholding the disallowance of business loss and the addition of FDR interest, but setting aside the addition of accrued interest on loans under Section 43B(e). The order was pronounced in open court on 22nd July, 2022.