2022 (7) TMI 1262 - AT - Income Tax

Tribunal allows interest deductions on loans from specific entities, remands other claims for re-adjudication.

The Tribunal partly allowed the appeal, directing the CIT(A) to allow the deduction for interest expenditure related to loans from Dynasty Tradelink Pvt. ... Disallowance of deduction u/s 57(iii) - claim of deduction / set off of interest expenditure against the interest income - AO observed that, assessee had failed to establish that the unsecured loans were raised for earning of interest income - HELD THAT:- Dynasty Tradelink Pvt. Ltd. - We are of the considered view that as the assessee had raised interest bearing loans from M/s. Dynasty Tradelink Pvt. Ltd. wholly and exclusively for the purpose of earning interest income on the loans/deposits given to GDR Educational Society, therefore, his claim for deduction of the corresponding interest expenditure is well in order and had wrongly been disallowed by the lower authorities. We, thus, in terms of our aforesaid observations set-aside the order of the CIT(Appeals) and direct him to allow the assessee’s claim for deduction under Sec. 57(iii) of the interest expenditure corresponding to the interest bearing that was raised from M/s Dynasty Tradelink Pvt. Ltd. Hill Queen Investment Pvt. Ltd., Sonal Kumar Rungta & Tanishq Export Pvt. Ltd. - We find that neither the complete facts which would prove to the hilt the existence of an inextricable nexus between the aforesaid interest bearing loans and the interest generating advances is discernible from the records, nor any such claim of deduction of interest is found to have been raised by the assessee in its return of income for the immediately preceding year i.e AY 2012-13. Be that as it may, as the issue as regards the allowability of the assessee’s claim for deduction under Sec. 57(iii) of the interest paid on the loans raised from the aforementioned three parties cannot be adjudicated in the absence of complete set of facts before us, therefore, in all fairness we restore the matter to the file of the A.O with a direction to re-adjudicate the same in the backdrop of our aforesaid observations. In case the assessee in the course of the set-aside proceedings is able to substantiate that the interest bearing loans raised by him from the aforementioned three parties, viz. (i) Hill Queen Investment Pvt. Ltd.; (ii) Sonal Kumar Rungta; and (iii) Tanishq Export Pvt. Ltd. were advanced for the purpose of earning of interest income in question, then, the A.O shall allow his claim for deduction qua the same under Sec. 57(iii). Assessee had paid interest on the old interest bearing loans that were raised in the earlier years from the aforementioned four parties, viz. (i) Mary Mithai; (ii) V.K Satija HUF; (iii) Jaya Solanki ; and (iv) Yashwant Rao Kavre for advancing of interest bearing amounts - We find substance in the claim of the ld. AR as regards the allowability of his claim for deduction of the interest expenditure on the old loans which were utilized for earning of interest income by advancing the same as interest bearing loans/deposits. Our aforesaid conviction is supported by the fact that the assessee’s claim for deduction of interest paid on the loans raised from the aforesaid four parties in his return of income for the immediately preceding year, i.e, AY 2012-13 had been accepted by the department and had not been dislodged, Page 11 of APB. Nothing to the contrary has been brought to our notice by the DR to rebut the aforesaid factual position as had been canvassed by the ld. AR before us. We are of the considered view, that as the fact situation during the year under consideration remains the same except for that the outstanding loans of the aforesaid four parties were squared up by the assessee by raising a bank loan i.e, a temporary OD from OBC bank, therefore, going by the principle of consistency we find no reason to take a different view and thus allow the assessee’s claim for deduction of interest on aforesaid loans. Issues Involved:1. Disallowance of interest expenses claimed under Section 57 of the Income Tax Act.2. Correctness of the assessed income.Issue-wise Detailed Analysis:1. Disallowance of Interest Expenses Claimed under Section 57 of the Income Tax Act:The primary issue in this appeal is whether the interest expenses claimed by the assessee under Section 57(iii) of the Income Tax Act were rightly disallowed by the Assessing Officer (A.O) and sustained by the Commissioner of Income Tax (Appeals) [CIT(A)]. The assessee, a promoter director of an educational group, had claimed a deduction of Rs. 29,72,185/- against his interest income of Rs. 10,75,877/-. The A.O disallowed this claim on the grounds that the assessee failed to establish that the unsecured loans were raised for earning interest income.Upon appeal, the Tribunal found substantial force in the assessee's claim that both lower authorities failed to appreciate the correct factual position. The assessee provided a detailed chart showing the interest paid and received from various parties, which indicated that the interest-bearing loans were indeed used to advance interest-bearing amounts.A) Dynasty Tradelink Pvt. Ltd.:The Tribunal examined the loans raised from Dynasty Tradelink Pvt. Ltd., amounting to Rs. 3,39,15,000/-. It was established that Rs. 3,22,50,000/- was used exclusively for advancing amounts on interest to GDR Educational Society. The Tribunal concluded that the interest expenditure incurred on these loans was allowable as a deduction under Section 57(iii) of the Act, citing the Supreme Court judgment in Commissioner of Income Tax Vs. Rajendra Prasad Moody and the High Court of Punjab & Haryana in CIT Vs. Pankaj Munjal Family Trust.B) Hill Queen Investment Pvt. Ltd., Sonal Kumar Rungta, and Tanishq Export Pvt. Ltd.:The assessee claimed that interest-bearing loans from these parties, raised before 01.04.2009, were used for advancing loans to Shakuntala Devi Rungta and Rajni Devi Rungta. The Tribunal agreed in principle but noted the absence of complete facts to establish an inextricable nexus between the loans and interest-generating advances. The matter was remanded to the A.O for re-adjudication, directing the A.O to allow the deduction if the assessee could substantiate the claim.C) OBC Bank and Other Parties:The assessee claimed deductions for interest paid on old loans raised from Mary Mithai, V.K Satija HUF, Jaya Solanki, and Yashwant Rao Kavre, which were repaid using a temporary overdraft from OBC Bank. The Tribunal found merit in the claim, noting that similar deductions were allowed in the previous assessment year (AY 2012-13). The Tribunal allowed the deduction of Rs. 1,10,176/- for interest paid on these loans, adhering to the principle of consistency.2. Correctness of the Assessed Income:The Tribunal addressed the correctness of the assessed income, which the A.O had determined at Rs. 29,72,185/-. Given the Tribunal's findings on the allowability of interest deductions, the assessed income was to be recalculated accordingly. The Tribunal directed the CIT(A) to allow the assessee's claim for deduction under Section 57(iii) for the interest expenditure corresponding to the interest-bearing amount raised from Dynasty Tradelink Pvt. Ltd. and remanded other claims for re-adjudication by the A.O.Conclusion:The Tribunal partly allowed the appeal, directing the CIT(A) to allow the deduction for interest expenditure related to loans from Dynasty Tradelink Pvt. Ltd. and remanding the other claims for re-adjudication by the A.O. The Tribunal also allowed the deduction for interest paid on loans from Mary Mithai, V.K Satija HUF, Jaya Solanki, and Yashwant Rao Kavre based on consistency with the previous assessment year. The general ground of appeal was dismissed as not pressed. The order was pronounced under rule 34(4) of the Appellate Tribunal Rules, 1963.