Tribunal allows appeal, directs deletion of disallowed interest expense, emphasizing consistency in claim treatment.

The appellate tribunal allowed the appeal, directing the deletion of the disallowed interest expense of Rs. 20,43,936. The decision was based on the principle of consistency, as the appellant successfully argued that a similar claim for interest expenditure was accepted by the Revenue in the previous assessment year. The tribunal emphasized the importance of maintaining consistency in treatment of claims and held that once a claim was accepted in the past, the same treatment should be extended unless there are changes in facts or legal provisions.

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Issues Involved:
The appeal against the order of the Commissioner of Income Tax (Appeals) regarding the disallowance of interest expense of Rs. 20,43,936 under section 143(3) of the Income Tax Act, 1961 for the Assessment Year 2012-13.

Issue 1: Disallowance of Interest Expense

The assessee contended that the disallowance of interest expense of Rs. 20,43,936 was erroneous as the funds were borrowed for investment purposes in properties and partnership firms. The Assessing Officer (AO) disallowed the interest cost as it was not incurred for earning income from other sources. The disallowance was based on the lack of explanation regarding the utilization of borrowed funds for generating income. The AO also disallowed interest expenses claimed against business income, citing lack of clarity on the nexus between borrowed funds and income generation. The learned Commissioner of Income Tax (Appeals) upheld the AO's decision, stating that the appellant failed to prove the exclusive use of borrowed funds for income generation. The appellant's inability to demonstrate the direct link between borrowed funds and income led to the confirmation of the disallowance.

Issue 2: Principle of Consistency

The appellant argued for the application of the principle of consistency, pointing out that in the previous assessment year, a similar claim for interest expenditure was accepted by the Revenue. The appellant emphasized that maintaining consistency in treatment is crucial when there are no changes in facts or legal provisions. Citing a judgment of the Hon'ble Bombay High Court, the appellant contended that once the Revenue accepted an identical claim in the preceding year, the same treatment should be extended to ensure consistency. The appellant's reliance on the principle of consistency, supported by legal precedent, led to the setting aside of the learned Commissioner of Income Tax (Appeals)'s decision. The appellate authority directed the AO to delete the addition of interest expense, thereby allowing the appellant's ground of appeal.

In conclusion, the appellate tribunal allowed the appeal filed by the assessee, emphasizing the importance of maintaining consistency in treatment of claims and directing the deletion of the disallowed interest expense based on the principle of consistency upheld in legal precedent.

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