2023 (9) TMI 213 - AT - Income Tax

Tribunal rules in favor of assessee on interest expense disallowance under Income Tax Act

The Tribunal ruled in favor of the assessee in a case involving the disallowance of interest expenses by the Assessing Officer under various sections of ... Disallowance of interest on unsecured loan creditors which was subject to TDS - AR emphasized that no fresh loans were obtained from the unsecured loan creditors during the financial year 2011-12 - HELD THAT:- AO has not disputed on the genuineness of loans and the loan funds were utilized wholly and exclusively for the purpose of business. AR emphasized that the own funds are more than the loan funds and relied on the judicial decisions. Considering the facts, circumstances and the information filed in the course of hearing find that there is no dispute with respect to the interest paid to the unsecured loan creditors on the opening balances and further the revenue has been accepting the interest claim in earlier years. Accordingly, the order of the CIT(A) on this disputed issue is set aside and direct the Assessing officer to delete the disallowance of interest on unsecured loans For interest on housing loan paid to LIC Ltd and HDFC Ltd - AR filed the evidences of interest paid to LIC Ltd loans and supported with the loan repayment and loan interest receipts and in the case of HDFC Ltd, statement of account was filed. Considering all there is no dispute that the assessee has let out the property and derived the rental income and the assessee has substantiated the submissions with the documentary evidences. Accordingly, direct the AO to delete the disallowance of interest and allow the grounds of appeal in favour of the assessee. Issues:The judgment involves the disallowance of interest expenses by the Assessing Officer and subsequent appeals challenging the disallowances made under various sections of the Income Tax Act.Issue 1: Disallowance of Interest Expense of Rs. 243,521The assessee appealed against the disallowance of interest expense without appreciating that the loans were old and utilized for business purposes. The Assessing Officer was not satisfied with the interest claimed on house property and other loans, leading to a total income assessment of Rs. 20,33,340. The CIT(A) confirmed the disallowance, but the Tribunal later restored the issues to the AO. The AO, in the subsequent order, disallowed interest based on the utilization of interest-bearing funds for non-business purposes, leading to a revised assessed income of Rs. 14,64,470.Issue 2: Disallowance of Interest Paid to LIC and HDFCThe AO disallowed interest of Rs. 37,965 paid against loans from LIC and HDFC, stating that the loans were obtained for property acquisition and not for business purposes. The assessee argued that the loans were genuine, supported by documentary evidence, and utilized for business operations. The Tribunal found no dispute regarding the interest payments to these lenders and directed the AO to delete the disallowance, allowing the appeal in favor of the assessee.Separate Judgment by the Tribunal:In a separate judgment, the Tribunal set aside the CIT(A)'s decision to sustain the disallowance of interest on unsecured loans of Rs. 2,43,521. The Tribunal found no dispute regarding the interest paid on the opening balances of unsecured loans and directed the AO to delete the disallowance, ruling in favor of the assessee.This comprehensive summary highlights the issues involved, the arguments presented, and the decisions made by the authorities and the Tribunal, ensuring a clear understanding of the legal judgment.