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2021 (12) TMI 876 - AT - Income TaxDisallowance of interest expenses on perusal of the financials of the assessee - CIT(A) to allow deduction of interest expenses on loan taken in computation of capital gain by holding that the interest expenses is an expenditure incurred wholly and exclusively in connection with the transfer of commercial property - Whether CIT(A) was right in deleting the disallowances of interest expense and other revenue expenditure, without giving proper opportunity under Rule 46A to the AO for verifying the additional evidences - final accounts of relevant AYs, submitted during appeal proceeding, based on which relief has been given by the Ld. CIT(A) ? - HELD THAT - We have perused the assessment order passed under section 143(3) r.w.s. 147 of the Act and find that the para 3 and 4 clearly speaks the reply submitted before the Assessing Officer that the interest paid on loans has been included in the cost of acquisition and not claimed as revenue expenditure. All the details furnished before the ld. CIT(A) were already furnished before the Assessing Officer in their letter dated 23.12.2013 and after examining the materials available on record, the ld. CIT(A) has held that the interest expenditure had been capitalized and not claimed as revenue expenditure, which was not disputed by the Assessing Officer in his remand report against the submissions of the assessee. In view of the above, we find no infirmity in the order passed by the ld. CIT(A) and thus, the ground raised by the Revenue stands dismissed.
Issues Involved:
1. Deduction of interest expenses on loan taken in computation of capital gain. 2. Deletion of disallowances of interest expense and other revenue expenditure without proper opportunity for AO to verify additional evidence. Issue-wise Detailed Analysis: 1. Deduction of Interest Expenses on Loan Taken in Computation of Capital Gain: The Revenue appealed against the order allowing the deduction of interest expenses on loans in the computation of capital gain. The Assessing Officer (AO) disallowed ?41,24,11,072/- of interest paid on loans, arguing it was not included in the cost of acquisition. The assessee contended that this amount was part of the cost of acquisition, not an expenditure incurred wholly and exclusively in connection with the transfer. The interest was on loans from ICICI, cumulative from FY 1996-97, and capitalized as work-in-progress for the commercial project. The Commissioner of Income Tax (Appeals) [CIT(A)] allowed this deduction, noting that the interest expenses were capitalized and not claimed as revenue expenditure. The Tribunal upheld CIT(A)'s decision, finding no infirmity in the order and confirming that the interest expenses were correctly included in the cost of acquisition. 2. Deletion of Disallowances of Interest Expense and Other Revenue Expenditure Without Proper Opportunity for AO to Verify Additional Evidence: The Revenue argued that CIT(A) deleted the disallowances without giving the AO proper opportunity to verify additional evidence, violating Rule 46A. The AO had disallowed ?35,40,00,000/- of revenue expenditure, claiming it should be treated as capital expenditure. The assessee explained that the interest expenses were capitalized and not claimed as revenue expenditure since business operations had not commenced. The CIT(A) reviewed the final accounts from FY 1997-98 to 2007-08 and found that the interest was shown as "expenditure pending allocation" and not debited to the Profit and Loss Account. The Tribunal noted that the CIT(A) had called for a remand report from the AO, who did not provide explanations regarding the disallowance. The Tribunal found no new evidence was placed before the CIT(A) and upheld the deletion of the disallowance, confirming that the CIT(A) acted correctly and the disallowance was untenable. Conclusion: The Tribunal dismissed the Revenue's appeal, confirming the CIT(A)'s decisions on both issues. The interest expenses were correctly included in the cost of acquisition and not claimed as revenue expenditure, and the deletion of disallowances was upheld as the AO had been given sufficient opportunity to verify the evidence. The order was pronounced on December 8, 2021, in Chennai.
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