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2015 (1) TMI 1150 - AT - Income TaxInterest paid on borrowed capital utilized for construction of house property - whether the interest credited to sundry creditor's account par takes the character of interest payable as contemplated u/s 24(b) or not? - CIT(A) confirmed disallowance made by AO - Held that:- It cannot be denied that for the relationship of lender (creditor) and borrower (assessee), it is not necessary that there should be actual flow of money between lender and borrower, but the borrowing can take place in different forms also. The true nature of relationship has to be considered and no restrictive meaning can be assigned to the term "borrowed capital" in section 24(b). If there is direct nexus between the interest payment and construction of property, which in the present case is through creditors, because they had supplied material for construction, then the said interest would come within the ambit of section 24(b). Therefore, in principle we agree with the assessee that interest payable to sundry creditors, who supplied material for construction of the property, is an allowable deduction u/s 24(b). As the assessee has not been able to substantiate its claim regarding supply of material by alleged creditors, inasmuch as the AO, inter alia, observed that the interest had not been paid and it was merely credited in the accounts of the parties year after year. Therefore, we restore the matter to the file of AO for verification of bills, confirmation of parties etc. which were filed before ld. CIT(A) and also to verify whether the payment of interest had been made to parties in subsequent years or not, as claimed by assessee. - Decided in favour of assessee for statistical purposes. Disallowance of various expenses claimed by the assessee u/s 37(1) - Held that:- CIT(A) correctly restricted the disallowance to the extent of 10% out of salary claimed to have been paid to the employees, further restricted disallowance, and on estimate basis, to ₹ 6,500/- as against 11,500/- on account of telephone expenses; ₹ 24,000/- as against 54,000/- on account of security expenses; ₹ 14,610/- as against 24,610/- on account of conveyance expenses; ₹ 14,780/- as against 19,780/- on account of staff welfare expenses; and ₹ 6,670/- as against ₹ 12,670/- on account of office expenses. - Decided against assessee.
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