Disallowance of Interest u/s 36(1)(iii) Not attributable to Borrowed Amount utilized for Purchase of Immovable Property: ITAT restored issue to file of AO [Read Order]

The Delhi bench of the Income Tax Appellate Tribunal (ITAT) held that the disallowance of interest under Section 36(1)(iii) is not attributable to the borrowed amount utilized for the purchase of immovable property.

The Assessing Officer has made a disallowance of Rs.38,29,320 by holding that the assessee has not utilized the loan funds for business purposes but diverted them for acquiring immoveable property, for giving advances against properties, and for the purpose of the interest-free loan and advances to sister concerns, family members.

The Commissioner of Income-Tax (Appeals) deleted an amount of Rs.14,24,034 and for the balance amount of Rs.24,05,286 directed the Assessing Officer to disallow the interest related to Rs.68,00,000 which was paid to the seller directly. He directed the Assessing Officer to recompute the disallowance by restricting it to the interest relatable to Rs.68,00,000.

The counsel submitted that this issue is squarely covered by the decision of the coordinate Bench of ITAT Delhi in the assessee’s own case in the immediately preceding year. In the said decision, it is noted that for the assessment years 2008-09 and 2009-10, the issue was restored to the file of the Assessing Officer and the Commissioner of Income-Tax (Appeals), respectively, with the direction to recompute the interest attributable to Rs.68,00,000.

The Two-member bench comprising of C.M. Garg (Judicial member) and Girish Agrawal (Accountant member) held that there is no change in the material fact in respect of the issue before the tribunal and considering the Rule of Consistency, the bench also followed the findings given by the coordinate Bench in the assessee’s own case to recompute the interest attributable to Rs.68,00,000 in terms of directions given by the Commissioner of Income-Tax (Appeals) to the Assessing Officer. Accordingly, the appeal of the assessee was allowed for statistical purposes.

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