ITAT upholds disallowance made on Interest Expenses incurred for taking Loans for making Investment in Shares [Read Order]

The Income Tax Appellate Tribunal (ITAT) Delhi Bench upheld the disallowance made on interest expenses incurred for taking loans for making investment in shares.

The assessee RRPR Holding Private Limited is an Investment Holding Company set up to acquire and hold shares of NDTV Ltd and its Group Cos. The Original return filed by the assessee was subjected to scrutiny assessment by issuance of notice under Section 143(2) Income Tax Act, 1961.

Further, pending the completion of assessment, the assesee filed a revised return under Section 139(5) of the Income Tax Act.

During the proceedings, the Assessing Officer noticed that the assessee has earned interest income on fixed deposits with ICICI bank to the tune of Rs.31,85,254/- and claimed interest expenditure amounting to Rs.26,03,379/- arising from loans.

The Assessing Officer denied the adjustment of interest expenses against the interest income earned on fixed deposits on the ground that interest expenses have not been incurred wholly and exclusively for the purposes of earning the interest on fixed deposits as provided under Section 57 of the Income Tax Act.

AO observed that the interest expenses were incurred for the loans taken by it which was utilized for making investment in shares of NDTV Ltd.

Aggrieved by the order, the assessee filed an appeal before the Commissioner of Income Tax Appeals {CIT(A)} denied relief to assessee.  Thus, the assessee filed a second appeal before the tribunal.

During the hearing Sachit Jolly, counsel for assessee submitted that  Interest Expenses incurred for taking Loans from  ICICI bank not for making Investment in Shares.

T. Kipgen,Counsel for Revenue argued that interest expenditure has not given rise to the corresponding interest income. The interest income has arisen independently out of fixed deposits fixed with banks, the source of which in turn is sale of investments.

Thus, the interest expenditure is incurred for borrowers utilized for investment in acquisition of shares of NDTV Ltd.

After reviewing the facts and submission, the two-member bench of the tribunal comprising Pradip Kumar Kedia (Accountant Member) and Challa Nagendra (Judicial Member) upheld disallowance made by AO on  Interest Expenses incurred for taking Loans for making Investment in Shares.

To Read the full text of the Order CLICK HERE

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