ITAT Backs PCIT’s Revision; Interest on Bogus Loans Can’t Be Allowed as Deduction [Read Order]
The bench pointed out that once the loan of Rs. 92 lakh was treated as unexplained income u/s 68, the interest accrued on it logically had to be disallowed
ITAT - revision - order - Taxscan
ITAT - revision - order - Taxscan
The Income Tax Appellate Tribunal Ahmedabad Bench upheld an order that directed the disallowance of interest on unsecured loans that were already treated as unexplained. The tribunal stated that when the principal loan amount is added back to income as bogus, the corresponding interest claimed as an expense cannot be permitted as a deduction.
An appeal filed by Dhanesh Badarmal Jain against an order passed by the Principal Commissioner of Income Tax under Section 263 of the Income-tax Act. The original assessment for the year 2021-22 had seen the Assessing Officer add back an unsecured loan of Rs. 92 lakh after the assessee failed to establish the creditworthiness of the creditors. However, the officer did not disallow the interest of Rs. 44,51,671 that was accrued on these very loans and debited in the books.
The PCIT found this omission to be an error prejudicial to the revenue's interests and used his revisionary powers to set aside the assessment on this specific point, directing the Assessing Officer to examine and disallow the interest expenditure.
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The taxpayer contested this revision before the tribunal. His counsel argued that the Assessing Officer had applied his mind to the loan and its interest component during the original proceedings and had taken a conscious decision. It was also contended that since the addition of the principal loan was already under appeal, the PCIT could not exercise revisionary jurisdiction on a related matter.
The tribunal, however, did not accept these arguments. It scrutinized the assessment records and found that the assessee had been given multiple opportunities but had failed to provide any documentary evidence to prove the genuineness of the loans or the creditors. The bench pointed out that once the loan of Rs. 92 lakh was treated as unexplained income u/s 68, the interest accrued on it logically had to be disallowed. The tribunal relied on a crucial precedent from the Supreme Court in the case of PCIT vs. M/s. V-Con Integrated Solutions Pvt. Ltd., where it was held that a wrong conclusion by an Assessing Officer after an enquiry is correctable by the PCIT under Section 263. The Supreme Court had distinguished between a lack of investigation and a wrong decision, affirming that the latter falls within the ambit of revisionary powers.
The bench comprising Siddhartha Nautiyal (Judicial Member) and Narendra Prasad Sinha (Accountant Member) found that the PCIT had rightly identified a lapse and a wrong conclusion in the assessment order. The tribunal held that the revision order was legally valid and dismissed the assessee’s appeal.
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