Rule of Consistency Prevails: ITAT Dismisses Revenue Appeal on Interest Disallowance
Introduction
The Chandigarh Bench of the Income Tax Appellate Tribunal (ITAT) has upheld the partial disallowance of interest expenditure under Section 57(iii) of the Income Tax Act, 1961, emphasizing the rule of consistency with prior assessments and the verified nexus between borrowed funds and interest income.
Factual Background
The assessee, Shri Mahesh Kumar Goyal, filed a return of income for Assessment Year (AY) 2012-13. The Assessing Officer (AO) made a full disallowance of interest expenditure claimed under Section 57(iii), stating it was not incurred for earning interest income. However, the Commissioner of Income Tax (Appeals) [CIT(A)] partially deleted the disallowance after considering the assessee’s submissions and workings from previous years.
Procedural Background
The CIT(A) noted that in AY 2011-12, the AO had verified the nexus of borrowed funds and disallowed only ₹18.14 lakhs out of total interest expenditure of ₹190.42 lakhs. For AY 2012-13, the assessee computed a proportionate disallowance of ₹43.45 lakhs, of which ₹27.36 lakhs was already disallowed, confirming an additional ₹16.08 lakhs.
Reasoning & Analysis
The bench comprising Laliet Kumar (Judicial Member) and Manoj Kumar Aggarwal (Accountant Member) observed that the rule of consistency favoured the assessee, as no change in facts was shown. The bench noted that in AY 2011-12, the AO had partially disallowed interest after verifying the nexus, and the assessee’s workings for the current year aligned with this, considering only interest on fresh borrowings.
Findings
The Tribunal held that a full disallowance in the current year was unjustified, as major borrowings were from prior years and stood verified. The ITAT dismissed the Revenue’s appeal and upheld the CIT(A)’s order.
Implications
The decision highlights the importance of consistency in tax assessments and the need for the Revenue to demonstrate a change in facts or circumstances to justify a different treatment in subsequent years.
Final Outcome
The appeal of the Revenue was dismissed, and the partial disallowance of interest expenditure under Section 57(iii) was upheld.