NATURE NURSERY,INDORE vs. ITO 5(1), INDORE

PDF · subscribers
ITA 434/IND/2026Status: DisposedITAT Indore07 July 2026AY 2020-215 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the AO's calculation of the interest rate charged was factually incorrect as it did not consider repayments made during the year. The actual interest rate received was higher than the interest paid, making the disallowance unjustified.

What were the facts?

The assessee firm claimed a deduction for interest expenditure. The Assessing Officer (AO) disallowed a portion of this interest, alleging that the interest charged on funds lent to a third party was lower than the interest paid on borrowed funds.

What were the issues?

Whether the disallowance of interest expenditure under Section 57 was justified based on the AO's calculation of interest rates.

Which sections of the Income-tax Act were involved?

Section 57

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, INDORE BENCH, INDORE

Before: SHRI Dr. MANISH BORAD, ACCOUNTANT & MEMBER SHRI PARESH M. JOSHI

For Appellant: Shri Prabhpreet Singh Sheetal, AR
For Respondent: Shri Ashish Porwal, Sr. DR
Hearing: 06.07.2026

ITA No.434 of 2026 1

आयकर अपील�य अ�धकरण, इ�दौर �यायपीठ, इ�दौर IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH, INDORE BEFORE SHRI Dr. MANISH BORAD, ACCOUNTANT AND MEMBER SHRI PARESH M. JOSHI, JUDICIAL MEMBER

ITA No.434/Ind/2026 Assessment Year: 2020-21 Nature Nursery, ITO, 5(1) बनाम/ MR 3 Near Regional Park Indore Pipliyapala, Vs. Indore (Appellant) Respondent PAN- AAIFN8849G

Assessee by Shri Prabhpreet Singh Sheetal, AR

Revenue by Shri Ashish Porwal, Sr. DR Date of Hearing: 06.07.2026 Date of 07.07.2026 Pronouncement: आदेश / O R D E R PER Dr. MANISH BORAD, A.M: This appeal of Assessee pertaining to A.Y. 2020-21 is directed against the order of First Appellate Authority dated 03.2.2026 which is arising out of the order u/s

ITA No.434 of 2026 2

143(3)/144B of the Income Tax Act 1961 (hereinafter called as the ‘Act’) framed on 19.09.2022 by NFAC, Delhi.

2.

The sole grievance of the assessee is that the ld. CIT(A) erred in confirming the action of Ld. AO making disallowance of interest expenditure u/s 57 of the Income Tax Act at Rs.9,68,197/-.

3.

At the outset, Ld. Counsel for the assessee submitted that Ld. AO did not examine the facts properly and even though the assessee received interest from Shri Deepak Daryani @ 12%, but Ld. AO has observed that the assessee has charged only @ 3.39%. He submitted that the Ld. AO for the purpose of calculating interest rate has only considered the opening balance of the funds receivable from Shri Deepak Daryani but failed to consider that the major amounts of funds were received back during the month of April and May 2019. Therefore, the effective rate of interest received is 12% and not @ 3.39% and further as the interest paid to bank is @ 11.60% alleged disallowance is called for.

4.

On the other hand, Ld. DR supported the order of Ld. CIT(A).

ITA No.434 of 2026 3

5.

We have heard the rival contentions, perused the record placed before us. The assessee is a partnership firm and income of Rs.10,77,470/- declared in the return for A.Y.2020-21 e-filed on 09.01.2021. Case selected for limited scrutiny to examine agricultural income and large deduction claimed u/s 57 of the Act. After serving of valid statutory notices u/s 143(2) and 142(1) of the Act. Ld. AO did not make addition on the issue of agricultural income. However, for the deduction claimed u/s 57 of the Act the Ld. AO observed that the assessee has taken loan from UCO Bank and has paid interest @ 11.60% and that the funds taken from UCO Bank have been utilized for giving loan to Shri Deepak Daryani but interest has been charged @ 3.39% and that there is a short charge of interest by Rs.9,68,197/- and disallowed the same. Thereafter in the first appellate proceeding Ld. CIT(A) has also confirmed the disallowance.

6.

We on perusal of the records observed that as on 01.04.2019 the outstanding sum receivable from Shri Deepak Daryani stood at Rs.1,12,44,055/- and during the year under consideration, Rs.85 lac has been received back during the month of April & May 2019 and interest for the year has been charged at Rs.3,81,090/-. We note

ITA No.434 of 2026 4

that the Ld. AO has calculated the alleged interest rate by only considering figure of interest received during the year and has opening balance as on 01.04.2019 and has not considered repayment received during the year under consideration. Due to this mistake the Ld. AO has made the alleged disallowance u/s 57 of the Act stating that the assessee had charged interest @3.39%. But this observation of the AO is factually incorrect because the interest rate is to be calculated after considering the repayment received during the year. We find the actual interest charged by the assessee from Shri Deepak Daryani is @ 12% whereas the interest paid to UCO Bank is @11.60%. Therefore, the very basis of making impugned disallowance by the AO is faulty.

7.We therefore, considering the fact that the rate of interest received is higher than the rate of interest paid on the loan taken and therefore, there no disallowance u/s 57 of the Act is called for. Finding of the Ld. CIT(A) is reversed, disallowance u/s 57 of the Act at Rs.9,68,197/- is deleted and the effective grounds of appeal raised by the assessee are allowed.

ITA No.434 of 2026 5

8.

In the result, the appeal of the assessee is allowed.

Order was pronounced in the open court on 7TH July, 2026.

Sd/- Sd/- (PARESH M. JOSHI) (Dr. MANISH BORAD) JUDICIAL MEMBER ACCOUNTANT MEMBER Indore; �दनांक Dated : 07.07.2026 Patel/Sr. PS Copy to: Assessee/AO/Pr. CIT/ CIT (A)/ITAT (DR)/Guard file. By order

Sr. P.S.

More judgments on Section 57

All 1,225 judgments and leading authorities on Section 57 →

Recent GST High Court judgments

Search GST case law →