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Income Tax Appellate Tribunal, “C” Bench, Mumbai
The assessee has filed this appeal challenging the order dated 26.3.2021 passed by the learned CIT(A)-50, Mumbai and it relates to A.Y. 2012-13. The assessee is aggrieved by the decision of the learned CIT(A) in confirming the proportionate disallowance of interest expenses of Rs. 14.77 lakhs.
None appeared on behalf of the assessee even though hearing was adjourned on the last occasion at the specific request of the assessee. Accordingly, we dispose of the appeal ex-parte, without presence of the assessee.
We heard learned DR and perused the record.
The assessee is engaged in the business of trading in iron and steel. The Assessing Officer noticed that the assessee has advanced loan of Rs. 9.31 crores to M/s. Pravarsh Impex Pvt. Ltd. @ 12% per annum. He further
2 Shri Prakash Shah noticed that the assessee has taken loan and interest was paid thereon in the range of 7.5% p.a. to 15% per annum. The Assessing Officer further noticed that the Assessing Officer who passed the order in A.Y. 2010-11 has given a finding that the major portion of the loans taken by the assessee carried interest rate of 15% per annum. In that view of the matter the Assessing Officer had taken the view in A.Y. 2010-11 that the assessee should have charged interest @ 14.5% on the loan given by it to M/s. Pravarsh Impex Pvt. Ltd.
Following the above said view taken in A.Y. 2010-11, the Assessing Officer also took the view that the assessee should have collected interest @ 14.54% in this year also from the loan given to M/s. Pravarsh Impex Pvt. Ltd. Accordingly, he computed interest receivable on the loan given to M/s. Pravarsh Impex Pvt. Ltd. at Rs. 1.53 crores. Since the assessee has received interest of Rs. 1.38 crores only, the Assessing Officer disallowed the interest expenditure to the extent of Rs. 14.77 lakhs under section 36(1)(iii) of the Act.
Before the learned CIT(A), the assessee contended that the Assessing Officer has assessed notional interest income, which is not permissible. However, the learned CIT(A) held that the Assessing Officer had actually disallowed part of interest expenditure only and accordingly rejected the said contention of the assessee. He further held that the assessee has failed to prove that the loan was given to M/s. Pravarsh Impex Pvt. Ltd. for any business exigency. He also expressed the view that the assessee has failed to show that the loan was given to the above said concern from out of own funds. Accordingly, he confirmed the disallowance of interest expenditure.
We heard learned DR on this issue and perused the record. We noticed from the assessment order that the Assessing Officer has followed the finding given in A.Y. 2010-11 for fixing rate of interest @ 14.53%. However, the Assessing Officer has not shown that the same level of financial position was 3 Shri Prakash Shah prevailing in this year also. In our view, the AO could not have followed the assessment order of AY 2010-11 without considering the factual aspects prevailing in the instant assessment year.
In any case, it is not a case of giving loan at free of interest, which may require consideration of existence of business exigencies or commercial considerations. The assessee has collected interest on the loan given by it @ 12% p.a. Further interest payable on the loan taken by the assessee or given by the assessee would depend upon terms and condition entered between the parties. Accordingly, we are of the view that the disallowance of interest expenditure made by the Assessing Officer is not on proper reasons. Accordingly, we are of the view that the learned CIT(A) was not justified in confirming the interest disallowance made by the Assessing Officer. Accordingly, we set aside the order passed by the learned CIT(A) on this issue and direct the Assessing Officer to delete the disallowance.
In the result, appeal filed by the assessee is allowed.
Order pronounced in the open court on 06.12.2022.