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Income Tax Appellate Tribunal, MUMBAI BENCH “SMC”, MUMBAI
Before: SHRI MAHAVIR SINGH
This appeal by the assessee is arising out of the order of Commissioner of Income Tax (Appeals)-3, Mumbai (in short ‘CIT(A)’) in Appeal No. CIT(A)-3/ IT-10050/2019-20 dated 23.09.2019. The assessment was framed by Income Tax Officer – 19(3)(1), Mumbai for Assessment Year 2012-13 vide his order dated 10.02.2015 under Section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’).
The only issue in this appeal of assessee is against the order of CIT(A) confirming the part disallowance of interest of Rs.9,39,638/- out of total interest paid of Rs.28,18,913/- on unsecured loans. For this, assessee has raised the following Ground no. 1 :-
Reliable Rainwear “1. The Hon. Commr. (Appeals) erred in confirming arbitrary part disallowance of Interest Rs.9,39,638/- out of total Interest paid Rs.28,18,913/- on Unsecured Loans, without stating HIS OWN REASONS for the decision as required U/s. 250(6) of the Act and ignoring specific and detailed justification put forth by the Appellant before the A.O. as well as 1st Appellate Authority, proving such Interest neither being excessive nor unreasonable and the Hon. Commr. (Appeals) simply stating that “appellant’s explanation justifying reasonableness of the impugned rate of interest paid @ 18% PA has no merit.”
I have heard the rival contentions and gone through the facts and circumstances of the case. The brief facts as noted by the Assessing Officer and CIT(A) are that assessee has taken unsecured loans of Rs.2,04,11,500/- and paid interest of Rs.28,18,913/- on these unsecured loans @ 1.5% p.m. The Assessing Officer restricted the interest at 12% and allowed the interest expenditure of Rs.18,79,275/- as against Rs. 28,18,913/- claimed by the assessee, thereby the Assessing Officer disallowed interest of Rs.9,39,638/- as being excessive. Aggrieved, assessee preferred appeal before the CIT(A). The CIT(A) affirmed the action of the Assessing Officer. Aggrieved, assessee came in appeal before the Tribunal.
The learned counsel for the assessee stated that the assessee has taken loans from 20 parties and these loans are borrowed in earlier years and continued in current year also. It was contended that assessee is consistently paying interest @ 18% to these parties and in one of the year, i.e. Assessment Year 2015-16, the Assessing Officer disallowed and CIT(A) confirmed the disallowance as being excessive under Section 40A(2) of the Act. It was contended that the SMC Bench of the Tribunal in for Assessment Year 2015-16 allowed the interest in entirety by observing as under :-
Reliable Rainwear “4. I also observe that the terms and conditions on which the bank provides loan are very stringent wherein the assessee is also required to provide collateral security of immovable property, also to comply so many other terms and conditions and incur further expenditure for insurance, inspection by the bank officers etc.. However, no such conditions are being there in case of private borrowings from friends and relatives which are not to be secured by any immovable property by mortgaging the same. Taking into consideration, the terms and conditions on which private borrowing has been taken by the assessee vis a vis borrowing from the bank, I do not find any justification in disallowing the part of interest paid on private borrowing which are comparatively on easier terms. Accordingly, there is no justification for disallowance of part of interest.”
When these facts were confronted to the learned Sr. DR, he relied on the assessment order and the order of CIT(A).
Hearing the rival contentions and gone through the facts and circumstances of the case, I noted that the Tribunal in assessee’s own case for Assessment Year 2015-16 in has already considered the same loan creditors and interest @ 18% p.a. Hence, taking a consistent view and without deviating from the order of Tribunal for Assessment Year 2015-16, I delete the disallowance and direct the Assessing Officer accordingly.
In the result, appeal of the assessee is allowed.
Order pronounced in the open court on 5th November, 2021.