WEL INTERTRADE (P) LTD.,NEW DELHI vs. ACIT, CIRCLE- 27(2), NEW DELHI

The sum and substance of the grievance of the assessee is that the CIT(A) erred in sustaining the disallowance of expenditure of Rs.7180275/- which represented amount of interest paid on the sums borrowed by the assessee in the preceding assessment year. The CIT(A) further erred in sustaining a disallowance of Rs.55741498/- which represented amount of interest paid on borrowed capital.

Facts as emanating from the assessment order show that the assessee has claimed interest of Rs.819161817/- as expenditure. The details of the interest can be understood from the following chart :-

The Assessing Officer was of the opinions that since the loan of Rs.4.50 crores have been treated as income of the assessee u/s. 68 of the Act in A. Y 2013-14 interest of Rs.7180275/- cannot be allowed.

The Assessing Officer further found that the assessee has given interest free advanced to the following parties :-

The assessee was asked to explain why the advances were made to these persons on which no interest was charged. The assessee filed a detail reply explaining that the advances were made for business purposes.

The assessee agitated the matter before the CIT (A) but without any success.

Before us the counsel for the assessee stated that all the advances are coming from earlier assessment years when no disallowance was made. The counsel further stated that assessee was having sufficient interest free funds available with it and, therefore, the disallowance made by the Assessing Officer are uncalled for and deserves to be deleted.

The DR strongly supported the findings of the Assessing Officer.

We have carefully considered the orders of the authorities below. In so far as the unsecured loan of Rs.4.50 crores is concerned the same has been deleted by the Tribunal in vide order dated 03.06.2019. Since the unsecured loan has been accepted as such the Assessing Officer is directed to allow interest paid on such borrowings amounting to Rs.7180275/-.

In so far as the interest expenditure of Rs.55741498/- is concerned.

It is true that no disallowance were made in earlier assessment years. It can be seen that only Rs. 64741720/- have been advanced during the year under consideration. We find that the interest free funds available with the assessee at the beginning of the year was Rs.326032309/-. Thus, it can be safely concluded that the said interest free advances have been given out of interest free funds available with the assessee.

In our considered view on given facts as discussed here in above no disallowance is to be made. We direct the Assessing Officer to delete the addition of Rs.55741498/- also.

In the result, the appeal filed by the assessee is accordingly allowed.