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Income Tax Appellate Tribunal, MUMBAI BENCH “D”, MUMBAI
Before: SHRI RAJESH KUMAR & SHRI RAM LAL NEGI
Per Rajesh Kumar, Accountant Member:
The present appeal has been preferred by the assessee against the order dated 08.03.2017 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2013-14.
The only effective ground raised by the assessee is against the confirmation of addition of Rs.21,90,352/- by CIT(A) made by the AO u/s 36(1)(iii) of the Act.
The facts in brief are that the assessee being dealer in steel, shares, import licenses and broker & commission agent filed the return of income on 30.11.2013 declaring an income of Rs.67,09,480/-.The case was selected for scrutiny under cass
2 Shri Rajendra B. Mehta and statutory notices were duly issued and served upon the assessee. During the assessment proceedings the AO noticed from the details and information filed by the assessee that assessee received interest at 12% whereas borrowed money at varying rates varying from 12% to 21%. The AO calculated the difference between the excess of interest paid over interest received at Rs. 21,90,352/- and added the same to the income of the assessee on the ground that there is no commercial expediency for the same.
In the appellate proceedings, the ld CIT(A) also upheld the order of AO by dismissing the appeal of the assessee by rejecting the contentions of the assessee that interest was not paid to any related party but to finance companies and private lenders during dire business needs.
The ld AR vehemently submitted before the bench the assessee is in the business of money lending. So the money is borrowed and lent in the ordinary course of business. The ld AR submitted before the bench that out of total interest paid of Rs.73,43,141/-, the assessee has suo motto disallowed interest to the tune of Rs. 35,33,689/- u/s 36(1)(iii) of the Act . The ld AR also placed before the bench the copies of the computation of total income in which disallowance was made and also balance sheet and profit and loss account annexure-I schedule of “interest and finance charges” which shows that interest on unsecured loan of Rs.73,43,141/- was charged to the profit and loss account. The ld AR contended that when the assessee has suo motto disallowed interest to the extent of Rs.35,33,689/- the further addition/disallowance to the tune of Rs. 21,90,352/- out
3 Shri Rajendra B. Mehta of interest to unsecured creditors would be wrong and without any justification more so when the interest at higher rate was paid to the outsiders and not to the related parties. The ld AR also contended that no disallowance was in made in the subsequent years even in the scrutiny proceedings by filing assessment order for the year 2014-15. The ld AR in order to prove his contentions filed before the bench the copies of the order and annual accounts. The ld AR also distinguished the decisions relied by the revenue authorities.
The ld DR on the other hand relied on the order of authorities below by submitting the assessee has clearly diverted high interest bearing funds at lower rate of interest which was without any business consideration and therefore prayed that the order of ld CIT(A) may be upheld.
We have heard the rival contentions and perused the material on records including the various decisions relied by the revenue authorities. We observe that the assessee has paid interest of Rs. 73,43,141/- on unsecured loans during the year out of which the assessee has disallowed interest to the tune of Rs. 35,33,689/- u/s 36(1)(iii) of the Act meaning thereby that interest which was not for business purposes was not claimed by the assessee. The said fact is clear from the records before us in the form of computation of income and balance sheet of the assessee. Further the high rate of interest is not paid to the related person but to unrelated parties and finance companies from whom the finances were raised to meet the emergent situation. The AO has just calculated the disallowance at Rs.21,90,352/- by just working out the difference between funds
4 Shri Rajendra B. Mehta at high rate and low rate without any justification. Besides, in the subsequent year AY 2014-14 the revenue accepted the interest claimed by the assessee without making any disallowance u/s 36(1)(iii) of the Act under similar facts as is apparent from the copy of assessment order placed before us during the hearing. Moreover, the decisions relied upon by the authority below are distinguishable on facts. For example in the case of CIT Vs Hindustan Conductors Pvt. Ltd. (1999) 240 ITR 762 (Bom) funds were borrowed from the trust which was founded by one of the directors but this is not the case before us. In case of CIT Vs Punjab Stainless Steel Industries (2011) 137 TTJ 475 (Delhi ITAT), the issue was payment of polishing charges which could not be justified by the assessee. After considering the facts of the case, we are of the considered view that the interest charged by the assessee has been incurred for the purpose of business and only if at all the money is lent at the lower rate of interest by borrowing at the higher rate, that is only out of business exigency and commercial considerations especially when the assessee has suo moto disallowed interest to the tune of Rs.35,33,689/-. Therefore in view of observations as given above we are not in agreement with the conclusion of the ld CIT(A) and direct the AO to delete the disallowance of Rs.21,90,352/-.
The appeal of the assessee is allowed. Order pronounced in the open court on 22.03.2019.