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Income Tax Appellate Tribunal, BENCH ‘SMC’ KOLKATA
Before: Hon’ble Shri J.Sudhakar Reddy, AM]
ORDER PER J.SUDHAKAR REDDY, AM:
This is an appeal filed by the assessee directed against the order of the Commissioner of Income Tax-(A)-2, Kolkata dated 05.02.2018 for A.Y. 2011-12 passed u/s 250 of the Income Tax Act, 1961 (Act).
2. The assessee is a company and is in the business of trading in textile goods. The issue that arises for adjudication is, the disallowance made of interest expenditure claimed by the assessee. The AO disallowed the amount for the reason that, the assessee had paid interest on the loans at a much higher rate than the interest charged on loans/advanced by it to various entities. The Assessing Officer made proportionate disallowance of the interest and called it bogus expenditure claimed by the assesee. On appeal the First Appellate Authority upheld the same. Aggrieved the assessee is before us.
3. I have heard Mr.Manish Tiwari, ld. Counsel for the assessee and Mr.S.Mondal, ld. Departmental Representative on behalf of the revenue. On a careful consideration of the facts and circumstances of the case, a perusal of the papers on record and orders of the authorities below as well as case laws cited I hold as follows : The assessee company had taken a loan of Rs.25 lac from M/s. Surprise Mercantile Pvt. Ltd at interest rate of 9.08%. On the same day it had taken another New Hind Silk House Pvt. Ltd. A.Y.2011-12 2 loan of Rs.25 lakhs from M/s Paharimata Industrial Development Ltd at interest rate of 12.23%. A third loan of Rs.50 lakhs was taken from M/s Salarpuria Investment Pvt. Ltd at interest rate of 17.16%. The assessee company had advanced loans at interest rate of 9 %. The AO calculated the differential interest and disallowed the same by referring to section 36(1)(iii) of the Act.
Section 36(1)(iii) of the Act mandates allowance of expenditure of an amount paid as interest in respect of capital borrowed for the purpose of business or profession. Nowhere in the order of AO, it is stated that the borrowings by the assessee are not for the purpose of business. It is also not the case of the AO that interest in question, at these different rates, has not been paid by the assessee or that, the transaction is not genuine. When the genuineness of the loan and the genuineness of the interest paid thereon is not doubted and when the borrowings are for the purpose of business, no disallowance can be made by the AO, on the ground that, it was not prudent for the assessee to borrow moneys at a higher rate of interest and thereafter lend money at a lower rate of interest. It is well settled that the AO cannot sit in the arm chair of the businessman and make decision as to, at which rate an amount has to be advanced by the company or at which rate the assesse should borrow funds. The business compulsions of the assessee cannot be brushed aside. The arguments of the ld. Departmental Representative that no prudent business man would incur loss and that there is no proof that the assessee has approached other lenders for borrowing money at a lower rate etc, are not contentions of any consequence. I reject the same. In view of the above discussion I allow this appeal of the assessee. I delete the disallowance of interest. In the result the appeal of the assessee is allowed.
Order pronounced in the Court on 25.07.2018.
Sd/- [ J.Sudhakar Reddy ] Accountant Member Dated : 25.07.2018. [RG Sr.PS] New Hind Silk House Pvt. Ltd. A.Y.2011-12 3 Copy of the order forwarded to: 1.New Hind Silk House Pvt. Ltd., 111A, Park Street, Kolkata-700016.
I.T.O., Ward-8 (2), Kolkata.
C.I.T.(A)- 2, Kolkata 4. C.I.T-2, Kolkata