M/S. RIHIM PHARMA CONSULTANCY PVT. LTD.,DELHI vs. ITO, NEW DELHI

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘SMC-3’, NEW DELHI BEFORE SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER Rihim Pharma Consultancy Pvt.Ltd. vs. ITO, Ward 15(3) 518 – 519, Ring Road Mall New Delhi Mangalam Place Rohini, Sector 3 Delhi 110 085 PAN: AAECR 7581 C (Appellant) (Respondent) Appellant by : Shri Pramod Jain, C.A. Respondent by : Sh. P.Damkanunjna, Sr.D.R. O R D E R

This is an appeal filed by the Assessee directed against the order of the Ld. Commissioner of Income Tax (Appeals)-XVIII, New Delhi dated 30.07.2014 pertaining to the Assessment Year (A.Y.) 2011-12 on the following grounds . “1. The Ld.Authorities is bad in law and against the facts of the case.

2. That the Ld.Authorities erred in making disallowance of interest expense of Rs.4,29,678/-.

3. That the Ld.Authorities also erred in not following various judgements of Jurisdictional High Court and ITAT.

4. That the appellant craves leave to add, alter, modify or delete any of the grounds of appeal.”

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The assessee company was incorporated during the year under consideration During the year, the assessee company purchased two businesses i.e. M/s Rihim Pharma and M/s R P Pharma consultancy from Ms. Ratna Thosani and Mr. Nilesh Thosani respectively on 01.07.2010. All the assets and liabilities as on 01.07.2010 were taken over by the assessee company which results into amount receivable from Mr. Nilesh Thosani Rs. 26,68,771.67 and from Mrs. Ratna Thosani Rs. 37,77,235.91. No interest was charged on these outstanding amounts. However, during the year under consideration assessee company has claimed interest expenses of Rs. 5,61,264/-. The Assessee Company has incurred these expenses on loans liabilities taken over by the assessee company by purchases of businesses. The assessee company was required to explain that why in these circumstances interest expenses of Rs. 5,61,264/- should not be disallowed. In response to this, the AR of the assessee company vide letter dated 26.11.2013 stated that the amount receivable for purchase of the businesses has been disclosed under loans and advances and no transaction of loan and advance has been done with them. The contention of the assessee company was considered and not found satisfactory. Since assessee company has paid interest on loans liability taken over by the assessee company by purchases of businesses and on account of purchase of the said businesses assessee has to receive a considerable amount from Mr. Nilesh Thosani and Mrs. Ratna Thosani on which no interest was charged. In these circumstances, Interest expenses of Rs. 5,61,264/- claimed by assessee company is hereby disallowed and added to declared income of the assessee company.

~ 2 ~ of business from these two persons. No funds of the company were diverted. The outstanding from these two persons were consequent to a business transfer agreement. Non charging of interest on these balances are a matter of agreement between the parties. The interest payable on bank overdraft cannot be disallowed on the ground that no interest has been charged on these two accounts for the reason that the borrowings made from the bank are for the purpose of business of the assessee. The Hon’ble Delhi High Court in the case of CIT vs. Indo Kopp Ltd. (2008) 167 Taxman 172 (Del) held that “just because the assessee has not charged interest from its trade debtors did not mean that interest paid by the assessee to its trade creditors should not be allowed as a deduction, specially when there is no dispute about the genuineness of the payments made by the assessee.”