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Income Tax Appellate Tribunal, MUMBAI BENCH “SMC”, MUMBAI
Before: SHRI D.T. GARASIA
Per D.T. Garasia, Judicial Member:
The present appeal has been preferred by the Revenue against the order dated 27.01.2017 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2007-08.
The short facts of the case are as under: The assessee has filed the return of income on 30.10.07 and during the assessment proceedings the Assessing Officer (hereinafter referred to as the AO) has found that assessee is engaged in the business of trading and export of diamonds and he found that assessee has allowed the interest expenditure of Rs.32,94,267/-. There was an audit query. Therefore, assessee was given show cause notice and AO has disallowed the interest expenditure of Rs.32,94,267/- on the ground that the interest does not belong to previous year 2006-07, hence the deduction is not allowable in 2007-08. Therefore, the AO disallowed the same.
“8. Considering the details filed as above, the Assessing Officer has considered the bill discounting expenditure on proportionate basis. Copy of invoices of bank filed shows the payments are termed by bank as interest. In essence, the amount is only the value realized against the sale. The Hon'ble Supreme Court has upheld the same in the decision of CIT, Delhi-1 vs. Cargil Global Trading I.P.Ltd. (supra). In the decision of TVS Finance & Services Ltd. vs. JCIT 318 ITR 435, the Hon'ble Madras High Court held that the income from bill discounting accrues on the date of discount and cannot be spread over. Though the issue in the present case is different, the decision of the Hon'ble Court is important that there was no relevance of the period involved. The decision of Hon'ble Kolkata Tribunal in case of ITO vs M.K.J. Enterprises Ltd. the Tribunal held that for the amount to be termed as interest there should be a pre- existing debt and a debtor – creditor relationship.
In the light of above decisions, the discounting charges cannot be treated as interest. However, since the same is in the nature of expenses incurred for the realization of the value, the same is liable to be allowed on actual basis.
The Authorised Representative has made an alternate claim uls.4313. However, as the present issue is restricted to the disallowance made on account of the payment being held as interest by Assessing Officer, the appeal is limited to that issue only.
In light of the above facts and judicial pronouncements, the disallowance made out of discounting charges is directed to be deleted. Ground of Appeal No.1 is allowed.”
4. I have heard the rival contentions of both the parties. I find that AO has considered bill discounting expenditure on proportionate basis. The Ld. CIT(A) has verified the invoices of bank file which show that the payments were termed by bank as interest. In the decision of Hon’ble Madras High Court in the case of TVS Finance & Services Ltd. vs. JCIT 318 ITR 435 it has been held that the discounting charges cannot be treated as interest. However, since the same is in the nature of expenses incurred for realization of the value, the same is liable to be allowed on actual basis. Therefore, following the decision of Hon’ble Madras High Court in the case of TVS Finance & Services
In the result, the appeal of the Revenue is dismissed.
Order pronounced in the open court on 29.06.2017.