INTERNATIONAL BOOK HOUSE P.LTD,MUMBAI vs. ITO WD 2(2)(1), MUMBAI

The issue raised is that learned CIT(A) erred in confirming disallowance of interest of Rs.5,77,503 by considering interest paid over 12% is unreasonable.

In this case, the Assessing Officer was of the opinion that assessee has accepted deposits from the public and hence A.O. was of the opinion that as per Company Deposit Rules, assessee cannot accept new deposit with interest exceeding 12.5%. The A.O. was of the opinion that 12% interest would be reasonable. Accordingly, he made following disallowances:-

Name Rate of Interest paid Interest Difference Interest allowed @ 12% Shri Yashdeep Merchant 18% 890000 593333 296667 Ms.Chitra Merchant 18% 408000 271999 136001 Yatin Steels India P.Ltd. 18% 377930 251953 125977 Usha Gupta 14% 132000 113142 18858 1807930 1230427 577503

Before the learned CIT(A) it was explained that assessee has not accepted deposit from public as defined under the Companies Act. It was also explained that the rates of interest was competitive. However, the learned CIT(A) held that as the assessee has paid more than the interest prescribed under the Companies Act, he upheld the order of the Assessing Officer.

I have heard both the Counsel and perused the records. I find that when the assessee has not accepted deposit from public, the provisions of Company Deposit Rules are not applicable. The disallowance of interest in this case has been based upon the sole erroneous premise that the deposit has been received as per Company Deposit Rules. No issue has been raised by the authorities below that the rate of interest is not competitive or in excessive. In these circumstances, in my considered opinion, the addition has been based upon improper application of mind, hence I set aside the orders of the authorities below and decide the issue in favour of the assessee.