GLOBAL WOOL ALLIANCE P. LTD,THANE vs. ASST CIT CIR 1, THANE

First grievance of the assessee relates to disallowance of interest of Rs.73,98,119/-, paid to EAC Trading Ltd. 3 Rival contentions have been heard and record perused. Facts in brief are that the assessee is in the manufacturing and trading of woollen top/polyster top, yarn and fabric. Return of income was filed at a loss of Rs.6.50 crores which was finally assessed at loss of Rs.5.32 crores, after disallowing assessee’s claim of interest u/s.40A(2)(b). During the course of scrutiny assessment, the AO found that assessee has made a payment 2 of interest of Rs.1,09,17,251/- on delayed payments to a company covered u/s.40A(2)(b) of the Act. It was also noticed that the assessee has been purchasing goods from other concerns also, but has not paid any interest to those concerns on outstanding credit balances against the purchases. Moreover from the working of the interest, it was noticed that the assessee has calculated interest for the entire period of the delay without excluding the normal period of credit available and also the extended period of 270 days. Accordingly, the AO disallowed interest of Rs.1,09,17,251/- u/s.40A(2)(b). By the impugned order the CIT(A) restricted the disallowance to Rs.35,19,132/- by observing that as per revised due date interest works out to Rs.35,19,132/-.The CIT(A) held that in view of the assessee’s own working entire interest expenditure has not been incurred wholly and exclusively for the purpose of business except Rs.35,19,132/-. Interest was paid under a contractual obligation and was incurred wholly and exclusively for the purpose of assessee’s business. Accordingly, disallowance was confirmed to the extent of Rs.35,19,132/-, against which assessee is in further appeal before us.

We have considered rival contentions and carefully gone through the orders of authorities below and found from the record that interest was paid against the outstanding balance for purchase payable to supplier. As per the normal practice assessee was required to pay interest on borrowed payments. The genuineness of the actual payment of the interest is not in doubt. It is also not the case of the AO that there was no practice for payment of interest for delayed payment of purchase 3 consideration price. Since assessee was filing return at a loss which was assessed at a loss even after making impugned addition, assessee cannot be alleged for saving tax by reducing its income. Thus, there cannot be diversion of income to related concern with intention to reduce its income. The AO has brought nothing on record to allege that assessee or associate concern has got any benefit by such diversion. Accordingly, we do not find any justification for the disallowance of interest paid on delayed purchases. Accordingly, we direct the AO to delete the disallowance of interest so made.

The AO has made adhoc disallowance of 10% of the expenses on the plea that same is not verifiable. By the impugned order the CIT(A) restricted the disallowance to 5%. We do not find any infirmity in the order of CIT(A), insofar as some of the expenses were not verifiable.

In the result, appeal of the assessee is allowed in part. Order pronounced in the open court on this 27/04/2016. Sd/- Sd/- (PAWAN SINGH) (R.C.SHARMA) न्यानयक सदस्य / JUDICIAL MEMBER ऱेखा सदस्य / ACCOUNTANT MEMBER भुंफई Mumbai; ददनांक Dated 27/04/2016 प्र.कु.मभ/pkm, नन.स/ PS आदेश की प्रनिलऱपप अग्रेपषि/Copy of the Order forwarded to : अऩीराथी / The Appellant 1. प्रत्मथी / The Respondent. 2. आमकय आमुक्त(अऩीर) / The CIT(A), Mumbai. 3. आमकय आमुक्त / CIT 4. ववबागीम प्रनतननधध, आमकय अऩीरीम अधधकयण, भुंफई / DR, ITAT, Mumbai 5. गार्ा पाईर / Guard file. 6. आदेशाि सार/ BY ORDER, सत्मावऩत प्रनत //True Copy//