2014 (5) TMI 1104 - AT - Income Tax

Tribunal Reverses Decision on Interest Claim, Citing Business Purpose

M/s. Creasons Versus Income Tax Officer 12 (3) (4) Mumbai

The Tribunal allowed the appeal, overturning the earlier decision to disallow 25% of the interest claimed by the assessee for A.Y. 2007-08. The Tribunal ... Adhoc addition being 25% of the total interest claimed by the assessee as deduction - Held that:- It is not in dispute that the assessee has obtained loan for business purpose and utilised the same for the purpose of business. Interest paid by the assessee on such loan was allowed as deduction from year to year. Therefore there is no dispute with regard to the fact that the expenditure is wholly and exclusively incurred for the purpose of business. The assessee is at liberty to arrange its affairs in such a way which would strengthen business relations and the Assessing Officer cannot put himself in the shoes of the businessman to decide as to what would be the course of action that needs to be taken in a given situation. In the instant case the assessee explained the reasons for permitting group concerns long term credits. Merely because the Assessing Officer views its otherwise, expenditure incurred for the purpose of business cannot be disallowed, particularly in the light of the decision of Hon'ble Apex Court in the case S.A. Builders Ltd. (2006 (12) TMI 82 - SUPREME COURT ). The tax authorities have not made out any case for disallowance of 25% of the total claim. The Assessing Officer is directed to allow the claim in its entirety - Decided in favour of assessee Issues:Adhoc addition of interest claimed by the assessee as deduction.Analysis:The appeal pertains to the adhoc addition of Rs. 1,59,150, being 25% of the total interest claimed by the assessee as deduction for A.Y. 2007-08. The case was adjourned multiple times at the request of the assessee, but on the final hearing date, no one appeared on behalf of the assessee. Consequently, the appeal was disposed of ex-parte.Facts and Assessment:The assessee, engaged in cinema slides and outdoor advertising, claimed various expenditures, including interest of Rs. 6.37 lakhs paid to others. The Assessing Officer observed a substantial amount due from group concerns, including the sister concern, and questioned the utilization of interest-bearing funds. The AO found intra-fund movements and long-term loans without tax deduction at source. He applied the decision in Mcdowell & Co. Ltd. case to disallow 25% of the interest claimed.CIT(A) Decision:The CIT(A) upheld the AO's decision, emphasizing the nexus between expenditure and business purpose. He noted the S.A. Builders Ltd. case, stating that if funds were borrowed for business, no disallowance could be made on interest paid.Tribunal's Decision:The Tribunal disagreed with the tax authorities, emphasizing that the interest expenditure was incurred wholly and exclusively for business purposes. It highlighted that the AO cannot dictate business decisions and that the assessee's explanation for long-term credits to group concerns was valid. Relying on the S.A. Builders Ltd. case, the Tribunal directed the AO to allow the entire claim, overturning the earlier disallowance.In conclusion, the Tribunal allowed the appeal, stating that the tax authorities failed to justify the disallowance of 25% of the interest claimed by the assessee. The decision was pronounced on May 27, 2014.