2014 (6) TMI 360 - AT - Income Tax

Tribunal rules interest paid by assessee not a perquisite under Income Tax Act

The Tribunal upheld the decision of the Commissioner of Income Tax (Appeals) regarding the addition of D14,34,606/- as perquisites u/s.2(24)(iv) of the ... Addition of perquisites u/s 2(24)(iv) of the Act – Interest free loans – Held that:- M/s. Chennai Corporate Club Private Limited had not advanced the sum from borrowed funds - Following Asst. Commissioner of Income Tax Versus Shri M. Kangeyan [2014 (6) TMI 351 - ITAT CHENNAI] - CIT(A) rightly was of the view that the loan received by the assessee from the company in question was not interest-free loan, but it was interest bearing loan - no material could be brought on record by the Revenue to show that any interest expenditure was actually incurred by the company in question for or on behalf of the assessee - interest free money in the form of entrance fee and membership fee available with the company in question was more than the advance received by the assessee from the said company - the Revenue has admitted the fact, that the interest has actually been paid by the assessee in respect of amounts received from ‘CCCPL’ – thus, there was no reason to interfere with the order of the CIT(A) – Decided against Revenue. Issues involved:1. Addition of D14,34,606/- as perquisites u/s.2(24)(iv) of the Income Tax Act.2. Dispute regarding interest-free loan received by the assessee from M/s. Chennai Corporate Club Private Limited (CCCPL).3. Appeal by the Revenue against the order of the Commissioner of Income Tax (Appeals) and subsequent Tribunal decisions.Issue 1: Addition of D14,34,606/- as perquisites u/s.2(24)(iv) of the Income Tax ActThe appeal was filed by the Revenue against the order of the Commissioner of Income Tax (Appeals) for the assessment year 2009-2010, where an addition of D14,34,606/- was made on account of perquisites u/s.2(24)(iv) (interest-free loan) availed by the assessee. The Commissioner of Income Tax (Appeals) observed that since the assessee had paid interest on the borrowed amount from CCCPL, it cannot be considered a perquisite u/s. 2(24)(iv) of the Act. The Tribunal upheld this decision and dismissed the appeal of the Revenue, stating that the interest paid by the assessee in respect of amounts received from CCCPL was a valid expense and not a perquisite.Issue 2: Dispute regarding interest-free loan received by the assessee from CCCPLThe Revenue argued that the assessee had taken a significant amount of loan from CCCPL without interest, while CCCPL had to pay interest on the borrowings for funding the assessee. However, the Tribunal found that the amount advanced to the assessee was duly reflected in the financial statement of CCCPL, and the interest paid by the assessee on the borrowed amount was a legitimate expense. The Tribunal noted that in a previous assessment year, a similar addition was made and later deleted in the first appeal, which was upheld by the Tribunal. The Tribunal emphasized that the loan received by the assessee from CCCPL was not an interest-free loan but an interest-bearing loan, based on the facts presented.Issue 3: Appeal by the Revenue against the order of the Commissioner of Income Tax (Appeals) and subsequent Tribunal decisionsDespite the Revenue's submission that the interest paid by the assessee was an afterthought, the Tribunal found no error in the findings of the Commissioner of Income Tax (Appeals) and confirmed the decision. The Tribunal highlighted that the interest paid by the assessee on the advance received from CCCPL was a genuine expense, and no material was provided by the Revenue to show that any interest expenditure was actually incurred by CCCPL for or on behalf of the assessee. Ultimately, the Tribunal dismissed the appeal of the Revenue, stating that there was no reason to interfere with the impugned order.In conclusion, the Tribunal upheld the decision of the Commissioner of Income Tax (Appeals) regarding the addition of D14,34,606/- as perquisites u/s.2(24)(iv) of the Income Tax Act, emphasizing that the interest paid by the assessee on the borrowed amount from CCCPL was a valid expense and not a perquisite.