2019 (1) TMI 1258 - AT - Income Tax

Tribunal upholds deletion of interest expense disallowance, finding loans used for business purposes.

Deputy /Assistant Commissioner of Income Tax Versus Sikkim Industrial Development & Investment Corporation

The Tribunal dismissed the Revenue's appeal, affirming the Commissioner's decision to delete the disallowance of interest expenses. The Tribunal found ... Disallowance of interest on loan availed - surplus funds available from the loan taken from the consortium of Banks were parked by the assessee with the State Government - Held that:- The loan of ₹ 285 crores availed from the consortium of four Nationalised Banks was partly invested by the assessee in FDRs and the balance amount was provided to the Government of Sikkim as per the mutual understanding. In respect of the loan availed from The loan of ₹ 285 crores availed from the consortium of four Nationalised Banks was partly invested by the assessee in FDRs and the balance amount was provided to the Government of Sikkim as per the mutual understanding.he consortium of four Nationalised Banks, the assessee had paid interest of ₹ 27,10,50,225/- and had also incurred processing charges and guarantee fees amounting to ₹ 3,74,20,576/-. As against this total expenditure incurred in respect of the loan availed from the consortium of Banks amounting to ₹ 30,84,70,801/-, the assessee had received interest on investment made in Fixed Deposits out of the said loan to the extent of ₹ 5,48,37,553/ and the balance amount of ₹ 25,36,33,248/- was charged to the State Government as per the mutual understanding/agreement. It was thus a case wherein the surplus funds available from the loan taken from the consortium of Banks were parked by the assessee with the State Government and since the entire expenditure incurred by the assessee in the form of interest and other charges on the loans availed from the consortium of Banks was recovered by the assessee in the form of interest on Bank deposits as well as interest charged to the State Government, we find ourselves in agreement with the CIT(Appeals) that the disallowance made by the AO on account of interest was not sustainable. - Decided in favour of assessee Issues Involved:Deletion of disallowance of interest expenses by the Assessing Officer.Analysis:The appeal was filed by the Revenue against the order of the Commissioner of Income Tax (Appeals) regarding the disallowance of a specific amount on account of interest expenses. The assessee, a Government of Sikkim Undertaking, obtained substantial loans for industrial development. The Assessing Officer disallowed an amount of Rs. 1,74,16,977 paid as interest on loans from banks, stating it was not wholly and exclusively for business purposes. The Commissioner of Income Tax (Appeals) deleted this disallowance, emphasizing the purpose of the loans for industrial development. The appellant charged interest to the State Government based on the interest charged by banks, and the AO's conclusion that more interest was paid to banks was deemed erroneous. The surplus funds from loans were invested in Fixed Deposits and provided to the State Government. The Tribunal upheld the deletion of the disallowance, as the interest and charges on loans were recovered through bank deposits and charges to the State Government.Conclusion:The Tribunal dismissed the Revenue's appeal, affirming the Commissioner's decision to delete the disallowance of interest expenses. The Tribunal found that the loans obtained by the assessee were utilized for business purposes, with surplus funds invested and provided to the State Government. The recovery of interest and charges through bank deposits and State Government payments supported the decision to uphold the deletion of the disallowance.