Tribunal reduces excessive admin expense disallowance, upholds interest-free loan disallowance

The Tribunal upheld the disallowance of interest on the interest-free loan to the Managing Partner due to lack of evidence supporting business purposes and unavailability of construction expenditure details. The excessive disallowance of administrative expenses was reduced from 10% to 5% under the relevant heads. The appeal was partly allowed by the Tribunal.

---

---

Issues:
- Disallowance of interest on interest-free loan to Managing Partner
- Disallowance of administrative expenses

Disallowance of interest on interest-free loan to Managing Partner:
The case involved an appeal by the assessee against the CIT(A)'s order for the A.Y 2015-16. The assessee, a firm engaged in trading motor vehicles, accessories, and spares, had given an interest-free loan of Rs. 38.00 lakhs to its Managing Partner. The Assessing Officer (AO) disallowed the interest attributable to the interest-free loan advanced to the partner and made an ad hoc disallowance under various heads. The assessee contended that the loan was used for constructing a shed for business purposes. The CIT(A) confirmed the AO's order as no one appeared for the assessee. The Tribunal found that the loan was not withdrawn capital and the amount spent on construction was not documented. Thus, the disallowance under section 37(1) was upheld.

Disallowance of administrative expenses:
The assessee also challenged the excessive disallowance of administrative expenses. The Tribunal noted that a 10% disallowance was high and reduced it to 5% under the relevant heads. The learned Counsel for the assessee argued that the disallowances were unreasonably high, but the DR supported the assessment order. Ultimately, the Tribunal partially allowed the appeal, reducing the disallowance percentage for administrative expenses.

In conclusion, the Tribunal upheld the disallowance of interest on the interest-free loan to the Managing Partner due to lack of evidence supporting business purposes and the unavailability of construction expenditure details. Additionally, the excessive disallowance of administrative expenses was reduced from 10% to 5% under the relevant heads. The appeal was partly allowed by the Tribunal.

---