2021 (8) TMI 903 - AT - Income Tax

Tribunal overturns interest addition, emphasizes business rationale.

Hopeful Traders Pvt. Ltd. Versus Assistant Commissioner of Income Tax, Circle-9 Pune

Hopeful Traders Pvt. Ltd. Versus Assistant Commissioner of Income Tax, Circle-9 Pune - TMI Issues:Whether the addition made by the AO on account of proportionate interest is justified.Analysis:The appeal was filed by the assessee against the order passed by the Commissioner of Income Tax (Appeals) for the assessment year 2012-13. The primary issue for consideration was the confirmation of the addition made by the AO on account of proportionate interest. The assessee, a company engaged in wholesale trading in country liquor, had declared a total income of Rs. 44,40,940. The AO determined the income at Rs. 60,46,782, making additions for proportionate interest and disallowance under section 14A r.w. Rule 8D of the Rules. The CIT(A) upheld the additions. The AO found that the assessee had invested in shares of its sister concern and given interest-free advances to the concern, leading to the disallowance of interest paid on borrowed funds. The assessee explained that the loans were given due to business exigency and strategic decisions. However, the AO disallowed an amount and added it to the total income of the assessee.The CIT(A) affirmed the disallowance, stating that the interest-free loans were not commercially expedient and that the business of the assessee differed from the concern to which the loans were given. The CIT(A) observed that the loans had been repaid substantially and fresh amounts were paid. The assessee argued that the decision of ITAT for the previous year was applicable, but the CIT(A) held otherwise. The Tribunal noted that the facts and circumstances for the years 2011-12 and 2012-13 were identical. The Tribunal found that the order of the CIT(A) was not justified and relied on the decision of the Co-ordinate Bench of Tribunal for the previous year, deleting the addition made by the AO and confirmed by the CIT(A). Consequently, the grounds raised by the assessee were allowed, and the appeal was allowed in favor of the assessee.In conclusion, the Tribunal set aside the addition made by the AO and confirmed by the CIT(A) regarding the proportionate interest, emphasizing the importance of commercial expediency and strategic business decisions in such cases. The Tribunal's decision was based on the consistency of facts and circumstances with the previous year's case, leading to the allowance of the appeal in favor of the assessee.