2024 (11) TMI 1315 - AT - Income Tax

Tribunal Affirms Business Expense Interest Deductions; Dismisses Revenue's Appeal on Loan Interest Charges.

ITO, Ward-9 (1), Kolkata Versus Kali Fabrics Pvt. Ltd.

The appellate tribunal dismissed the revenue's appeal challenging the deletion of interest expenses by the Ld. CIT(A). The tribunal upheld the Ld. ... Disallowance of interest paid - AO observed on the basis of evidences filed by the assessee that assessee had paid interest on borrowed money whereas he has not charged any interest on the loan given to various parties - CIT(A) deleted addition - HELD THAT:- As observed by us from the order of the Ld. CIT(A) that assessee’s own interest free funds comprising of share capital, reserves and surplus and interest free loans were far more than the interest free loans then the presumption is that interest free loans were advanced out of interest free own funds available with the assessee and consequently no disallowance could be made with respect to interest paid which are relatable to interest free loans. The case of the assessee is squarely covered by the decision of Reliance Utilities & Power Ltd. [2009 (1) TMI 4 - BOMBAY HIGH COURT] and CIT Vs. HDFC Bank Ltd. [2014 (8) TMI 119 - BOMBAY HIGH COURT] No infirmity in the order of the Ld. CIT(A) and accordingly, the same is affirmed by dismissing the appeal of the revenue. Issues:Challenge to deletion of interest expenses by the Ld. CIT(A).Analysis:The appeal was filed by the revenue against the order of the Ld. CIT(A) regarding the deletion of an addition of Rs. 5,18,27,770 as disallowance of interest paid. The revenue contended that the assessee had paid interest on borrowed money but had not charged any interest on loans given to various parties. The Assessing Officer (AO) added the amount to the income of the assessee. However, the Ld. CIT(A) allowed the appeal of the assessee, stating that the disallowance of the entire interest was not sustainable under the law. The Ld. CIT(A) observed that the AO did not question the genuineness of the interest expenditure and had not invoked the relevant statutory provisions. The Ld. CIT(A) also noted that the loans granted by the appellant to various entities exceeded the interest expenditure claimed. The Ld. CIT(A) held that the non-charging of interest on certain loans was justified by commercial expediency. The decision cited the case law of S.A. Builders Ltd. and Hero Cycles Ltd. to support the conclusion that the interest expenditure was allowable as a business expense.In the appellate proceedings, it was observed that the assessee had incurred interest expenses of Rs. 5,18,27,770 and earned interest income of Rs. 6,44,00,279 during the year. The loans advanced by the assessee were significantly higher than the loans taken. The Ld. CIT(A) concluded that the non-charging of interest on certain loans was based on commercial and business expediency. The decision was supported by the rulings in S.A. Builders Ltd. Vs. CIT and Hero Cycles Ltd. Vs. CIT. Additionally, it was noted that when interest-free funds of the assessee exceeded the interest-free loans, no disallowance could be made with respect to interest paid on those loans. This position was backed by the decisions of the Hon'ble Bombay High Court in CIT Vs. Reliance Utilities & Power Ltd. and CIT Vs. HDFC Bank Ltd. The appellate tribunal found no fault in the Ld. CIT(A)'s order and dismissed the appeal of the revenue.Ultimately, the appeal of the revenue challenging the deletion of interest expenses by the Ld. CIT(A) was dismissed by the appellate tribunal. The decision was based on the findings that the non-charging of interest on certain loans was justified by commercial expediency and that the interest expenditure was allowable as a business expense. The tribunal affirmed the Ld. CIT(A)'s order, citing relevant case law and statutory provisions to support the decision.