TaxTMI 
TaxTMI 
2016 (6) TMI 168
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....s of the case and in law the learned Commissioner of Income Tax (Appeal) erred in confirming the disallowance of interest expenses of Rs. 22,23,298/-." 3. The brief facts of the case are that the assessee company is engaged in the business of trading of computer hardware and software on wholesale basis. 4. During the course of assessment proceedings u/s 143(3) r.w.s. 143(2) of the Act, the A.O. observed that the assessee company's profit margin has come down , due to the huge interest paid against advances to one of its principal client M/s GTL Limited. The assessee company had paid interest @ 7% on the advances after allowing for a grace period . However, the duration of the grace period was not specified by the assessee company before the AO during the course of assessment proceedings u/s 143(3) read with Section 143(2) of the Act. As per the AO after going through the working of interest calculations, the assessee company has charged interest even for a day . The opening balance as at the beginning of the relevant previous year outstanding to be payable by the assessee company to GTL Limited was Rs. 14,52,85,920/- and closing balance as at the end of relevant previous year....
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....race period of one month which has been allowed by M/s GTL Ltd to the assessee company and thereafter the interest @7% is payable to GTL Ltd vide GTL Limited letter dated 2-11-2010, a copy of which was enclosed before the CIT(A). It was submitted by the assessee company before the CIT(A) that M/s GTL Ltd. is not a related party as defined in section 40A(2)(b) of the Act. It has not been brought on record by the A.O. that the assessee company has utilized the funds for non-business purpose. The AO has not considered that the assessee company has earned interest on inter-corporate deposits placed by it. The assessee company submitted that interest is paid to GTL Limited as per the terms of agreement/contract. The assessee company submitted that the opening balance as at the beginning of the relevant previous year and closing balance as at the end of the relevant previous year of the advance received from GTL Limited is almost the same which is merely a coincidence and no adverse inference can be drawn against the assessee company for the same . The audited statements of accounts were produced by the assessee company before the CIT(A) to prove the contention that the funds have been u....
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....expenditure of Rs. 22,23,298/- , as the assessee company failed to discharge its onus despite the fact that the AO has not followed scientific method of checking the nexus between the interest bearing funds with the non interest bearing advances . The CIT(A) accordingly upheld the order of A.O. vide orders dated 04-03-2013. 7. Aggrieved by the orders dated 04-03-2013 of the CIT(A), the assessee company filed second appeal before the Tribunal. 8. It is contended by the ld. Counsel for the assessee company that interest of Rs. 22,23,298/- has been disallowed by the A.O. which is confirmed by the CIT(A). The ld. counsel submitted that interest @ 7% has been provided with respect to the advance received from GTL Limited which is as per the agreement / contract with the GTL Limited , the interest being provided in the books of accounts after providing grace period of one month. The ld. Counsel for the assessee drew our attention to paper book page No. 43 to 44A filed with the Tribunal, whereby the interest @ 7% payable by the assessee company to GTL Limited is agreed upon. The ld. Counsel also drew our attention to page 45 of the paper book whereby detailed computation of working ....
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....nsel relied upon the decision of Hon'ble Bombay High Court in the case of CIT v. Reliance Utilities & Power Ltd. (2009), 313 ITR 356(Bom. HC) , the decision of Hon'ble Supreme Court in the case of Hero Cycles (P) Ltd. v. CIT (2016), 379 ITR 347(SC) and the decision of Hon'ble Supreme Court in the case of CIT v. Excel Industries Ltd. (2013) 358 ITR 295(SC). The ld counsel for the assessee company submitted that there is a presumption that the assessee company has utilized its interest free funds available with it for the advancing interest free advances to suppliers. The assessee company also contended that the revenue cannot sit in the arm chair of the businessmen to decide how much is a reasonable expenditure as it is contended that the advances to suppliers have been made keeping in view the commercial expediency. The ld counsel also submitted that consistency should be maintained as the said expenses were duly allowed in assessment year 2009-10, 2010-11 and 2011-12 in the scrutiny assessments made by the Revenue as set out above and the disallowance of Rs. 22,23,298/- towards interest expenditure payable to GTL Limited should be deleted. 9. The ld. D.R., on the other hand, re....
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....st expenditure payable to GTL Limited by the assessee company has considered the average of opening balance outstanding to be payable as on the beginning of the previous year and the closing balance outstanding for payment as at the end of the previous year and applied the rate of interest of 7% on the average outstanding amount payable by assessee company to M/s GTL Ltd of Rs. 14,57,30,460/- to allow deduction of interest expenditure and termed the balance of the amount of interest expenditure payable by the GTL Ltd to the assessee company as per contractual obligation as excessive and not incurred for the purposes of business . In our considered view, the said methodology of computing interest expenditure allowable under the Act at the rate of 7% of average outstanding balance on the opening and closing balance outstanding to be payable to GTL Ltd by the assessee company and disallowing the balance interest payable by the assessee company to GTL Limited as per contractual obligations itself is fallacious as no finding of fact is arrived at by the AO that the funds so received by the assessee company from time to time as advance from GTL Limited on which interest is payable as per....