TaxTMI 
TaxTMI 
2022 (3) TMI 373
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....the penal charges paid for business expenditure. 3. Whether on the facts and the circumstances of the case and in law the Ld. CIT(A) erred in law in deleting disallowing interest of Rs. 38,63,736/- u/s. 24(b) of the I.T. Act without appreciating the fact that the assessee has failed 'o prove the genuineness of interest on borrowed capitals 3. Apropos ground No. 1 Brief facts of the issue are that during the assessment proceedings, the AO observed that the appellant incurred interest of Rs. 72,30,564/- on overdraft facility from DNS Bank. That amount was reduced from the net profits in the computation of income as any other deduction. On query raised by the AO, the appellant replied that the deduction pertained to interest expenses on overdraft facility from DNS Bank and that assessee has a current account with DNS bank wholly and exclusively for the purpose of business. The AO was of the view that OD account was also used for advancing to family members and also for making investment in subsidiary companies of M/s. ITIPL. That no details were provided as to how the opening debit balance of Rs. 7.38 Crore was for the purpose of business. What payments were made....
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.... Act made by the AO is deleted. However, the appellant has made payment of Rs. 1,00,00,000/- to Shri D. P, Mhaiskar on 27.09.2016 through the OD account and it was made for non-business purpose. It is submitted by the appellant that payment made to DP Mhaiskar was credited to- OD account either before the date of payment or after the date of payment. There was opening debit balance in the OD account was Rs. 7,38,44,398/- and the closing balance as on 31.03.2017 was Rs. 7,10,77,041/-, It means that not only the interest has been serviced but also the payment of Rs. 1,00,00,000/- made to DP Mhaiskar has also been replenished in the OD Account. The appellant has made payment to Shri DP Mhaiskar which has been repaid also during the year. The purpose of the payment to Shri DP Mhaiskar was for non-business purpose. Therefore, the AO is directed to disallow proportionate interest from date of payment till date of repayment by Shri D.P. Mhaiskar." 7. Apropos ground No. 2 Brief facts of the issue are that during the assessment proceedings, the AO observed that in the P & L Account an amount of Rs. 3.34 Crores was debited as penal charges. On the query raised by the AO, the a....
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....veracity of the Agreement is not in doubt. It is accepted commercial practice to provide for clauses in an Agreement to indemnify either party in the case of delay or losses. In the instant case a clause for penalty exists in the Agreement enabling the Principal party to impose and collect penal charges for failure to remit toll collection timely. It is a commercial necessity arising out of prudent business considerations. There has to be a punitive measure to hold the agent accountable for omissions. By no stretch of imagination can such a clause providing for penalty can be seen as a ruse. 'to make and get allowed such claims especially when its genuineness is not in doubt. As per section 37 (1) an expenditure wholly and-'exclusively incurred for the purpose of business is allowable. On the facts of the case. it is, evident that the liability arose in the course of business and is incidental, to the business 'carried on. Further, as per Explanation (1) below section 37, it is any sum paid for an offence or for an infraction in law that is not allowable as deduction. Though the terminology used is penalty, the impugned payment is to compensate for del....
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....Pune. During the course of assessment proceedings before the AO, the appellant had furnished copy of loan statement of ING Vysya Bank for the period 31.10.2008 to 25.01.2011, copy of possession certificate dated 03.02.2014 and copy of ledger of housing loan in the books of account. The appellant took possession of the property on 03.02.2014. Therefore, the appellant has been claiming one fifth of interest expenditure since AY 2015-16. The documentary evidences indicate that the loan was taken for purpose of acquiring the said flat in Pune. It is not a case of the AO that the loan was utilized for the purpose other than acquiring housing property. Therefore, disallowance of interest u/s. 24(b) of Rs. 38,63,736/- made by the AO is deleted." 13. Against the order, assessee is in appeal before us. 14. We have heard both the parties and perused the records. As regards, the ground No. 1 relating to disallowance of interest, we note that the said interest has been paid to the bank for an overdraft facility obtained by the assessee Except for the advance of R. 1 crore during the year, there is no payment from the said overdraft account. The ld. CIT(A) has already confirmed the disall....
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....ial expediency, thus no disallowance could be made u/s. 36(1)(iii) of the Act iv) Hon'ble Delhi High Court decision in CIT vs Tulip star Hotels Ltd. 338 ITR 482 has held that a perusal of the orders passed by the Tribunal would reveal that it is noted by the Income-tax Appellate Tribunal that the assessee is in the business of owning, running and managing hotels. For the effective control of new hotels acquired by the assessee under its management it had invested in a wholly owned subsidiary, namely, M/s. Tulip Star Hospitality Services Ltd. On this ground, relying upon the judgment of the Supreme Court in the case of S.A. Builders Ltd. v. CIT (Appeals) [2007] 288 ITR 1/158 Taxman 74 the Tribunal has held that the assessee was entitled to the deduction of interest on the borrowed funds. The observations made by the Supreme Court in S.A. Builders Ltd. 's case (supra) were quoted by the Tribunal as under (page 10). "....where it is obvious that a holding company has a deep interest in Us subsidiary, and hence if the holding company advances borrowed money to a subsidiary and the same is used by the subsidiary for some business purposes, the assessee would, i....
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.... 17. As regards, ground No. 2, we note that the issue is payment of a sum of Rs. 3.34 crores debited as penalty charges. The AO was of the opinion that this is a penalty charge and hence cannot be allowed. However, the facts recorded by ld. CIT(A) are that this was paid by the assessee in terms of the commercial agreement to another party, where assessee was obliged to remit the toll collection within a particular period and in case of default amount was to be paid for the default styled as penal charges. In substance, the penalty charges are interest charges payable, when there is delay in remitting the toll collection to the other party as per the contract. It is settled law that it is the substance that counts and not the form given to in the accounts of the party. The cases referred by the AO are in connection with payments under the penal provisions contained in a statutory provision. It is not at all the case here that the amount paid in the present case is due to any infringement of law. In this view of the matter, the decision of ld. CIT(A) is correct and duly supported by the case laws referred by him. These said reference may be gainfully referred as under; "Th....