TaxTMI 
TaxTMI 
2025 (7) TMI 1171
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....and that over drawings of any facility limit provided by any Bank is neither an offence nor prohibited by any law. 2. The appellant request for admission of additional evidences if any requires in support of above grounds of appeal. 3. The appellant craves, leave to add alter, amend or delete any of the grounds of appeal." 3. Briefly stated, the facts of the case are that the assessee is domestic company in which public is not substantially interested and engaged in the business of manufacturing of automobile and auto parts. For AY 2016-17, the assessee filed its return of income on 16.10.2016 declaring total income of Rs. 4,77,25,360/-. The return was processed u/s 143(1) of the Income Tax Act, 1961 (the "Act") accepting the income returned by the assessee. Subsequently, the case was selected for limited scrutiny for the following reasons: (i) large any other amount allowable as deduction claimed in schedule BP of return; (ii) large increase in investment in unlisted equities during the year (Part A-BS of ITR) and (iii) high interest expenses relatable to exempt income (u/s 14A) (investment in balance sheet, interest expense in P&L account and exempt income in....
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....e Interest charged on the overdrawn cash credit facility. But the disallowance has been made only on Penal Interest which has been charged over and above the normal Interest on overdrawn cash credit above the limit as per Sanction Order / Agreement with the Bank. The provision of Penal Interest only comes into effect when there is some breach of law and breach of the provisions of cash credit facility allowed by the Bank. The Appellant has not furnished any evidence to show that it has tried to enhance the credit limit and if any such application was there why such enhancement was not allowed by the Bank. So, even if it is assumed that the penal interest is for availing the credit over the limit as furnished only in narrative way, it is purely a penalty for breach of provisions / rules of the bank. Hence, it is always a penalty in nature, which is not an allowable expenditure. The Appellant has relied on the decision of Madhav Prasad Jatia. I find that this decision is related to the Interest on loan and not the Penal Interest which has been charged over and above the normal Interest on loan. Hence, the decision is not applicable in this case. The Appellant has also relied....
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....2.2022. 6.1 The Ld. AR also submitted a certificate from the Janata Sahakari Bank Ltd. confirming the interest charged on cash credit account of the assessee which includes the impugned penal interest charged for overdrawing of cash credit facility. He also submitted the summary of total interest paid giving loan account-wise details for each loan taken by the assessee (Pages 24 to 28 of the paper book refers). Since, these documents are additional evidences and were not earlier produced before the lower authorities but goes to the root of the matter, the same are being admitted by us in light of the decision of the Hon'ble Supreme Court in the case of NTPC Vs. Commissioner of Income Tax reported as 229 ITR 383 (SC). 7. The Ld. DR supported the order of the Ld. AO and Addl./JCIT(A). He submitted that the impugned issue may be set aside to the file of the Ld. Addl./JCIT(A)/AO for re-examination in light of the decision of the Hon'ble Supreme Court in the case of S.A. Builders Ltd. Vs. CIT(Appeals) reported in (2007) 288 ITR 1, dated 14.12.2006. 8. We have heard the Ld. Representatives of the parties, perused the material available on record and the paper book filed on behal....
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....the head "Profits and gains of business or profession". Explanation 1. - For the removal of doubts, it is hereby declared that any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure." 8.4 From perusal of the above stated provisions, in our considered view, no disallowance can be made u/s 36(1)(iii) of the Act as the assessee has fulfilled all the requisite conditions stipulated therein viz. - (a) the money must have been borrowed by the assessee, (b) It must have been borrowed for the purpose of business and (c) the assessee must have paid interest on the borrowed amount i.e. the assessee has shown the same as an item of expenditure. From the definition of the term interest provided u/s 2(28A) of the Act interest means interest payable in any manner in respect of moneys borrowed or debt incurred. Going by the plain reading of this definition, in our view, the term interest would therefore include even the penal interest in respect of moneys borrowed by the assesse....