TaxTMI 
TaxTMI 
2025 (9) TMI 1122
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....d facts are that, the assessee is a partnership firm which was formed on 01.04.2009. The assessee is carrying on several businesses inter alia including the business of real estate under the name & style of M/s Jayapriya Property Developers. The assessee firm is also involved in the business of money lending which is carried out in the name & style of M/s Jayapriya Financiers. The assessee also operates a guest house and theatre by the name of M/s Jayapriya Guest House and M/s Jayapriya Theatre respectively. A search action u/s 132 of the Act was conducted upon the assessee on 16.12.2021 in the course of which, several incriminating material concerning the unaccounted income generated from real estate business and unaccounted payments made for purchase of lands was found. Before the AO, the assessee vide letter dated 14.03.2022 is found to have quantified and offered to tax the following additional income across AYs 2013-14 to 2022-23: S.No FY Suppressed Business Income 1 2012-13 Rs.17,98,23,006/- 2 2013-14 Rs.5,84,64,526/- 3 2014-15 Rs.6,48,65,821/- 4 2015-16 Rs.7,89,54,033/- 5 2016-17 Rs.20,49,494/- 6 2017-18 Rs.41,46....
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....erred appeal before the Ld. CIT(A). It is noted that the Ld. CIT(A) had partially allowed the appeal(s) of the assessee for both the years. Aggrieved by the order(s) of Ld. CIT(A) for AYs 2021-22 & 2022-23, the Revenue has preferred appeal before us and the assessee has filed cross objections against the same. 7. We first take up the appeal of the Revenue in ITA No.1251/Chny/2025 and the assessee's cross objections in CO No. 43/Chny/2025 for AY 2021-22. Ground No. 1 of the Revenue's appeal is general in nature and therefore does not call for any specific adjudication and is accordingly dismissed. 8. Ground No. 2 raised by the Revenue relates to the disallowance of bad debts of Rs. 57,33,66,645/-. The facts as noted in brief are that, the assessee is engaged in the business of money-lending in the name and style of M/s Jayapriya Financiers. The assessee is also holding valid license No.17/96-97 required to carry out the financing business. The AO observed from the audited tally accounts which was seized in the course of search that, the assessee had written off outstanding interest income receivable by way of bad debts to the tune of Rs. 57,33,66,645/-. According to the AO how....
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....he same to tax, on accrual basis. In case, the outstanding receivables becomes bad or irrecoverable, the same is written off by way of bad debts and is claimed as deduction u/s 36(1)(vii) of the Act. The Ld. AR pointed out that, during the relevant year, one of the assessee's major borrower, Shri. Anandharajan had declared bankruptcy and therefore the corresponding interest income lying outstanding in the books of accounts had become bad and was thus written off. He further explained that, the FY 2020-21 was a unusual year, when there was a complete lockdown and disruptions of businesses across India due to COVID-19, because of which several of the assessee's borrowers had either gone out of business or were faced with several financial crunch, due to which there was no possibility of recovery of outstanding interest from them, and thus the assessee had given interest waivers, with the intent to protect the principal sum(s) and attempt its realizability at a later date. The assessee is accordingly noted to have written off the outstanding irrecoverable accrued interest income of Rs. 57,33,66,645/-, which was also reflected on the face of the audited financial statements for the yea....
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....he Ld. CIT(A) accordingly held that, the reason given by the AO for rejecting the claim of bad debts viz. non availability of supporting evidence, was not justified, as they were already available in the seized records. The Ld. AR, at the time of hearing, took us through the summary statement containing the party wise details of bad debts written off which was prepared from the data available in the seized books of accounts, copy of which was placed at Page 204 to 227 of Paper Book. He correlated this summary statement with the ledgers printed from the electronic books of accounts, which was placed at Pages 228 to 304 of Paper Book. It is seen that, each ledger contained the name of the party, their address, the loan amount, the tenure of loan, the due date for collection, the interest accrued across each year and the amount written off. Having perused the same, we are in agreement with the Ld. CIT(A) that, the party-wise details of bad debts were indeed available in the seized material, and therefore the AO was unjustified in disallowing the impugned claim for alleged want of supportings. We thus countenance the following findings of the Ld. CIT(A) recorded in the appellate order ....
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....the form of seized material. The appellant has provided a detailed breakup of the amounts written off, including the list of loan parties, accrued interest, interest received, and balance written off for various years all of which support its claim of Bad debts 6.3.6 It is significant to bring on record that the AO had access to the seized materials containing all the relevant details, including party-wise details of loans, repayments, and interest. Failure to analyse these materials led to an erroneous conclusion regarding the write-off claim. The Appellant's books of accounts are subjected to Audit as per the provisions of section 44AB of the Act. The AO has not made any findings of shortcomings / defects in the books of accounts by the appellant especially with regard to the write off of bad debts in the earlier years. Since the appellant has duly followed the procedure to write off the bad debts, and the supporting evidence were available in the seized records, the rejection of the bad debt claimed by the AO is not justified." 8.5 Before us, the Revenue was unable to negate the fact that the seized material / books of accounts did not contain the details of bad ....
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....t the debts become bad in the previous year under consideration for claiming the same as deduction. 8.9 As per section 36(2)(i) of the Act, in order to claim deduction under section 36(1)(vii) of the Act, the precondition is that the debt or part thereof should have been taken into account in computing the income of the assessee of the previous year in which the amount of such debt or part thereof is written off or of an earlier previous year. In this connection, we note that the assessee has already provided the details of the year(s) in which the revenue pertaining to bad debts were offered to tax before the authorities below. We also note that the Central Board of Direct Taxes ('the CBDT') vide Circular No.551 dated 23rd January 1990 has provided that bad debt written off is allowed as deduction in the year in which it is written off as irrecoverable in the account. The relevant extracts of the circular is reproduced below: "6.6 The old provisions of clause (vii) of sub-section (1) read with subsection (2) of the section laid down conditions necessary for allowability of bad debts. It was provided that the debt must be established to have become bad in the pr....
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....unts u/s 145(3) of the Act. As already noted earlier, the party-wise details along with sample ledgers placed before us in support of the bad debts written off during the year. It is further seen that, the assessee had also submitted the financial year wise details of the accrued interest income offered to tax in the earlier years, out of which the bad debts were written off during the year. The relevant summary statement, which was submitted before the lower authorities as well, is as under: Jayapriya Company 31.03.2019 31.03.2020 31.03.2021 Accrued Interest Accounted 19,51,66,456 23,95,19,370 7,74,00,116 Interest Received 3,66,33,994 2,05,28,303 7,74,00,116 Balance Accrued Interest Woff 15,85,32,462 21,89,91,067 Jayapriya Financiers 31.03.2019 31.03.2020 31.03.2021 Accrued Interest Accounted 11,79,30,727 19,59,99,365 13,56,06,937 Interest Received 5,02,09,125 6,79,64,144 13,56,06,937 Balance Accrued Interest W/off 6,77,21,602 12,80,35,221 8.12 It is seen that, even the AO has acknowledged in the impugned order that, the bad debts written....
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....t thereof in any previous year, shall be admissible under section 36(1)(vii) of the Act, if it is written off as irrecoverable in the books of account of the assessee for that previous year and it fulfils the conditions stipulated in sub-section (2) of sub-section 36(2) of the Act. 5. Accordingly, no appeals may henceforth be filed on this ground and appeals already filed, if any, on this issue before various Courts/Tribunals may be withdrawn/not pressed upon. 6. This may be brought to the notice of all concerned". 6.3.8 The above Circular was issued by the CBDT after the interpretation of section 147 of the Act by the Hon'ble Supreme Court in the case of T.R.F. Ltd. v. CIT [2010] 190 Taxman 391 (SC)/[2010] 323 ITR 397 (SC). The Head note of the case and relevant paragraph of the decision are reproduced below: "Section 36(1)(vii) of the Income-tax Act, 1961 Bad debts Assessment years 1990-91, 1993-94 and 1994-95 Whether after 1-4-1989, it is not necessary for assessee to establish that debt, in fact, has become irrecoverable; it is enough if bad debt is written off as irrecoverable in accounts of assessee Held, yes" "4. This position....
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.... Block period 1-4-1995 to 7-6-2001 Bad debts Assessing Officer disallowed claim of bad debts on ground that no effort had been made by assessee to recover loan advance and it was difficult to conclude that debts had become irrevocable - Whether in view of amendment to section 36(1)(vii) w.e.f. 1-4-1989, in order to claim bad debts assessee could not be called to prove same; writing off of amount as a bad debt is sufficient compliance - Held, yes" 6.3.12 In the case of Pr. CIT v. Shreno Ltd. [2021] 127 taxmann.com 813 (Gujarat), the Hon'ble Gujarat High Court held that once debts were written off in books, it was to be allowed without expecting the assessee to prove that debts had actually become bad or they were recoverable or recovered in subsequent years. Head note of the decision is reproduced below: "Section 36(1)(vii) of the Income-tax Act, 1961 Bad debts (Writing off) Assessment year 2012-13 Assessee-company had provided advances to its subsidiary - In relevant assessment year also, assessee provided advance to its subsidiary Up to assessment year 2011-12, assessee showed interest income on loans and advances given to subsidiary in its books of account H....
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....he decision of the assessee to treat a particular debt as bad or not. Therefore, the CIT(A) has rightly deleted the addition made by the Assessing Officer" 6.3.14 In the case of Pranava Electronics (P.) Ltd. v. DCIT [2022] 140 taxmann.com 9 (Bangalore - Trib.) the Hon'ble ITAT, Bangalore Bench held that writing off a debt in books is sufficient to claim deduction u/s 36(1)(vii) of the Act. Head note of the decision is as under: "Section 36(1) (vii) of the Income-tax Act, 1961- Bad debts (Writing off of debt) Assessment year 2010-11 Whether where assessee advances money without money lending business, if advance becomes bad, it should be allowed as a bad debt in terms of section 36(1)(vii) read with section 36(2)(i) - Held, yes - Whether writing off of irrecoverable loan in books of account is sufficient to claim deduction for bad debts under section 36(1)(vii) Held, yes - Whether for grant of claim of assessee as bad debt, holding money lending business is an irrelevant consideration - Held, yes" 6.3.15 The Hon'ble ITAT, Delhi Bench in the reported decision ACIT v. Syed Habibur Rehman [2022] 139 taxmann.com 582 (Delhi - Trib.) held that it is enou....
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....ve discussions, judicial precedents, and the CBDT Circular/Instructions, the undersigned is of the considered view that the AO's disallowance of the bad debt claim, on the ground that the requisite details were not furnished by the appellant, is unjustified, especially when the necessary information was already available before him in the form of seized material. Such a disallowance is contrary to the principles of equity and fairness. Therefore, the action of the AO in disallowing the Bad debt written-off amounting to Rs. 57,33,66,645/- is not sustainable on merits. Accordingly, the grounds raised with regard to write off of Bad debts are hereby treated as allowed and the AO is directed to delete the addition amounting Rs. 57,33,66,645/- made in the AY 2021-22." 8.13 Further, we note that the issue as to whether the assessee is required to justify the writing off the debts in the books of accounts as bad in a year, has now been settled and decided by the decision of the Supreme Court in the case of TRF Ltd. v. CIT (323 ITR 397) wherein it has been held that, it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable and the accounting....
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....see to claim a bad debt is for reversal or write-off of the debt in the relevant financial year. There is no necessity for a justification that the debt has, in fact, gone bad. The relevant portion of the judgment is extracted below: ... 23. In the present case, the assessing authority finds that the assessee has, during the year in question written off bad debts of a sum of Rs. 4.94 crores, restricted to a sum of Rs. 4.07 crores (incidentally, the assessee states that it has filed an appeal as against the said restriction which is pending before the Commissioner of Income Tax (Appeals)). With the aforesaid finding, the claim as regard bad debts is liable to be allowed applying the ratio of the judgement in TRF Ltd (supra). 8.15 Considering the facts as discussed above and in light of the decisions (supra), we see no reason to interfere with the order of Ld. CIT(A) and thus dismiss this ground of the Revenue. The Cross Objection No. 1 being in support of the order of Ld. CIT(A) deleting the impugned addition, is accordingly dismissed as infructuous. 9. Ground No. 3 raised by the Revenue reads as under: 3. The Ld.CIT(A) failed to appreciate that the ....
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....ome of Rs. 60,01,58,900/- in the real estate business in AY 2021-22. After examining and verifying the details, the AO is noted to have recorded the following finding of fact at Paras 7.3 & 7.4 of his impugned order:- "7.3 In light of the above discussion, show cause notice dated 14/12/22 was issued to assessee as to why Rs. 60,01,58,900/- should not be added to income for A.Y. 2021-22. The assessee vide letter dated 16/12/2022 has stated that it has already included Rs. 60,01,58,900/- in the income tax return filed for A.Y. 2021-22. In response to the same, the reply of the assessee is reproduced below: .... 7.4 On Verification of the return of Income and the financials for A.Y. 2021-22, it is seen that the assessee had disclosed Rs. 60,01,58,900/- as additional income in view of the various omissions discussed in the preceding paragraphs." 9.3 In view of the above, it is seen that it is not even the AO's case that there was any infirmity in the suppressed business income quantified and disclosed by the assessee. Rather, the AO had recorded a categorical finding that the same was in order. Hence, for the above reasons, we decline to entertain this gro....
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.... as well. Qua the loans advanced to M/s Jayapriya Food products private limited, M/s Jayapriya property developers private limited & M/s Jayapriya Trading Company, the Ld. CIT(A) after examining the terms of arrangement, noted that these loans were given for business purposes which would yield returns at a later date and therefore held that the corresponding interest cost was incurred for business purposes. In respect of the loan advanced to M/s Jayapriya Charitable Trust, the Ld. CIT(A) was of the view that the loans were advanced from mixed pool of funds viz., own funds and borrowed funds and worked out the average interest rate charged on this loan at 9.45%. Since the interest rate charged was comparatively lower to the effective interest cost of 10%, the Ld. CIT(A) re-worked the interest disallowable corresponding to this loan at Rs. 48,66,743/-. With these observations, the Ld. CIT(A) is found to have deleted the disallowance of interest to the extent of Rs. 6,13,81,600/- and restricted the same to Rs. 48,66,743/-. Aggrieved by the order of the Ld. CIT(A), the Revenue is in appeal before us against the disallowance deleted by him and the assessee has preferred cross objection ....
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.... these related parties and the terms on which interest was provided for and thereafter quantified the interest disallowable at Rs. 48,66,743/-. Having perused the material placed on record and taking into account the rival contentions, we also consider it fit to examine the nature and terms of each of the loan(s) advanced to related parties, on their respective facts and circumstances. 10.5 In respect of loans advanced to M/s Sree Shanmugam Educational Trust & M/s APJ Adbul Kalam Educational Trust, the Ld. CIT(A) has recorded a categorical finding that these loans carried interest rate of 12% and not 6% and therefore there was no under-charge of interest income. The relevant findings of the Ld. CIT(A) taken note of by us, is as follows:- "Loan advanced to M/s. Sree Shanmugam Educational Trust 6.4.6 The undersigned has carefully examined the above submission made. The AO's observation that the appellant firm advanced a loan of Rs. 11,95,70,035/- to M/s. Sree Shanmugam Educational Trust at an interest rate of 6% per annum is incorrect. The appellant to support the above claim has submitted the copy of the relevant ledger extract which was made available befor....
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.... 12% per annum on the loan granted to M/s. APJ Abdul Kalam Educational Trust. These facts clearly contradict the AO's assertion that the interest rate was 6% per annum. In light of the appellant's substantiated calculations and supporting documentation, the AO's findings are inconsistent with the actual facts. Consequently, there is no basis for disallowing the interest expenses related to the loan advanced to M/s. APJ Abdul Kalam Educational Trust." 10.6 The details of the interest charged on the loans advanced to M/s Sree Shanmugam Educational Trust & M/s APJ Adbul Kalam Educational Trust have also been placed before us, at Pages 305 to 312 of the Paper Book. Having gone through the same, we concur with the Ld. CIT(A) that these loans carried reasonable interest rate of 12%, which was higher than the average cost of borrowing of 10% and therefore no portion of interest cost corresponding to these loans could have been disallowed. Nothing contrary to these admitted facts was brought on record by the Revenue before us. We thus see no reason to interfere with the order of Ld. CIT(A) deleting the interest disallowance in relation to these loans advanced to M/s Sree Sha....
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....ement. Having considered the foregoing, we thus find that the Ld. CIT(A) had rightly deleted the disallowance of interest expense qua this current account transaction of the assessee firm's partner, by holding as under:- "6.4.20 The undersigned, on examination of the assessment order and financials of the appellant firm observes that the AO has incorrectly presumed that the appellant has advanced loans to Shri. C.R. Jayasankar at an interest rate of 6% per annum. It is to be noted that Shri C.R. Jayasankar is the Managing Partner of the appellant firm, and the amounts paid to him are in the nature of current account adjustments, Payments made to partners, especially in the form of advances or adjustments to their current accounts, are not subject to interest charges unless expressly agreed upon. Given the fact that these payments are reflected as current account transactions, there is no requirement to charge interest on them. Therefore, the presumption of the AO regarding the applicability of interest on these amounts is incorrect. The undersigned is of the view that No interest is required to be charged on the current account balance of the partner. Consequently, there i....
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.... proposal from the Second party, the First party has approved and sanctioned the proposal for financial assistance at an estimated cost of Rs-10,00,00,000/- spread over in the period of 10 Years commencing from 04/03/2016. .... AND WHEREAS, the First party has agreed to sanction a Loan of Rs 10,00,00,000/- as cost to carry on the activities under the Project (hereinafter referred to as the 'Loan) subject to the condition and satisfaction of the First Party that the Loan will be used for the desired purpose and Second Party agrees to abide by the terms and conditions. ... II. RESPONSIBILITIES AND OBLIGATIONS OF FIRST PARTY a) The FIRST PARTY will provide financial support to the Second Party for 10 Years. After the completion of 10 years, the profit accumulated over the project of the Second Party will be shared by the first party in the following ratio. The First Party - 50% The Second Party - 50% b) The FIRST PARTY neither will be responsible nor liable for any claims or liabilities of any nature whatsoever, including those arising from the employment of contractual manpower employed by the Second Party of....
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....e MOUs were not interest free and instead the assessee was entitled to share of 50% of the profits of the related parties, which would fall due at a later date. The Ld. AR pointed out that, it was a conscious call taken by the assessee to charge variable return rather than fixed return on capital, with the hope of maximizing the yield and reaping better profits. Hence, we find that, it is not a case that the loan advanced was interest free or carried interest rate of 6% or would not yield any income at all. Rather, the MOU would result in windfall income at a later date. We agree with the Ld. AR that, there is no 'matching concept' in respect of claim of interest expenditure under Section 36(1)(iii) of the Act. So long as the interest paid on borrowings is shown to have been used for the purposes of business, the said interest cost is allowable as deduction from the profits of business. 10.12 In this context, let us now take a look at the extant provisions of Section 36(1)(iii) of the Act which reads as under: "36. (1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to i....
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....ose of business, and that the assessee must have paid interest on the said amount and claimed the same to be allowed as a deduction. ....... The expression "for the purpose of his business" occurring in clauses (iii) and (xv) of sub-section (2) of section 10 is wider in scope than the expression "for the purpose of earning income, profits or gains" occurring in sub-section (2) of section 12. Therefore, the scope for allowing a deduction under clause (iii) or (xv) of sub-section (2) of section 10 would be much wider than the one available under sub-section (2) of section 12." 10.15 The decision rendered by the Hon'ble Supreme Court in the case of Indian Bank Limited v. CIT [56 ITR 77] is also found to be relevant in the given facts before us. In the decided case, the Hon'ble Supreme Court has held that, if the interest expenditure had been incurred for business purpose, then it is not necessary to check whether it had resulted into any income or not. The same if not resulted into any income will surely result into income at later stage and thus this is not worth the effort to check whether the interest expenditure had resulted into any income or not in the y....
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....er the High Court, in this case, payment of Rs. 55 per debenture towards interest was made, which pertained to five years, and, thus, this interest of five years was paid in the first year. We are of the opinion that it is here the High Court has gone wrong and this approach resulted in wrong application of Matching Concept." 10.17 We also refer to the decision rendered by the Hon'ble Apex Court in the case of SA Builders Ltd. v. CIT (288 ITR 1) wherein the AO had disallowed portion of the interest paid on the premise that, the assessee had diverted to its borrowed capital to the subsidiary and associate concerns from which no income was realized, which was confirmed by the High Court. On appeal by way of Special Leave Petition, the Hon'ble Apex Court however held that, the authorities below had approached the matter from an erroneous angle. The Hon'ble Apex Court held that, for both the purposes for Section 37 as well as Section 36(1)(iii) of the Act the expression 'for the purpose of business' had to be considered and interpreted from the view point of commercial expediency and for that purpose it was wholly immaterial if a third party also benefitted from the same. The Hon'bl....
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....f any income during the relevant year cannot take away the fact that the impugned loan was not for business purpose, as it was still expected to generate income at a later date. Therefore, in our considered view, the conditions specified in Section 36(1)(iii) was satisfied in the present case, and accordingly the interest expenditure corresponding to these loans was allowable as deduction from the profits of the business. 10.20 It was also brought to our notice that, these loans had been advanced to these related entities in earlier years and the interest expenditure corresponding to these loans have been allowed as deduction from the profits of the business across all the earlier years. As such, it is noted that, the factual matrix permeating through the years has remained same and there is no change either in the factual matrix or the legal provisions governing allowability of deduction u/s 36(1)(iii) of the Act. We are aware that, the principle of res judicata does not apply to income-tax proceedings yet the established rule of consistency must also be followed on factual matters permeating through the years. It is a well settled position that factual matters which permeate t....
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....n the business of money lending, in the course of which, it would borrow monies at different rates of interest and advance the same to customers at a premium interest rate(s). He explained that, there would arise situations when the value of borrowings would be higher than the value of advances deployed and hence there would be idle funds with the assessee-lender. Hence, ordinarily, any money lender would make fixed deposits or invest in liquid securities during the intervening period until these borrowings are again deployed to customers, to reduce the overall cost of borrowings. The Ld. AR explained that, instead of making time deposits which carried lower rates of interest, the assessee considered it to be commercially prudent to advance these monies to its related party, JCT who was willing to pay comparatively higher rates and the loans were also repayable on demand. It is therefore not a case where the assessee has not charged interest on the loans advanced. The comparatively lower rates were actually meant to offset the cost of borrowings of idle funds and to ensure that on overall basis, the assessee is able to generate positive returns from the money lending business. The ....
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....infully refer to the decision of the Hon'ble jurisdictional Madras High Court in the case of CIT v. Pudukottai Co Pvt Ltd (supra). In this case also, the assessee was engaged in the business of money lending, in the course of which, it had borrowed loans at 6.01% and had realized interest income of 4.92%. The AO had disallowed proportionate interest expenditure on the ground that the loans advanced was at lower rates. On appeal, the High Court concurred with the Tribunal's view that the scaling down of interest cost was not permissible, once it was established that the capital borrowed was used for business purposes. The relevant portion of this decision is extracted below:- "The assessee is a private limited company carrying on money-lending business. For the assessment year 1960-61 the assessee returned an income of Rs. 1,68,567. The assessee paid a sum of Rs. 1,02,092 during the accounting year by way of interest on loans borrowed by it and claimed allowance of this amount under section 10(2)(iii) of the Act. The fact as found by the Income-tax Officer is while the company had paid interest on its borrowings at an average rate of 601 per cent. it had charged interest on....
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....iness, profession or vocation of the assessee; and, thirdly, the assessee should have paid the interest amount claimed by him as an allowance under that clause. According to the Hon'ble High Court, the interest paid cannot be tested for reasonableness or be scaled down to 3%. 10.27 Identical view is found to have been expressed by the Hon'ble Delhi High Court in the case of CIT v. Sahni Silk Mills Ltd (supra). In the instant case, it was seen that the assessee had advanced loan to three parties carrying interest rate of 12%, whereas it had borrowed the funds at 16%. The Hon'ble High Court held that, once the transactions were held to be real and bonafide, the interest paid on capital borrowed could not be disallowed. 10.28 We further observe that somewhat similar question came up for consideration before the Hon'ble Calcutta High Court in the case of CIT v. Williamson Magor Co. Ltd. (supra), which was as follows:- "(a) Whether in the facts and in the circumstances of the case, the Learned Income Tax Tribunal erred in law in deleting the disallowance of Rs. 71,53,542 for the Assessment year 1998-1999 and Rs. 2,92,99,950.00 for the Assessment year 1999-2000 on account ....
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.... that loan was not advanced for commercial expediency of Sister Subsidiary Companies. But on mere fact that Assessee Company was a profit making Company, itself has paid higher rate of interest hence it was not justified to advance loan on lower rate of interest, hence difference has been disallowed under Section 36 (1) (iii) of Act 1961. The moot question is whether this approach of Revenue is justified. ... 10. In S.A. Builders Ltd. (supra) Court held that true test is, whether the amount advanced to subsidiary or associated company or any other party was advanced as a measure of commercial expediency. If so, interest was deductible. 11. Recently in Hero Cycles P. Ltd. v. CIT, [2016] 236 Taxman 447/[2015] 63 taxmann.com 308/379 ITR 347 (SC), matter has been discussed and Court agreeing with Delhi High Court judgment in CIT v. Dalmia Cement (P.) Ltd., [2002] /121 Taxman 706/254 ITR 377 (Delhi), has observed; "Once it is established that there was a nexus between the expenditure and the purpose of business, the Revenue cannot justifiably claim to put itself in the armchair of a businessman or in the position of the board of directors and assume t....
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....ulated by the AO was as follows: S.No. Name of the concern Loans given (in Rs. ) 1. Loan ML II CRBF 16,00,00,000 2. ML II Loan 87,05,61,902 3. Loans and advances other (pertaining to Jayapriya Financiers) 68,78,24,236 4. Anshika Trading Private Limited 15,36,50,302 Total: 1,87,20,36,440 11.1 According to the AO, the assessee had shown accrued interest income from the above, to the tune of Rs. 21,30,88,248/- as against the accrued interest income which ought to have been Rs. 44,92,88,746/- 24% X Rs. 1,87,20,36,440]. The AO accordingly added the difference of Rs. 23,62,00,498/- [Rs.44,92,88,746 - Rs. 21,30,88,248] by way of income of the assessee. Aggrieved by the order of the AO, the assessee preferred an appeal before the Ld. CIT(A). 11.2 Before the Ld. CIT(A), the assessee pointed out that, the AO had simply worked out the addition by multiplying 24% to the outstanding balance of loans of Rs. 1,87,20,36,440/- (as tabulated above), which he reduced from the interest amount disclosed in the return and treated the difference as accrued interest not credited in the accounts. It was the assessee's case that, the AO proc....
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....ome at Rs. 44,92,88,746/-. As the interest income actually credited in P&L A/c was Rs. 21,30,88,248/-, it is the case of the Revenue before us that, there was short declaration of interest income to the extent of Rs. 23,62,00,498/-. On the other hand, the assessee has disputed the AO's action of assuming the interest rate on loans at 24%, which according to them, has no basis and is based on surmise. 11.4 Having perused the assessment order, we find that there is no basis or evidence pointed out by the AO in support of his assumption of interest rate of 24%. Even the Ld. CIT, DR appearing for the Revenue was unable to explain with any cogent evidence as to how was the Revenue claiming that all the loans advanced by the assessee carried interest rate of 24%. It is also not the AO's case that any incriminating material or evidence was unearthed in the course of search, which suggested that the assessee was actually charging interest of 24% on these loans. We thus countenance the Ld. CIT(A)'s finding that the foundational basis of making the impugned addition was based on an incorrect assumption regarding the interest rates charged by the appellant firm, on its loans. The relevant ....
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....rest of Rs. 8,03,05,377/-. We thus observe that, the outstanding principal loan amount was actually Rs. 123,30,85,424/- [Rs.63,78,21,850 + Rs. 59,52,63,574] and not Rs. 155,83,86,138/- [Rs.87,05,61,902 + Rs. 68,78,24,236]. Hence, upon excluding the "Loan ML II CRBF" of Rs. 16,00,00,000/- and accrued interest which was not received amounting to Rs. 31,30,45,429/- [Rs.23,27,40,052 + Rs. 8,03,05,377], the correct loan balance, which should have been considered for the purposes of interest calculation and comparison, ought to have been Rs. 1,39,89,91,011/- [Rs.1,87,20,36,440 - Rs. 16,00,00,000 - Rs. 31,30,45,429]. Having regard to the fact that, the interest accrued and credited in P&L A/c was Rs. 21,30,88,248/-, the average interest rate charged on the loan advanced works out to 15.23% per annum. 11.6 We find that, the Ld. CIT(A), in exercise of powers conferred u/s 250(4) of the Act, had also called for and examined the party-wise reconciliations of the loans and found that the actual interest rate charged on the loans varied between 12% to 18%, depending on various factors such as longstanding relationships with customers, quantum of loan granted and the duration of repayment of ....
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....ous. 12. We now take up the appeal of the Revenue in ITA No.1252/Chny/2025 and CO No. 44/Chny/2025 of the assessee. 13. Ground No. 1 of the Revenue's appeal is general in nature which does not call for separate adjudication and is therefore dismissed. 14. Ground No. 2 raised by the Revenue is as under:- "2. The Ld.CIT(A) failed to appreciate that the amount of undisclosed income to be offered for taxation year wise from FY 2012-13 to FY 2021- 22 based on the findings of the search for the FY 2021-22 relevant to the AY 2022-23 worked out to be Rs. 47,91,86,185/- but the assessee had not furnished the breakup of such income for income tagging purposes to consider it as having been included in the total income disclosed in response to the search proceedings." 14.1 It is seen that this ground also does not emanate from the AO's order. We note that, the assessee has offered suppressed business income of Rs. 47,91,86,185/- on the basis of the search findings, in the return of income filed u/s 139 of the Act. According to the AO, this offer was not discernible from the face of the P&L A/c and therefore added the same to the total income. It was brought to our notice t....
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.... Revenue, when they have not disputed the correctness of the Ld. CIT(A)'s finding, as reproduced above. According to us, this ground cannot be a cause for appeal before us. We thus decline to entertain this ground and dismiss the same in limine. 15. Ground No. 3 of the Revenue's appeal and Ground Nos. 1 & 2 of the Cross Objections filed by the assessee relates to the disallowance of excess interest expenditure relatable to the loans advanced to related parties viz., M/s Jayapriya Charitable Trust, M/s APJ Abdul Kalam Educational Trust etc. It is observed that, identical impugned issue was involved in the preceding AY 2020-21 and that the findings rendered by the lower authorities was verbatim same. Even the submissions of both the parties before us was the same. Following our findings rendered while adjudicating Ground No.4 of the Revenue's appeal & Ground Nos. 2 & 3 of assessee's Cross Objections for AY 2020-21, we hold that the impugned loans given to related parties were advanced for business purposes and/or carried reasonable rates of interest and therefore the disallowance of interest expenditure made by the AO was unjustified. Following our findings rendered in AY 2020-21,....