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2017 (7) TMI 70 - ITAT CHANDIGARHDisallowance of interest under section 36(1)(iii) - Held that:- The assessee got over draft limit from Axis Bank, Ludhiana for business purposes by mortgaging the property of partner of M/s B.S.W. Tools Corporation Ltd., a sister concern. If the over-draft facility would not have been available to the assessee, assessee would not have done the business to the extent as explained before the authorities below. The sister concerns have also earned profit by using the impugned funds and paid the taxes thereon. The ld. counsel for the assessee was, therefore, justified in arguing that where there is a revenue neutral, no adverse inference should be drawn. The assessee is, therefore, able to explain that interest free loans have been advanced to sister concern for business expediency. The assessee also pleaded before authorities below that Assessing Officer has not proved any nexus that interest free advances were made out of borrowed funds. Disallowance of interest under section 36(1)(iii) of the Act is not justified. - Decided in favour of assessee Addition u/s 40A(2)(b) - Held that:- The assessee filed chart of interest paid to the same persons on unsecured loans to show that in preceding two assessment years, the rate of interest paid to them was at 8%. The ld. CIT(Appeals) confirmed the addition because assessee paid interest to the banks ranging between 12 to 15%. It is not denying fact that while obtaining loans from the bank, the parties shall have to go through various legal formalities and shall have to give securities to the satisfaction of the bank but in the case of unsecured loan, no such formality and guarantee/security shall have to be given. AO has also not make out a case of unreasonable payment of interest, as regards the facilities available to the assessee. Therefore, considering history of the assessee that assessee paid interest @ 18% to the same parties in preceding assessment years, we not find it to be unreasonable or excessive interest paid. Thus we delete the addition. - Decided in favour of assessee
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