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2013 (7) TMI 36 - AT - Income TaxAddition u/s. 40A(2)(b) - CIT(A) deleted the addition - Held that:- The appellant had paid the interest in the previous year at the same rate which is not disputed by the revenue. AO has not shown any instances of diversion of funds u/s. 40A (2) to be unreasonable or excessive in the facts and circumstances of the case. The borrowing at higher rate of interest is business decision of the appellant and the expenses cannot be disallowed on the ground of payment of interest at differential rate to different depositors. It has been clarified that the surplus funds have been advanced to certain parties on short term basis recoverable on notice. The interest @ 15% has been paid on substantial deposits which were utilized by the appellant for long term business activities. Also the interest rate of 15% is not abnormal. It shows business expediency and hence does not warrant any disallowance as has been made by the AO - In favour of assessee. Disallowance of interest u/s. 36(1)(iii) - CIT(A) deleted the addition - Held that:- From the accounts submitted by the appellant it is found that the appellant had surplus fund in the banks from which advances have been made to the parties @ 9% on short term basis. The bank balance with the account maintained by the appellant with Bank of Baroda as on 31/3/2007 was Rs.35,99,633 and as on March, 2006 it was 37,39,423/-. The capital account of the appellant as on 31st March was Rs.41,85,914/- whereas the opening capital as on 1/4/2006 was Rs.33,91,470/-. Therefore, the appellant had enough funds at it's disposal for advancing loan to the above parties. Therefore, the appellant had advanced only surplus funds available with it which were advanced with a lower rate and earned income which otherwise would have remained idle. Thus AO is not justified in disallowing the interest, without any specific findings - In favour of assessee.
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