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TMI Blog2014 (4) TMI 106X X X X Extracts X X X X X X X X Extracts X X X X ..... arried out on 04-02-2009. In response to notice u/s.153A(a) the assessee requested to consider the regular return as return in response to notice u/s.153A(a). During the course of assessment proceedings the Assessing Officer noted that the assessee has debited interest amounting to Rs.95,81,00,212/- being interest on unsecured loans. 3.1 From the details furnished by the assessee the Assessing Officer noted that the interest expenditure for the year incurred by the assessee on account of unsecured loan is at Rs.43,00,510/-. The balance amount of Rs.52,80,702/- represents the interest on unsecured loan for A.Yrs. 2006-07, 2007-08 and 2008-09. The Assessing Officer, therefore, asked the assessee to explain as to why the interest of earlier years has been debited to the profit and loss account and the allowability of the same when the assessee maintains its accounts on mercantile system. It was explained by the assessee that due to vigorous protests from society the assessee company was compelled to close down its plant at Chipri, District Kolhapur for which it was decided to shift the plant at Ankleshwar, Gujarat. Till the plant starts its manufacturing activity and attain some prof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing Officer is upheld" 5. Aggrieved with such order of the CIT(A) the assessee is in appeal before us with the following ground : "On facts and in circumstances of the case and in law the authorities below have erred in sustaining an addition of Rs.52,80,702/- being interest paid for earlier years. The addition of Rs.52,80,702/- so made be deleted". 5.1 The assessee has also taken an additional ground which reads as under : "Without prejudice to ground of appeal No.1 and on facts and circumstances prevailing in the case and as per provisions of law it be held that the interest of earlier years debited to the profit and loss account for AY 2009/2010 be held to be deductible, under the first proviso to Section 40(a)(ia), in the current assessment year AY 2009/2010 as the tax has been deducted and paid on the entire interest amount in the current assessment Year AY 2009/2010". 5.2 Since no fresh facts are required for deciding the additional ground which is a legal one, therefore, following the ratio of decision in the case of NTPC Ltd. reported in 229 ITR 383 (SC) and Jute Corporation of India Ltd. reported in 187 ITR 688 (SC) the additional ground rai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t which accrued with the passage of time and quantified on a particular date was not chargeable on the outstanding amounts till the end of the F.Y. 2008-09 could not be controverted by the Ld. Counsel for the assessee. 8.1 On a pointed query by the Bench as to whether the assessee has debited other expenses other than interest expenditure in the profit and loss account of Assessment Years 2006-07, 2007-08 & 2008-09 the Ld. Counsel for the assessee answered in the affirmative stating that other than interest expenditure various other expenses were debited. 8.2 The argument of the Ld. Counsel for the assessee that even if the interest would have been debited to the profit and loss account in those years the same would have still been disallowed since the assessee was not in a position to deduct and pay the TDS and the same would have been allowed in the impugned assessment year after payment of the TDS in our opinion is without any force. Since the assessee follows mercantile system of accounting and the accounts are audited as per the Companies Act as well as under the provisions of the Income Tax Act, therefore, the assessee was duty bound to prepare its accounts properly and not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmission of the assessee that the depositors also paid tax on their income was also rejected by the AO. Observing that normal rate of interest from banks and financial institutions is about 12% p.a. the AO disallowed the interest of Rs.10,58,235/- which was in excess of 12% p.a. as per the computation at Page 4 of the assessment order. 11. Before the CIT(A) it was submitted that the loans outstanding in the balance sheet as on 31-03-2009 were fresh borrowings taken for the purpose of expenditure of its unit at Gujarat. Further, since the company had stopped its operation at Chipri no banker would have financed its business. Accordingly, the assessee had to borrow from the directors and related parties. The decision of the Hon'ble Bombay High Court in the case of CIT Vs. Indo Saudi (Travel) Pvt. Ltd. reported in 310 ITR 306 was relied upon. 12. Based on the arguments advanced by the assessee the Ld.CIT(A) relying on various decisions deleted the addition made by the AO by observing as under : "7. I have considered the submissions of the appellant with reference to the facts of the case. It is a fact that the appellant had borrowed certain amounts from the promoters ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as to what rate is reasonable. It is further stated that when the income-tax authorities have found that the borrowing transactions were not illusory or colourable and that the capital was borrowed by the assessee for the purpose of business and the amount of interest was paid, they have no jurisdiction to determine whether the rate of interest agreed to pay was reasonable or not and to disallow a portion of the interest which has been paid. The Income-tax Appellate Tribunal, Ahmedabad Bench in the case of Omkarmal Gaurishankar v. ITO [1991] 39 TTJ (Ahd.) 223 held that the rate of 24 per cent cannot be treated as unreasonable or excessive and therefore, directed allowance of the entire interest. 9. On this issue, the Honourable ITAT in Satya Narain Kesho Ram (P.) Ltd. v. Deputy Commissioner of Income-tax [2009] 122 TTJ 839 (LUCK.) held as under : Where Assessing Officer had only recorded reasons that payment of interest at rate of 24 per cent to relatives of directors was on higher side than fair market interest rate, without having any information as to what should be fair market rate, Assessing Officer was not Justified in makin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ok filed on behalf of the assessee. We have also considered the various decisions cited before us. There is no dispute regarding the genuineness of the amount of the loan. Only dispute in the instant case is the allowability of interest @15% p.a. as claimed by the assessee and upheld by the CIT(A) or the interest @12% p.a. as determined by the AO. From the various details furnished by the assessee we find substance in the argument of the Ld.counsel for the assessee that since the company had stopped is operation at Chipri no banker would have financed its business for which borrowing from the Directors were inevitable and the loans have been taken during the impugned assessment year. Further, in the instant case the loans have been obtained from the Directors and other related concerns without pledging of any title deed or security and without going through any cumbersome process which is otherwise applicable to loans obtained from banks and other financial institutions. Therefore, in our opinion, the payment of interest @15% p.a. to the Directors and the related parties under the facts and circumstances of the case cannot be considered as excessive or unreasonable. In this view of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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