TMI Blog2014 (12) TMI 880X X X X Extracts X X X X X X X X Extracts X X X X ..... ocumentation processing etc. - assessee also explained that as per the provisions of Sec. 40(b) while computing income of the firm, the interest @ 12% p.a. is allowable on credit balances on the partners’ accounts - the borrowing was made for the purpose of business - merely variation in the rate of interest cannot be the reasons for making the disallowance – thus, the order of the CIT(A) is upheld – Decided against revenue. Addition on difference on rate of borrowing and rate on deposits made in banks deleted – Held that:- In assessee’s own case for the earlier assessment year, it has been held that the addition made by the AO is to be set aside – thus, the decision as delivered is to be followed and the order of the CIT(A) is upheld – Decided against revenue. - ITA No. 2167/PN/2012, ITA No. 1605/PN/2013 - - - Dated:- 15-12-2014 - Shri G. S. Pannu And Shri R. S. Padvekar,JJ. For the Petitioner : Shri Rajesh Damor For the Respondent : Ms. Deepa Khare ORDER Per R. S. Padvekar, JM:- These two appeals are filed by the Revenue challenging the respective impugned orders of the Ld. CIT(A)-II, Nashik, dated 24-08- 2012 and 13-06-2013 for the A.Ys. 2009-10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he loans from the relatives of the partners and paying interest @ 12% at one hand and on the other hand to keep the money with the bank at lower rate investing the money into the FDR to the extent of ₹ 4.25 Crores, itself show that there was no need to borrowed funds for the business purposes. The assessee challenged the addition made by the Assessing Officer before the Ld. CIT(A) and Ld. CIT(A) deleted the addition. Before the Ld. CIT(A) the assessee made the submissions raising the following points challenging the additions made by the Assessing Officer: i. Raw material required for our product is an agro based commodity and consequently its production as such is subject to weather conditions resulting uncertainties and consequently market fluctuations. ii. In view of above, we have to purchase raw material well in advance requiring substantial payment to the suppliers. iii. If we would have borrowed from the bank, we would have paid interest at 14.25% + 1 % (approx) mortgage fee + processing, documentation and other charges. The aggregate cost would have been the same. A Xerox copy of letter from IDBl Bank, Chalisgaon branch dated 20-10-2011 certifying the prevail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has held that even if the borrowed money is applied in making investment which yield dividend, the entire interest paid on borrowing should be allowed as deduction for computing business income. In this case the appellant had invested in FD its surplus funds when not required and interest on FD is fully offered to tax. After all, it was a business decision. Recently, ITAT Jaipur Bench in Ram Avtar Garg V. ITO (2010) 4, ITR (Trib) 245 has held that considering cumbersome banking formalities involving numerous compliance, interest payment at 24 % was neither excessive not unreasonable and no disallowance of interest in excess of 12% was justified. To the same effect is the decision of the Mumbai ITAT in Bharti Airtel Ltd.. V. ACIT (2010) 41 SOT 175. Again it has been held in the following cases that no disallowance can be made on the ground that the assessee had enough funds and should not have borrowed the money. CIT V. Bombay Samachar Ltd., 74, ITR, 723 Bom. CIT V. Gautam Motors, 334, ITR, 326; Delhi. Shivanga Builders V. ACIT 316, ITR (aT) 433; Ahd. 10. Further, all the depositors who are relatives (except in two cases where interest paid comes to ? 4,01,854/-) are ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as per the provisions of Sec. 40(b) while computing income of the firm, the interest @ 12% p.a. is allowable on credit balances on the partners accounts. In this case there is no dispute about the fact that the borrowing was made for the purpose of business. The logic applied by the Assessing Officer if tested from the Businessman s point of view then same cannot be accepted. Merely variation in the rate of interest cannot be the reasons for making the disallowance. In our opinion no interference is called for in the order of the Ld. CIT(A) as the reasons given by Ld. CIT(A) for deleting additions are well supported by the decisions of the Co-ordinate Benches. Accordingly, same is confirmed. 7. Now, we take the Revenue s appeal for the A.Y. 2010-11. The Revenue has taken the following grounds in the appeal: 1. On the facts and in the circumstances of the case, the CIT(A) has erred in deleting the addition of ₹ 15,22,602/- made on account of difference in rate of borrowing and rate on deposits made in banks. 2. On the facts and in the circumstances of the case, the CIT(A) has not appreciated the finding of the A.O. that the borrowed funds were invested in FDRs and in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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