TMI Blog2016 (9) TMI 693X X X X Extracts X X X X X X X X Extracts X X X X ..... in AY 2009-10 under consideration therefore it would automatically be allowed in this year as per the provision of section 40(a)(ia). - Decided in favour assessee Interest attributable to loans - Whether the interest can be disallowed due to the closure of business/profession closure of one of the activities? - whether the interest expenses can be attributed to interest free loans given to sister concerns in present case? - Held that:- CIT(A) while dealing with the first issue has rightly considered the facts of the present case and observed that the loan was initially taken for textile business, which has been closed/suspended due to adverse business conditions but the assessee is still showing income from certain other sources such as rental income and profit on sale of shares though not under the head “ Profits or gains of business or profession”. Ld. CIT(A) while considering the latter judgement of Hon’ble Supreme court in the case of Veecumsees (1996 (4) TMI 6 - SUPREME Court) had rightly come to the conclusion that business of the assessee is a composite business during the period under consideration and expenditure is incurred for this composite business activities. Henc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... borrowed funds. 5. On the facts and circumstances of the case and in law, the ld. CIT(A) has erred in deleting the disallowance of interest even though no business is carried on by the assessee and the only income earned by the assessee from rent and capital gain does not qualify under the head Income from Business . 6. On the facts and circumstances of the case and in law, the ld. CIT(A) has erred in deleting the disallowance of interest pertaining to business which has ceased to exist and therefore not eligible for deduction of interest expense. 7. On the facts and circumstances of the case and in law, the ld. CIT(A) has erred in deleting the disallowance of interest by relying upon the decision of the Hon'ble Apex Court in the case of Veecumsees v/s CIT (1996) 86 Taxman 243 (SC) which is distinguishable from the case of the assessee. 8. On the facts and circumstances of the case and in law, the ld. CIT(A) has erred in deleting the disallowance even though the question of the same business being carried on was not the issue under appeal because the facts of the case of the assessee are relatable to allowance of expenses after closure of the business. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w any other system. So, if the assessee is following the mercantile system then the liability does not get postponed merely because quantification is done after the year, but accrued in the previous year. Ld. DR relied upon the judgement of Hon ble Supreme Court in the case of Kedarnath Jute Manufacturing Co. Ltd. vs. CIT 82 ITR 363 (SC). It was further argued by ld. DR that proviso to section 40(a)(ia) deals with the situation where in respect of any such sum, i.e. in the present context being interest paid or payable on which tax deductible but not deducted will be allowed deduction in the year TDS is deducted. As per the arguments of ld. DR no interest was paid or payable and no provision was at all made in the years 1999-2000, 2004- 05, therefore no deduction of interest paid could have been allowed by CIT(A). On the other hand, ld. AR has relied upon the orders passed by CIT(A) and had submitted that the AO has not considered the factual legal position as made by the assessee. At the time of assessment it was argued by ld. AR that although the AO had expected that interest were paid and TDS was deducted and paid such interest in the instant case since the assessee is maintai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... est income which may or may not be realized at all in future. Conversely in such a case, the appellant (borrower) may also not be expected to claim or provide for the interest expenses on accrual basis unilaterally as the certainty of the payment of the same is not definite. In fact, the said interest liability has been crystallized during the year, as earlier it was not certain whether the interest would be payable or not. The appellant has paid the interest after deducting TDS in current assessment year, and accordingly claimed the interest expenses in current assessment year. Since the appellant was in a position to pay the interest component, the same was provided and paid during the year under consideration. As such it is an allowable expenditure. 13. In view of the facts and circumstances explained above, I find that there is no justification in disallowing such claim of the appellant for the payment of interest. 14. The AO has also contended that the claim of interest expenses should be debited to the years in which it was liable to be paid or accrued. Even if said contention of AO is accepted, the respective amounts cannot be claimed allowed in those years in vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earlier it was not certain whether the interest would be payable or not. Since the assessee has paid the interest after deducting TDS in current assessment year, and accordingly claimed the interest expenses in current assessment year as the assessee was in a position to pay the interest component and hence the same was provided and paid during the year under consideration. Ld. CIT(A) has rightly found no justification in disallowing such claim of the assessee for the payment of interest. It was also appreciated by ld. CIT(A) that since the assessee has deducted the TDS in AY 2009-10 under consideration therefore it would automatically be allowed in this year as per the provision of section 40(a)(ia). Ld. CIT(A) has also found the facts of the present case distinguishable from the facts of the case of Kedarnath Jute Manufacturing co. Ltd. (supra) as per the facts of the afore mentioned judgement the assessee maintaining accounts on mercantile system was fully justified in claiming deduction of sales tax which it was liable to pay during the relevant assessment year, and the liability remained intact even after the assessee had taken appeals to higher authorities or courts which fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r hand ld. AR representing the assessee relied upon the orders passed by CIT(A) and submitted that interest free loan given to the sister concern were partly allowed out of profit generated from the firm. It was argued by ld. AR that the AO has failed to take into consideration the fact that the family members of promoters has given interest free loan to the extent of ₹ 147.28 lakhs and partners capital account increased by ₹ 138.53 lakhs. Therefore, the decision of the AO to the effect that the interest free advance given to the sister concern out of the borrowing money is altogether incorrect. 10. We have heard the counsels for both the parties on this ground and we have also perused the material placed on record as well as the orders passed by the revenue authorities. Ld. CIT(A) had dealt with the other ground in para no. 24 to 31 of CIT(A) and the same is reproduced below for the sake of reference. 24. I have perused the facts of present case as well as the above written submissions of the appellant carefully. I find two issues involved in adjudicating the ground of appeal: (i) Whether the interest can be disallowed due to closure of business/ closure of one ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Balance as on 1/4/2000 Less: interest free loans included in loan schedule as of 1-4- 2000 Balance interest bearing loans as at 1/4/2000 Loans amount outstanding as on 31/3/2009 Increase/ Decrease 1 Loans- Secured 139.89 0 139.89 Nil Paid in 2004- 05 Interest paid for earlier Yr 2 Loans unsecured 163.28 91.52 71.46 98.40 (+)26.64 3 Loans Advances paid to sister concern 237.11 0 237.11 282.58 (+) 45.47 4 Interest free loans from family 91.52 91.52 238.80 (+)147.28 5 Partners Capital a/c 171.54 debit 171.54 debi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered the both factual and legal issues which are involved in adjudicating this ground of appeal (i) whether the interest can be disallowed due to the closure of business/profession closure of one of the activities. (ii) whether the interest expenses can be attributed to interest free loans given to sister concerns in present case. Both issues have been discussed in detail by ld. CIT(A) and the CIT(A) while dealing with the first issue has rightly considered the facts of the present case and observed that the loan was initially taken for textile business, which has been closed/suspended due to adverse business conditions but the assessee is still showing income from certain other sources such as rental income and profit on sale of shares though not under the head Profits or gains of business or profession . Ld. CIT(A) while considering the latter judgement of Hon ble Supreme court in the case of Veecumsees (supra) had rightly come to the conclusion that business of the assessee is a composite business during the period under consideration and expenditure is incurred for this composite business activities. Hence, the ld. CIT(A) has rightly held that the claim of the assessee of int ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
