TMI Blog2021 (5) TMI 632X X X X Extracts X X X X X X X X Extracts X X X X ..... r loan for interest is being carried out regularly round the year. It shows that interest paid on secured and unsecured loan is wholly and exclusively for the business purpose of earning income from loans and advances. The allowability of interest paid on borrowed capital where interest bearing funds have been advanced interest free to the sister concern was deliberated upon by the Hon ble Supreme Court in S.A. Builders [ 2006 (12) TMI 82 - SUPREME COURT] In the instant case firstly there is a clear nexus of interest paid against the income received during the year, the transactions carried out by the assessee are for the commercial expediency and for this purpose the rate of interest paid and received by the assessee are varying from case to case which is duly evident from the records placed before us and the audited financial statements. The action of Ld. A.O was not justified in taking up few out of many advances given by the assessee to arbitrarily levy interest rate on loan given at an agreed rate of interest which may be lower than the interest rate charged from other persons or no interest is charged for commercial expediency purposes. We thus set aside the finding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on higher rate. 5. Brief facts of the case as culled out from the records are that the assessee is an individual engaged in money lending business. Assessee takes loans from banks and other parties on interest and also gives loans and advances and mostly charge interest. The rate of interest are varying both while paying and receiving the interest. Ld. A.O while examining the records of the assessee during the course of assessment proceedings selected for scrutiny after serving notice u/s 143(2) of the Act, observed that assessee is paying interest of loan @12% to 15% per annum but has charged interest @6% on the loan advanced to Mr. P.S. Kalani and has not charged any interest on the loan advanced to B.N. Kalani HUF and Saurabh Kalani. On observing so and after considering the submissions of the assessee Ld. A.O was of the view that interest expenditure of ₹ 9,22,643/- and interest of ₹ 11,20,776/- deserves to be disallowed for Assessment Years 2013-14 and 2014-15 respectively. This issue was challenged before Ld. CIT(A) but assessee failed to succeed as Ld. CIT(A) confirmed the action of Ld. A.O observing that the assessee has failed to corroborate as to how the lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diency which is allowable under the income tax return and any expenses claimed in respect of such advance can be claimed as an expenditure. Attention is drawn to the order of the Hon ble Jaipur bench in the case of Kailash Chand Soni Vs. ACIT Circle-O5 (order enclosed at page 66 to 84 of the paper book) where in it has been held: (Para 21) In the present case also the assessee had provided to the assessing officer with the bank statements in which it is clearly visible that the /4 funds raised from the unsecured loan taken from various parties is utilized for ITA No. 960/JP/2019 Shri Kailash Chand Soni, Jaipur Vs. ACIT, Jaipur lending money to various parties. It means that the interest paid on unsecured loans is expended wholly and exclusively for earning the interest income from loans and advances. However the A.O. had not considered section 57(iii) of the income tax act and term commercial expediency together and had contended that the expenditure is not related wholly and exclusively for earning income of ₹ 4,21,667/- only because the assessee has advanced loan to one party at nil rate of interest out of commercial expediency .. In actual such loans and advance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e business - allowable if made as a measure of commercial expediency - Income tax Act, 1961, ss36(1)(iii),37. Words and phrases - for the purpose of business commercial expediency , meaning of. In order to decide whether interest on funds borrowed by the assessee to give an interest free loan to a sister concern (e.g., a subsidiary of the assessee) should be allowed as a deduction under section 36(1)(iii) of the Income-tax Act, 1961, one has to enquire whether the loan was given by the assessee as a measure of commercial expediency. The expression commercial expediency is one of wide import and includes such expenditure as a prudent businessman incures for the purpose of business. The expenditure may not have been incurred under any legal obligation, buy yet it is allowable as business expenditure if it was incurred on grounds of commercial expediency. Decisions relating to section 37 will also be applicable to section 36(1)(iii) because in section 37 also the expression used is for the purpose of the business . For the purpose of business includes expenditure voluntarily incurred for commercial expediency, and it is immaterial if a third party also benefits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the interest in the range of 6% to 18% more specifically interest @18% per annum has been charged from Kalani Industries Pvt Ltd, 6% per annum has been charged from P.S. Kalani. In the details of interest paid we observe that on the unsecured loans the rate of interest paid is ranging from 9% to 15%. Interest ranging from 12% to 15% has been paid to the bank. Revenue has not doubted the genuineness of all other interest expenses and interest receipts during the year except those disputed. No adversity have been found in the books of accounts regularly maintained by the assessee. Assessee also enjoys over draft facility from Bank of Baroda and also on 31.3.2014 the outstanding balance of over draft of Bank of Baroda was ₹ 2,02,07,718/-. 11. The above stated facts clearly demonstrates that assessee is regularly carrying out the business of money lending and for business and commercial expediency rate of interest paid and received varies from case to case. The assessee is very much independent to carry out its business activity in the best of her interest. Charging of interest at high rate and low rate depends on various circumstances. If the funds are idle and due to pre ..... X X X X Extracts X X X X X X X X Extracts X X X X
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