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2010 (9) TMI 942 - AT - Income TaxDisallowance of excessive interest paid u/s 40A(2)(a) - HELD THAT - The ld. CIT(A) concluded that the reasonableness of the expenditure could not be doubted. As pointed in CIT v. Dalmia Cement (B.) Ltd. 2001 (9) TMI 48 - DELHI HIGH COURT , once it is established that there was nexus between the expenditure and the purpose of the business, the Revenue cannot justifiably claim to put itself in the arm-chair of the businessman or in the position of the board of directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. No businessman can be compelled to maximize his profit. The Income-tax authorities must put themselves in the shoes of the assessee and see how a prudent businessman would act. The authorities must not look at the matter from their own view point but that of a prudent businessman. In the light of view taken in the said decision, we are of the opinion that once it is found that the expenditure had been, as a matter of fact, incurred by the assessee , it is not for the Department to consider whether commercial expediency justified the expenditure. Reasonableness of the expenditure can be gone into only for the purpose of determining whether in fact, the amount was spent. There is no material to show that any part of the amount shown to have been debited under the arrangement subsequently came back. Thus ,especially when the ld. DR appearing before us did not place any material controverting the findings of the ld. CIT(A) in these three assessment years so as to enable us to take a different view in the matter, we are not inclined to interfere with the findings of the ld. CIT(A).Therefore, ground no.3 in the appeals for the AY 2001-02 AY 2002-03 and ground no. 2 in the appeal for the AY 2003-04 are also dismissed.
Issues Involved:
1. Deletion of addition on account of interest charged at a reduced rate. 2. Deletion of addition on account of interest on advances to Virtuous Finance Limited. 3. Deletion of disallowance on account of interest-free godown deposit to Dadha Pharma Pvt. Ltd. 4. Allowing interest on advances to M/s Antriksh Pharma & M/s Dukan. 5. Deletion of addition on account of interest on advance to Dadha & Co. 6. Deletion of addition on account of interest-free advance to Pradeep Dadha Agency. 7. Deletion of addition on account of interest in respect of advance to individuals. 8. Disallowance of interest paid to Sun Pharmaceutical Industries Ltd. (SPIL) on overdue balances. Detailed Analysis: 1. Deletion of Addition on Account of Interest Charged at a Reduced Rate: The Tribunal upheld the CIT(A)'s decision to delete the disallowance of interest charged at a reduced rate, noting that the assessee had substantial interest-free funds and the advances were for short-term purposes. The Tribunal referenced its earlier decision in the assessee's case for AY 1998-99, where it was established that the assessee had sufficient interest-free funds, and the interest charged was in line with commercial expediency. 2. Deletion of Addition on Account of Interest on Advances to Virtuous Finance Limited: The Tribunal upheld the CIT(A)'s decision to delete the disallowance of interest on advances to Virtuous Finance Limited, referencing its earlier decision in the block assessment period. It was noted that the advances were given for acquiring substantial shareholding in Ambalal Sarabhai Enterprises Ltd. and were thus for commercial purposes. The Tribunal found no reason to interfere with the CIT(A)'s findings. 3. Deletion of Disallowance on Account of Interest-Free Godown Deposit to Dadha Pharma Pvt. Ltd.: The Tribunal upheld the CIT(A)'s decision to delete the disallowance of interest-free godown deposit to Dadha Pharma Pvt. Ltd., referencing its earlier decision in the block assessment period. It was noted that the deposit was given for business purposes, and the assessee had sufficient interest-free funds. The Tribunal found no reason to interfere with the CIT(A)'s findings. 4. Allowing Interest on Advances to M/s Antriksh Pharma & M/s Dukan: The Tribunal upheld the CIT(A)'s decision to delete the disallowance of interest on advances to M/s Antriksh Pharma & M/s Dukan, referencing its earlier decision in the block assessment period. It was noted that the advances were given for business purposes, and the assessee had benefited from increased turnover. The Tribunal found no reason to interfere with the CIT(A)'s findings. 5. Deletion of Addition on Account of Interest on Advance to Dadha & Co.: The Tribunal upheld the CIT(A)'s decision to delete the disallowance of interest on advance to Dadha & Co., noting that the interest was subsequently recovered and offered for tax. The Tribunal found no reason to interfere with the CIT(A)'s findings. 6. Deletion of Addition on Account of Interest-Free Advance to Pradeep Dadha Agency: The Tribunal upheld the CIT(A)'s decision to delete the disallowance of interest-free advance to Pradeep Dadha Agency, noting that the interest was subsequently recovered and offered for tax. The Tribunal found no reason to interfere with the CIT(A)'s findings. 7. Deletion of Addition on Account of Interest in Respect of Advance to Individuals: The Tribunal upheld the CIT(A)'s decision to delete the disallowance of interest on advances to individuals, noting that the advances were given for business purposes and there was no evidence to suggest that interest had been recovered in cash. The Tribunal found no reason to interfere with the CIT(A)'s findings. 8. Disallowance of Interest Paid to Sun Pharmaceutical Industries Ltd. (SPIL) on Overdue Balances: The Tribunal upheld the CIT(A)'s decision to delete the disallowance of interest paid to SPIL on overdue balances, referencing its earlier decision in the assessee's case for AY 1997-98. It was noted that the interest was paid wholly and exclusively for business purposes, and the arrangement could not be said to reduce the tax liability. The Tribunal found no reason to interfere with the CIT(A)'s findings. Conclusion: All the five appeals by the Revenue were dismissed, and the orders of the CIT(A) were upheld. The Tribunal found that the CIT(A)'s decisions were in line with the principles of commercial expediency and supported by sufficient interest-free funds available with the assessee. The Tribunal did not find any reason to interfere with the CIT(A)'s findings in all the issues involved.
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