2017 (2) TMI 331 - AT - Income Tax

Addition of amount paid to the bank on account of interest - Held that - We find that it is fact that the capital of the partners in all the years from 2006-07 to 2009-10 remained more than ₹ 1,00,00,000 against the alleged loan of ₹ 1,00,00,000. The hon ble Punjab and Haryana High Court in the case of Gurdas Garg v. CIT 2015 (8) TMI 569 - PUNJAB & HARYANA HIGH COURT has decided the following question of law in favour of assessee.

Summary

Issues:
Appeal against addition of interest paid to bank by the assessee.

Detailed Analysis:
1. The appeal was filed against the order of the Commissioner of Income-tax (Appeals) for the assessment year 2010-11, specifically challenging the addition of ?5,68,698 paid by the assessee to the bank as interest.

2. The case revolved around the fact that the Assessing Officer disallowed the interest claimed by the assessee, as it was believed that the interest would not have been paid if the assessee had not advanced an interest-free loan to a partner. The Assessing Officer held that the partner had taken the loan for personal benefit, leading to the disallowance of the interest amount.

3. The assessee contended that the amount deposited with the court was for purchasing land on behalf of the firm, not as a loan to the partner. The assessee argued that once the land was finalized, the interest earned on the deposited amount would become the firm's income. However, the Assessing Officer disagreed, leading to the disallowance of the interest paid to the bank.

4. The assessee appealed to the Commissioner of Income-tax (Appeals), presenting various submissions, including the capital of the firm exceeding the loan amount and the land being intended for the firm's benefit. Despite the submissions, the appeal was dismissed, prompting the assessee to appeal further.

5. During the appeal hearing, the authorized representative emphasized that the capital of the firm in preceding years exceeded the loan amount, and the loan was not freshly advanced in the relevant year. Reference was made to legal precedents to support the argument against the disallowance of interest.

6. The Tribunal analyzed the facts and legal precedents, noting that the capital of the partners consistently exceeded the alleged loan amount. Citing a judgment by the Punjab and Haryana High Court, the Tribunal concluded that the disallowance was unwarranted as the interest-free capital surpassed the loan amount.

7. Additionally, it was observed that the loan amount in question was not freshly advanced in the relevant year but was carried forward from a prior assessment year. Referring to a similar case, the Tribunal allowed the appeal based on the facts and legal arguments presented.

8. Ultimately, the Tribunal ruled in favor of the assessee, allowing the appeal against the addition of interest paid to the bank. The order was pronounced in an open court on September 15, 2016.