2021 (9) TMI 532 - AT - Income Tax

Accrual of interest income - Amount outstanding from the trade debtors - non-charging of interest on the debtors - Whether amount provided by the assessee to the said parties comes under the ambit of commercial expediency - CIT(A) confirming the addition made on account of disallowance of interest and added the same in the income of the assessee - as per assessee none of the parties to whom amount was advanced was covered u/s. 40(A)(b) of the Act and all the parties were transacted within the normal course of business - HELD THAT - As no amount has been advanced to the sister concern or others without any business purposes. The A.O. has not demonstrated that the amount paid by the assessee to the parties was without any 'business expediency' moreover, no independent enquiry has ever been conducted by the A.O. from the said parties. We found support from the decision of Highways Construction Co. P. Ltd. 1992 (11) TMI 86 - GAUHATI HIGH COURT wherein it was categorically held that the A.O. has to bring on record any interest actually been collected or received and the collection of the interest was reflected in the accounts. In the present case, there is no such finding on record and even otherwise the findings of the Income tax officer are only to the extent that the assessee ought to have collected interest. Assessee had not received any interest then we fail to understand as to how the Income tax authorities can fix a notional interest as due, or collected by the assessee. Our attention has not been invited to any of the provisions of the Act empowering the Income tax authorities to include in the income, interest which has not been due or collected/received at any stage by the assessee. Amount outstanding from the trade debtors cannot be held as amount given on loan. No material has been placed on record by the A.O. to impute that the delay in receiving the outstanding balance amounts from the debtor parties was on account of deliberate act of the assessee - no addition could have been made by the A.O. on account of non-charging of interest by the assessee, hence, we direct to delete the addition. - Decided in favour of assessee.

Summary

Issues:
- Disallowance of interest paid to creditors
- Charging of interest under sections 234B and 234C of the IT Act
- Additional or alternative grounds for appeal

Analysis:
1. The appeal was filed against the order confirming the disallowance of interest paid to creditors by the ld. CIT(A) for the assessment year 2013-14. The appellant argued that the disallowance lacked a solid base and should be deleted. The hearing was conducted via video conference due to the Covid-19 situation.

2. The assessee, an individual and proprietor of a business dealing in grains, gaur, and agriculture products, filed the return of income declaring total income. The AO completed the assessment, making various additions, including disallowance of interest paid to creditors.

3. The ld. CIT(A) partially allowed the appeal, confirming the disallowance of interest. The appellant then appealed to the ITAT challenging the disallowance of interest amounting to ?8,89,780.

4. The main contention was the non-charging of interest on debtors by the assessee. The appellant argued that the parties were related to business transactions and commercial expediency, and no interest was charged as they were regular dealers. Various legal precedents were cited to support the argument against the addition.

5. The ld. DR supported the lower authorities' orders, while the assessee reiterated their arguments before the ITAT.

6. After considering the contentions and evidence, the ITAT found that the AO had not conducted an independent inquiry into the non-charging of interest on debtors. Citing legal precedents, including the Supreme Court's decision, it was concluded that no addition could be made on account of non-charging of interest by the assessee. Therefore, the ITAT directed to delete the addition, allowing the appeal of the assessee.