2023 (9) TMI 882 - AT - Income Tax

Disallowance by invoking provisions of section 36(1)(iii) - notional interest @12% on unsecured loans advanced free of interest - HELD THAT - As observe that the money advanced by the assessee during the year was Rs. 2,62,60,730/- comprised of three parties out of whom Rs. 1,79,24,200/- is opening balance which was advanced/transferred from Tulsi Damodaran to Chakresh Commoscals Pvt Ltd as is apparent from the schedule no. 5 annexed to balance sheet titled Current Assets, Loans Advances . We observe that Rs. 1,72,24,200 represented opening balance and during the year it was transferred to Chakresh Commosales Pvt. Ltd. We have also examined the copies of accounts in respect of loans advanced and find that these advances were given at the fag end of the year. After having perused the facts before us, we find that these loans were not given out of borrowed funds and therefore the addition made by the AO as well as its confirmation by the Ld. CIT(A) cannot be sustained. So accordingly we are inclined to set aside the order of Ld. CIT(A) and direct the AO to delete the addition. Accordingly ground no. 2 is allowed. Disallowance u/s 40(a)(ia) - TDS were deducted at lesser rate on the interest - CIT(A) dismissed the appeal of the assessee by observing that the assessee has failed to give a certificate of the auditor stating that the payee also offered same for taxation and also rejecting the contentions of the assessee that assessee has deducted tax at the lesser amount than provided under the Act whereas the disallowance can only be made where the assessee has failed to deduct tax at source - HELD THAT - After hearing the rival parties and perusing the material on record, we find that in this case the assessee has deducted tax at lesser rate and it is the case of short deduction of tax. Thus the reliance made by the assessee on the decision of Ansal Landmark Township Pvt. Ltd. 2015 (9) TMI 79 - DELHI HIGH COURT is relevant - disallowance cannot be made where the assessee has deducted tax at a rate which is lesser than what is provided under the Act. Accordingly we are inclined to set aside the order of Ld. CIT(A) and direct the AO to delete the addition. Assessee appeal allowed.

Summary

Issues involved: Appeal against the order of the Ld. Commissioner of Income Tax (Appeals)-3, Kolkata for AY 2011-12.

Issue 1: General issue not requiring specific adjudication.

Issue 2: Disallowance of Rs. 31,51,288/- under section 36(1)(iii) for notional interest on unsecured loans.

The AO added Rs. 31,51,288/- as deemed interest to the income of the assessee, as the assessee had given interest-free loans of Rs. 2,62,60,730/- and paid interest @ 12% on other loans. The Ld. CIT(A) confirmed the disallowance under section 36(1)(iii) by stating that interest-free advances were not given out of commercial expediency. However, the ITAT found that the loans were not given out of borrowed funds, as evidenced by the balance sheet and documents. The ITAT set aside the Ld. CIT(A)'s order and directed the AO to delete the addition, allowing ground no. 2.

Issue 3: Disallowance of Rs. 5,75,875/- under section 40(a)(ia) for short deduction of TDS.

The AO added Rs. 5,75,875/- to the income of the assessee for short deduction of TDS on interest paid. The Ld. CIT(A) confirmed the disallowance, stating that the assessee failed to provide a certificate from the auditor regarding tax payment by the payee. However, the ITAT noted that the assessee had deducted tax at a lesser rate and ruled that disallowance cannot be made in such cases. Citing relevant case law, the ITAT set aside the Ld. CIT(A)'s order and directed the AO to delete the addition, allowing the appeal.

Conclusion: The ITAT allowed the appeal of the assessee, setting aside the disallowances made under sections 36(1)(iii) and 40(a)(ia) for notional interest on unsecured loans and short deduction of TDS, respectively.