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2019 (2) TMI 1434 - AT - Income TaxDisallowing of interest expenses - funds taken on higher rate of interest have been given to sister concerns at lower rate of interest - A.O. held that rate of interest charged from sister concerns was lesser by 9% - HELD THAT - Case law relied upon by the Ld. AR for the assessee is directly applicable in the present case i.e. CIT Vs. S.A. BUILDERS (2006 (12) TMI 82 - SUPREME COURT), wherein, it has been held that If advance was given for commercial expediency then no disallowance for interest can be made - Decided in favour of assessee.
Issues:
1. Disallowance of interest expenses claimed by the assessee. 2. Jurisdictional limits of the Ld. CIT(A) in enhancing the disallowance of interest. 3. Calculation errors in determining the disallowable amount by the Assessing Officer. Analysis: 1. The assessee filed an appeal against the order disallowing interest expenses of ?19,66,506 out of total expenses claimed at ?26,22,008, citing diversion of funds to sister concerns at lower interest rates. The Assessing Officer noted discrepancies in interest rates and disallowed a portion of the claimed expenses. The Ld. CIT(A) enhanced the disallowance by ?6,55,502, leading to total disallowance of interest expenses. The AR argued for commercial expediency due to advances to sister concerns, supported by relevant financial documents and case laws. 2. The Ld. CIT(A) was criticized for exceeding jurisdiction in enhancing the disallowance of interest. The AR contended that the calculations by both lower authorities were erroneous and excessive. The AR emphasized the commercial nature of advances to sister concerns, providing evidence of interest-free funds available to the assessee. The Ld. CIT(A) incorrectly assessed the loan amounts and reserves, leading to an inaccurate disallowance decision. 3. The Tribunal observed that the interest rates charged to sister concerns were for commercial expediency, as evidenced by the purpose of the loans and the financial stability of the assessee. The Tribunal referred to a Supreme Court decision supporting interest disallowance exceptions for commercial expediency. Considering the facts and precedents, the Tribunal set aside the lower authorities' orders, deleting the disputed addition and allowing the grounds raised by the assessee. Conclusion: The Tribunal allowed the appeal of the assessee, emphasizing the commercial nature of the transactions with sister concerns and overturning the disallowance of interest expenses. The decision highlighted the importance of commercial expediency in determining the allowability of interest expenses, following relevant legal precedents.
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