2022 (12) TMI 179 - AT - Income Tax

Disallowance of interest expenses as well as disallowance of proportionate interest rate on the interest free loan given - AO made disallowance of interest expenses by taking a view that the assessee could furnish copy of ledger and bank statement to prove that the transactions were genuine - HELD THAT - Once the transaction of loan is considered as genuine, the interest on such loan cannot be disallowed. CIT(A) further held that P.K. Enterprises was not part of 19 parties and the assessee had explained the genuineness of said loan during the assessment. Thus, the interest cannot be disallowed. Considering the facts that on similar interest disallowance in A.Y. 2017-18 and similar deletion of interest disallowance was upheld by this Bench in A.Y. 2017-18 - Therefore, we do not find any illegality or irregularity in the order passed by the ld. CIT(A) which we affirm the same qua the issue under consideration. Disallowance of interest expenses paid on unsecured loan - AO disallowed the interest expenses by taking a view that the lender parties have not responded to the notice u/s 133(6) - HELD THAT - We find that no finding was given by Assessing Officer on various documentary evidences furnished by assessee, which consists of confirmation of parties, return of income of lender parties, ledger account of assessee and parties books of account, bank statement of parties and financial statement of lenders. The assessee has also filed copies of reply in response to notice u/s 133(6) - We find that the ld. CIT(A) allowed relief to the assessee by clearly holding that the reply of lender party in response to notice under Section 133(6) is seen on ITBA Website. Similar interest expenses were allowed in earlier assessment years and was never disallowed. We find that the ld. CIT(A) granted relief on appreciation of fact that the assessee made compliance. As earlier noted that tao has not given any finding on the various documentary evidences to substantiate the genuineness of interest expenses. Assessing Officer has not controverted the fact that in earlier years, similar interest expenses were allowed. In view of the aforesaid factual discussion, we do not find any merit in the grounds of appeal raised by the Revenue and we delete the same. Accordingly, grounds No. 2 and 3 of the appeal are dismissed. Addition of notional interest - nexus between the interest bearing loan and loan advanced - assessee borrowed interest bearing funds and on the other hand, the assessee was providing interest free loans to its group concerned - AO Disallowed and added 6% interest on such loan paid to group concerns - HELD THAT - As there is no direct nexus between the interest bearing loan and loan advanced by assessee. Most of the interest free advances were made prior to 2010-11. The interest bearing loan was given by assessee after that period. Moreover, the interest free reserve and surplus are in far excess, which is not controverted by the ld Sr DR for the revenue. Therefore, we do not find any illegality or irregularity in the order passed by the ld. CIT(A) which we affirm the same qua the issue under consideration. Hence, this ground of appeal of the revenue is also dismissed.

Issues Involved:
1. Deletion of disallowance of interest expenses on unsecured loans.
2. Deletion of disallowance of interest payments to specific entities due to non-compliance with notices.
3. Deletion of disallowance of interest payments based on compliance with notices.
4. Deletion of disallowance of interest attributable to interest-free loans given to related parties.

Detailed Analysis:

1. Deletion of Disallowance of Interest Expenses on Unsecured Loans:
The Revenue challenged the deletion of Rs. 91,38,649/- disallowed by the Assessing Officer (AO) on the grounds that the loans were bogus and provided by entry providers. The AO relied on the Investigation Wing's report stating that the loans were accommodation entries. The Commissioner of Income Tax (Appeals) [CIT(A)] deleted the disallowance, noting that similar loans had been deemed genuine in previous assessments (AY 2009-10 to 2017-18). The Tribunal upheld the CIT(A)'s decision, emphasizing that the AO did not provide any new evidence to contradict the genuineness of the loans, which had been substantiated by ledger accounts, confirmations, and bank statements.

2. Deletion of Disallowance of Interest Payments to Specific Entities Due to Non-Compliance with Notices:
The AO disallowed Rs. 85,86,709/- in interest payments to Aavishkar Murli Agarwal, Meenahar Gems Pvt. Ltd., and Vijay Exports, citing non-compliance with Section 133(6) notices. The CIT(A) found that the parties had indeed responded to the notices, as evidenced by ITBA Website records, and had provided confirmations, ledger accounts, and bank statements. The Tribunal affirmed the CIT(A)'s decision, noting that the AO did not address the documentary evidence provided by the assessee, and similar interest expenses had been allowed in previous years.

3. Deletion of Disallowance of Interest Payments Based on Compliance with Notices:
The AO disallowed interest payments to certain entities, asserting that the parties did not respond to Section 133(6) notices. The CIT(A) observed that the parties had complied with the notices and provided necessary documentation. The Tribunal upheld the CIT(A)'s deletion of the disallowance, reiterating that the AO failed to consider the evidence provided and that similar expenses had been allowed in prior assessments.

4. Deletion of Disallowance of Interest Attributable to Interest-Free Loans Given to Related Parties:
The AO disallowed Rs. 61,32,957/- in notional interest, arguing that the assessee provided interest-free loans to related parties while incurring interest on borrowed funds. The CIT(A) found no direct nexus between the interest-bearing loans and the interest-free advances, noting that most advances were made before FY 2010-11, and the assessee had sufficient interest-free capital. The Tribunal upheld the CIT(A)'s decision, emphasizing that the assessee's interest-free reserves exceeded the advances, and similar disallowances had not been made in previous years.

Conclusion:
The Tribunal dismissed the Revenue's appeals, affirming the CIT(A)'s decisions to delete the disallowances based on consistent findings from previous assessments, adequate documentary evidence provided by the assessee, and the lack of new evidence from the AO to substantiate the disallowances.

← Previous Next →