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TMI Blog2018 (7) TMI 1476X X X X Extracts X X X X X X X X Extracts X X X X ..... es that disparity between interest receipts and payments arose on account of charging of lower rate of interest on loans advanced when compared to interest paid on loans received. In the circumstances, we are of the opinion that ld. Assessing Officer was not justified in making a disallowance for the difference between interest received and interest paid by the assessee. - Decided in favour of assessee - I.T.A. No.995/CHNY/2017 - - - Dated:- 19-7-2018 - SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER For The Appellant : Shri. R. Sivaraman, Advocate For The Respondent : Shri. N. Gopinath, IRS, JCIT ORDER PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER In this appeal filed by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer held that expenditure which involved related parties had to be restricted to the market value. According to him, concept of matching principle had to be allowed on the interest received and paid. Difference between interest received and interest paid working out to ₹ 1,65,81,384/- was disallowed u/s.36(1) (iii) of the Act. Assessment was completed accordingly. 3. Aggrieved, assessee moved in appeal before ld. Commissioner of Income Tax (Appeals). Relying on the judgment of Hon ble Apex Court in the case of S.A. Builders Ltd vs, CIT, 288 ITR 1, assessee submitted that advances given to various persons were all in the business interest of the assessee. As per the assessee, it was following cash system and therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd (supra) was overruled by a larger Bench of Apex Court in the case of Addl. CIT vs. M/s. Tulip Star Hotels Ltd (SL to Appeal (Civil) /2012 (CC 7138-7140/2010) dated 30.04.2012). Crux of the finding of the ld.CIT(A) as it appears at paras 5.5 and 5.6 of his order is reproduced hereunder:- The contention of the Appellant is carefully considered. During the FY 2008-09, the assessee has collected interest from the Group Executives and also the principal amount due from them as on 31/03/2009. During the FYs 2009-10 to 2012-13, the Appellant has been lending sums to 44 executives in all amounting to ₹ 11,91,72,798/- as on 31/03/2013. Apart from the same, a sum of ₹ 10,11,96,799/- is due from the promoters being the advanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch other rate of interest as may be agreed upon from time to time. 1. Sd/- 2. Sd/- 3. Sd/- 4. Sd/- 5. Sd/- 6. Sd/- 7. Sd/- 8. Sd/- 9. Sd/- 10. Sd/- Shri. R. Thiagarajan , Shri. T. Jayaraman and Shri AVS Raja are the first, third and fifth partners of the firm who have taken a loan of Rs. 10,11,96,799/-. Further, the balance sheet as on 31.03.2013 exh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceipts and interest payments arose on account of the cash basis system followed and not because of any undercharging of interest. Reliance was placed on a letter dated 27.01.2017 filed before ld. Commissioner of Income Tax (Appeals), wherein loans given to various parties and interest received from them were listed. According to him, lower authorities fell in error in disallowing a part of the interest expenses based on matching principle, which was not applicable when cash basis of accounting was followed. 6. Per contra, ld. Departmental Representative submitted that ld. Commissioner of Income Tax (Appeals) had clearly brought out the lower amount of interest received from persons to whom assessee had advanced money. According to him, l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sis system followed by the assessee. There is nothing in the statute which stopped the assessee from following the cash system of accounting. In assessee s own case for assessment year 2009-2010 on Revenue appeal (ITA No.1690/Mds/2013, dated 27.11.2013), this Tribunal had held as under:- 6. The Commissioner of Income Tax (Appeals) held that the assessee is an investment company made investments in group concerns as part of its business of the assessee i.e. advancing loans to group concerns. The Commissioner of Income Tax (Appeals) also gave a finding that monies are borrowed from group concerns only and these monies are utilized by the investee concerns for their trade purposes. Since the investments in shares of group concerns amou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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