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TMI Blog2016 (10) TMI 1309X X X X Extracts X X X X X X X X Extracts X X X X ..... ot submit any evidence or any loan agreement before us in support of such contention nor could he lay any evidence to justify any business prospects by borrowing the funds at higher rate of interest and lending the said borrowed funds at lower rate of interest, particularly when the assessee was engaged in the business of financial services. There are also no previous or subsequent instances on record to prove such business practice of the assessee. Assessee failed to prove the business expediency, under which he chose to suffer loss in the business by paying much more interest on borrowed funds and by earning lesser interest on advancing the said borrowed funds. No justification to discard the conclusions of the authorities below regarding admissibility of inordinate interest expenditure claimed by assessee on borrowed funds. - Decided against assessee. - ITA No. 2746/Del./2014 - - - Dated:- 27-10-2016 - SHRI H.S. SIDHU, JUDICIAL MEMBER AND SHRI L.P. SAHU, ACCOUNTANT MEMBER For the Appellant : Sh. Sumit Seth, C.A. For the Respondent : Sh. Amrit Lal, Sr. DR ORDER Per L.P. Sahu, Accountant Member: This is an appeal filed by the assessee against the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enses disallowed u/s. 36(1)(iii) of the Act as challenged in the above grounds of appeal raised before us. The assessee company had raised loans from M/s. Silver Line Technologies Ltd. in earlier years and showed the same as opening balance of ₹ 2.15 crores as on 01.04.1999. He further raised loan of ₹ 5.00 crores on 03.05.1999 at the interest rate of 15% and paid interest of ₹ 73,23,288/-. The interest paid was claimed in the profit and loss account. The loan so raised from M/s. Silver Line Technologies Ltd., a sum of ₹ 6.25 crores was given an ICD to M/s. Merlin Resources Pvt. Ltd. at the rate of 6% whereas the assessee has raised the same loan @ 15% and paid interest amounting to ₹ 73,23,288/- on it. In this regard a letter was issued to the assessee on 30.12.2002 for seeking explanation for doing so, which reads as under : You have taken the unsecured loan from M/s. Silverline Technologies Ltd. and are paying interest @ 15% whereas you have advanced ICD deposits given to M/s. Merlin Resources (P) Ltd. to the tune of ₹ 22.25 crores @ 7% on opening balance and 6% ICD given during the year. Please explain why the interest should not be restr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the plea that assessee has advanced loan at a rate of interest lower than the rate of interest paid by him. We direct accordingly. 6. In the light of above directions of ITAT, the Assessing Officer issued notice u/s. 143(2) dated 07.12.2007 along with questionnaire requiring the assessee to furnish the complete details in respect of loan taken and interest paid and also furnish documentary evidences to prove that the said loan was taken and interest was paid thereon for the purpose of business. The Assessing Officer passed the order u/s. 254/143(3) of the Act. The relevant para is as under : The notice u/s 143(2) however remained un-responded. As such another notice u/s 143(2) dated 23.07.2008, was issued fixing the case for 05.08.2008. This notice too remained un-responded. Subsequently, another notice u/s 143(2) of 08.08.2008 was issued to the assessee fixing the case for 18.08.2008, which was subsequently adjourned for 21.08.2008 and further adjourned to 26.08.2008. On 26.08.2008, a letter dated 20.08.2008 was filed on behalf of the AR of the assessee company who filed his Power of Attorney and sought a copy of the questionnaire which had already been sent along with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the interest expenditure on the loan as an allowable business expense is in itself acceptance of the fact that the said interest relates to capital borrowed for the purposes of the business of the assessee company and is acceptance of the nexus between the expenditure and the business of the appellant, and is thus an allowable expenditure u/s 36(1)(iii). The said nexus having being accepted in allowing 1/3rd of the interest expenditure, the disallowance of 2/3rd of the interest on the same loan is completely unwarranted in view of the specific directions of the Hon'ble ITAT that no disallowance is to be made merely on plea that assessee has advanced loan at a rate of interest lower than the rate of interest paid by him. The nexus having been accepted, the revenue cannot put itself in the arm chair of the businessman to decide how much reasonable expenditure having regard to the circumstances of the case. No businessman can be compelled to maximise his profit and revenue authorities must put themselves in the shoes of the assessee and see how a prudent businessman would act. Reliance is placed on the judgment of the Hon'ble Supreme Court in Hero Cycles (P.) Ltd. vs. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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