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TMI Blog2021 (5) TMI 508X X X X Extracts X X X X X X X X Extracts X X X X ..... ee and Mr. G.Ramesh, but he has disallowed interest only on the ground that although, rental agreement has been entered into by paying deposit, but no rental payment has been made for the current financial year. We find that reasons given by the AO to disbelieve rental agreement between the parties is not on sound footing, because it is for the parties to decide from which date rental payment shall commence. Merely for the reason that there is no rental payment for current financial year, genuine rental agreement and consequent rent advance paid cannot be considered as diversion of funds for non-business purposes so as to disallow interest expenses paid on loan borrowed for the purpose of business. But, the learned CIT(A) without appr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase Rent Agreement with one Mr.G.Ramesh dated First October 2012. The go-down is situated at Pallavaram Radial Road, Chennai the size of the same is 22,500 sq feet. For huge level dumping of goods for business expediency such big size of the stock yard Is required for the company and for this purposes, the appellant company has made a lease rent advance of ` 3,40,00,000/- to the land lord Mr.G.Ramesh and the same is also Incorporated in the above said Lease Rent Agreement and the copies of the same Is also produced before the Ld AO and the CIT(Appeals). 4. As per the clause 2 of the above lease rent agreement, the monthly lease rent will start from First April 2013 only. Whereas, the learned AO has came to a wrong assumption ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n from Shri G.Ramesh, director of the company amounting to ₹ 4,84,85,119/-, on which interest of ₹ 43,82,716/- has been paid. During the course of assessment proceedings, the Assessing Officer was of the opinion that interest paid on loan cannot be allowed as deduction u/s.36(1)(iii) of the Act, because the assessee has diverted interest bearing funds for non-business purpose to advance loan to Shri G.Ramesh. Although, the assessee claims that lease deposit was paid for the purpose of business, but on perusal of financial statement, it was noticed that no lease rental has been debited into profit loss account. Therefore, he opined that rental security deposit was not for business purposes and accordingly, by taking note of lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessing Officer as well as learned CIT(A) have disregarded rental agreement filed by the assessee to prove its claim that it has taken premises on lease rental by paying lease deposit and as per the said rental agreement, monthly rent commences from 01.04.2013, therefore, question of debiting rental expenses for the impugned assessment year does not arise. Therefore, normal advance given for the purpose of business cannot be considered as diversion of funds so as to disallow interest paid on genuine loan borrowed for the purpose of business of the assessee. 6. The learned DR, on the other hand, strongly supporting the orderof the learned CIT(A) submitted that rental agreement filed by the assessee is an afterthought to circumvent diversi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on a monthly rental of ₹ 75,000/- and such rent shall commence from 01.04.2013. Further, the assessee has also produced necessary evidence to prove that it has started paying rental for the premises from next financial year. In fact, the Assessing Officer has not disputed rental agreement entered into between the assessee and Mr. G.Ramesh, but he has disallowed interest only on the ground that although, rental agreement has been entered into by paying deposit, but no rental payment has been made for the current financial year. We find that reasons given by the Assessing Officer to disbelieve rental agreement between the parties is not on sound footing, because it is for the parties to decide from which date rental payment shall comme ..... X X X X Extracts X X X X X X X X Extracts X X X X
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