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TMI Blog2021 (7) TMI 710X X X X Extracts X X X X X X X X Extracts X X X X ..... e disallowance to that extent. Ground No. 1 of the assessee's appeal is accordingly partly allowed. Disallowance on account of interest expenses under section 36(1)(iii) - HELD THAT:- Following the said conclusion drawn while deciding the issue involved in Ground No. 1, we uphold the impugned order of the ld. CIT(Appeals) confirming the disallowance made by the Assessing Officer on account of interest expenses to the extent the same was attributable to the interest-free advance given by the assessee-company to M/s. NRC Limited. Ground No. 2 of the assessee's appeal is accordingly dismissed. - I.T.A. No. 1303/KOL/2018 - - - Dated:- 25-6-2021 - P. M. Jagtap , Vice President And A. T. Varkey , Member ( J ) For the Appellant : Subash Agarwal , Advocate For the Respondents : Taj inder Pal Singh , CIT ( DR ) ORDER Per Shri P. M. Jagtap , Vice President This appeal filed by the assessee is directed against the order of ld. Commissioner of Income Tax (Appeals)-3, Kolkata dated 07.03.2018. 2. The issue raised in Ground No. 1 relates to the disallowance of ₹ 4,06,16,220/- made by the Assessing Officer on account of disallowance of interest expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dering our request for waiver of interest, ISG Traders Ltd. also did not actually charge any interest on the loan provided for the F.Y. 2010-11 and accordingly no demand for interest was raised against us by the said Lender till 31st March 2011. Since no demand for interest was raised by ISG Traders Ltd. till 31st March 2011 in drawing lip its annual accounts: ISG Traders also did not account for any interest income in its books for the financial year ending on 31st March 2011. However, after the close for the Accounting Year 2010-11, the Board of Directors of ISG Traders Lid deliberated on our request for waiver. Their deliberations were made in the context of their own profitability it was found that financial position of the lender itself was not sound enough to grant waiver of interest. The decision of the management of ISG Traders Ltd. with regard to charging of interest was communicated to us vide its letter dated 12th September, 2011. Along with the said letter ISG Traders Ltd. also served on us a Debit Note for interest payable for the F.Y. 2010-11. Your goodself will thus note that ISG Traders Ltd. formally raised the demand for interest of ₹ 4.06 Crores only durin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penditure in AY 2012-13, since the liability in respect of such expenditure accrued in the FY 2011-12. Our claim in this regard is supported by the decision of the ITAT, Kolkata in the case of Off-shore India Ltd. in ITA No. 2165/KOL/2007 (copy enclosed) . 4. The above submission made on behalf of the assessee-company was not found acceptable by the Assessing Officer. According to him, there was no dispute on account of rate of interest or the liability on account of interest and the said liability having been crystallized in the earlier year relevant to assessment year 2011-12 on the basis of agreed rates and terms, the assessee-company following the mercantile system of accounting was entitled to claim deduction for the interest in AY 2011-12 itself and not in the year under consideration. He also noted that the loan creditor had finally not waived the interest of the assessee-company and had offered the corresponding interest income related to the period from 01.04.2020 to 31.03.2011 amounting to ₹ 4,06,16,220/- as its income in the return of income filed for AY 2011-12 itself. He accordingly treated the interest expenses claimed by the assessee to that extent as prior ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 35/-. Ne other purchase of material or chemical has been made from NRC Ltd. by the appellant company. The only other transaction between NRC Ltd. and the Appellant company is that of purchase of DEPB licences vide Bill dated 03/03/2010 for an amount of ₹ 81,68,118/-. Further the borrowings from ISG Traders have been directly utilized in giving interest free advances to NRC Ltd. therefore the nexus of the borrowed funds for giving interest free advances to NRC Ltd. is clearly established. Moreover as observed earlier NRC Ltd. is a sick company with which only one single purchase transaction of Viscose Filament Yarn was done by the appellant company. It is observed that in F.Y. 2008-09 a sum of ₹ 6.75 crores was given and no purchase made. In next F.Y. purchase of Filament Yarn - of ₹ 3,78,035/- and DEPB worth ₹ 81,68,118/- was made. Therefore, there was no commercial expediency for advancing a further amount of ₹ 9.15 crores. The advances clearly do not have a direct nexus with regard to business, as claimed by the appellant. On proper appreciation of these facts it is observed that the borrowed funds from ISG Traders Ltd. have been utilized for advanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s under:- 6. Heard the parties, perused the records and considered the cases laws cited by the Ld. Authorised Representative of the assessee. We find that the revenue has not disputed the allowability of the expenses incurred by the assessee. During the earlier year, the assessee neither provided nor claimed these expenses as it was negotiating with the loan credit to reduce the interest liability. This fact was not disputed by the revenue authorities at any stage. This act is also borne out from the records like audit report. P L Account etc. We find that the Hon'ble Bombay High Court had held that where a liability arising out of a contractual obligation is disputed, the assessee is entitled, in the assessment year relevant' to the previous year in which the dispute is finally adjudicated upon or settled, to claim a deduction in that behalf. In view of the above, we are of the considered opinion that the disallowance of ₹ 63,00,000/- made by the Assessing Officer and confirmed by the ld. CIT(A) is hereby deleted. Therefore, the appeal of the assessee is allowed . 7. As the issue involved in the present case as well as all the material facts relevant theret ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses attributable to the interest-free advance given by the assessee-company to M/s. NRC Limited during period 01.04.2010 to 31.03.2011. We accordingly direct the Assessing officer to compute the interest expenses attributable to the interest-free advance given by the assessee to M/s. NRC Limited and restrict the disallowance to that extent. Ground No. 1 of the assessee's appeal is accordingly partly allowed. 10. The issue raised in Ground No. 2 relates to the disallowance of ₹ 2,38,29,825/- made by the Assessing Officer and confirmed by the ld. CIT(Appeals) on account of interest expenses under section 36(1)(iii) of the Income Tax Act, 1961. 11. After considering the rival submissions and perusing the relevant material available on record, it is observed that this issue raised in Ground No. 2 is similar to the one involved in Ground No. 1, inasmuch as, the funds borrowed by the assessee-company from M/s. ISG Traders Limited having been utilized during the year under consideration to give interest-free advances to M/s. NRC Limited, which was not for the purpose of the assessee's business, the Assessing Officer disallowed the expenses claimed by the assessee on ac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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