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TMI Blog2022 (11) TMI 714X X X X Extracts X X X X X X X X Extracts X X X X ..... on given by Ld PCIT in respect of this issue is not sustainable and hence the Ld PCIT was not justified in initiating revision proceedings in respect of this issue. Addition u/s 40A(2)(a) - We notice that the Ld PCIT initiated enquiry on the ground that the provisions of sec.40A(2)(a) are attracted to the transaction of loan given to the related party. However, he concluded that the provisions of sec.40A(2)(a) are not attracted. However, he concluded that a part of interest paid to GRUH Finance Ltd should be disallowed. We are unable to understand as to how a part of interest expenditure paid to GRUH Finance Ltd could be disallowed merely on the reasoning that the assessee has charged lower interest on the loan given to a related party - PCIT has also not cited any of the provisions of the Act, which would warrant such a disallowance. Hence, we do not find any rationale in the view taken by PCIT in respect of this issue and hence the Ld PCIT was not justified in initiating revision proceedings in respect of this issue. As in the case of CIT vs. Nagesh Knitwears (P) Ltd [ 2012 (6) TMI 65 - DELHI HIGH COURT] has held that the CIT should conduct necessary enquiries and come t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en to a related party. 3. In respect of the first issue, the ld. PCIT noticed that the assessee has availed loan of Rs. 14.60 crores from GRUH Finance Ltd. For the purpose of availing loan, the assessee had paid loan processing fee of Rs.16,41,306/- and claimed the same as deduction. The ld. PCIT noticed that the assessee has not deducted tax at source from the above said payment. He further took the view that the above payment is in the nature of interest payment as per the definition of the term interest given in section 2(28A) of the Act. Accordingly, he took the view that the above said amount is liable to be disallowed u/s 40(a)(ia) of the Act. Since the Assessing Officer has not examined this issue, the ld. PCIT took the view that the assessment order is erroneous and prejudicial to the interest of the Revenue. 4. In respect of the second issue, the ld. PCIT noticed that the assessee has borrowed loan of Rs.14.60 crores from GRUH Finance Ltd at an interest rate of 14.50%. He further noticed that the assessee has given loan of Rs. 11.31 crores to Sh. Noor Mohammad, a related party u/s 40A(2)(b), and charged interest @ 12% per annum. The ld. PCIT took the view that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of Beacon Projects P Ltd vs. CIT (2015)(377 ITR 237)(Ker) and also the decision rendered by Hon ble Supreme Court in the case of Bikaram Singh (1977)(224 ITR 551)(SC). Accordingly, the Ld A.R submitted that the Ld PCIT was not right in holding that the assessee is liable to deduct tax at source u/s 194A of the Act from loan processing fee paid by it. 6. With regard to the second issue, the Ld A.R submitted that the assessee has availed loan from GRUH Finance Ltd @ 14.50% and it has charged interest @ 12% on the loan given to a related party. He submitted both transactions are independent transactions unconnected with each other. The assessee has contracted with GRUH Finance Ltd for paying interest @ 14.50%. Similarly, it has agreed for collecting interest @ 12% on the loan given to a related party. The rate of interest is charged according to the terms of agreement and hence there is no compulsion that the assessee should always collect interest a rate higher than that charged by the finance company. Hence payment of interest cannot be linked with the collection of interest, when the transactions of borrowing and lending are independent of each other. He submitted that the Ld ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shed that the same is payable in respect of any money borrowed or debt incurred. It has been held by Hon ble Supreme Court that the definition of interest would be applicable only when the money is lent by a creditor and received by a debtor. 9. In the instant case, the payment made by the assessee is Loan processing fee , which is a payment made prior to granting of loan for the purpose of processing the loan application submitted by the assessee. We notice that, at the time of making said payment:- (a) the assessee has not borrowed any money or incurred any debt. (b) consequently, there was no debtor-creditor relationship created between the assessee and M/s GRUH Finance Ltd. A careful perusal of the definition of the term interest given in sec. 2(28A) would show that it uses the expression service fee or other charge . Hence it is possible to contend that the loan processing fee would fall under the category of service fee or other charge . However, a careful perusal of the definition would show that the the said payments (service fee or other charge) should also be in respect of moneys borrowed or debt incurred . Hence, any type of payment made after the borro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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