Interest on Loans obtained for Own Business Purposes Constitutes Business Expenditure, Deduction Allowable: ITAT [Read Order]

The Income Tax Appellate Tribunal ‘A’ bench, Chennai, has recently, in an appeal filed before it, held that interest on loans obtained for own business purposes constitutes business expenditure and hence that deduction is allowable.

The aforesaid observation was made by the Tribunal when an appeal was filed before it by an assessee,for the Assessment Year (AY) 2013-14, against the order of the learned Commissioner of Income Tax (Appeals)-15, Chennai [CIT(A)], dated 28-03-2018 in the matter of assessment framed by Assessing Officer [AO] u/s. 143(3) of the Act on 30-03-2016.

The grounds of the assessee’s appeal being thatthe CIT (A) failed to provide the appellant with a reasonable opportunity of being heard with respect to the addition of Rs.2,87,52,372 being disallowance of the interest on loan thereby violative of the principles of natural justice,that he erred in enhancing the original assessment by an amount of Rs.2,87,52,372  being disallowance of interest on loan despite the subject matter not forming part of the original assessment, and further that the advances being granted for business purposes the interest disallowance as made by Ld. CIT(A) u/s 36(1)(iii)  is not valid,the opposing submission of the DR  was that the complete onus was on assessee to establish the nexus of advances with the business purposes .

Hearing the opposing contentions of the both the sides and perusing the materials on record, the Tribunal however observed:

“The financial statements as placed on record support the case of the assessee. Another fact to be noted is that the loan was obtained in the financial year 2010-11 and there is nothing on record which would suggest that any such disallowance was made in earlier years.”

“Accordingly, rule of consistency also favor the case of the assessee. Therefore, considering the facts and circumstances of the case, the impugned addition stands deleted”, the bench added.

Thus allowing the assessee’s appeal, the Tribunal concluded:

“The loans thus obtained by the assessee could be said to be utilized for its business purposes and therefore, interest so paid would constitute business expenditure and accordingly, an allowable deduction.”

To Read the full text of the Order CLICK HERE

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