ITAT directs Deletion of Disallowance of Interest on Unsecured Loans, as assessee paid Interest to Unsecured Loan Creditors on Opening Balances [Read Order]

The Mumbai Bench of Income Tax Appellate Tribunal (ITAT) held that since the assessee has paid the interest to the unsecured loan creditors on opening balances the order of the Commissioner of Income Tax (Appeals) [CIT(A)] on this disputed issue was set aside and the Assessing Officer (AO) was directed to delete the disallowance of interest on unsecured loans of Rs.2,43,521/-.

The assessee Biren Suresh Karani is an individual and Prop. of M/s Vartsila, which is a dealer of pressure reducing valves. The assessee has filed the return of income Assessment Year (AY) 2012-13 disclosing a total income of Rs.10,23,840  and the return of income was processed under Section 143(1) of the Income Tax Act, 1961.

Subsequently the case was selected for scrutiny and the notice under Section 143(2) and 142(1) of the Income Tax Act are issued. The AO has considered the facts, details and was not satisfied with the claim of interest debited to profit &loss account  and has made disallowance of interest of Rs.6,48,422 and also housing loan interest of Rs.37,965 and assessed the total income of Rs. 20,33,340  and passed the order under Section 143(3) of the Income Tax Act.

The assessee had filed an appeal before the CIT (A). Whereas the CIT (A) confirmed the action of the AO and dismissed the assessee's appeal.

Further aggrieved the assessee filed an appeal before the Tribunal, which restored the disputed issues to the file of the Assessing officer.

Accordingly the AO issued notice under section 143(2) and 142(1) of the Income Tax Act and the observations of the AO are that the assessee has not explained the sources of investments and the interest bearing funds are used for acquisition of property and therefore the AO is of the opinion that the assessee is not entitled for claim of deduction.

Aggrieved by the order, the assessee has filed an appeal with the CIT(A), whereas the CIT(A) considered the grounds of appeal, submissions of the assessee and findings of the AO and has granted partial relief and partly allowed the assessee appeal.

Aggrieved by the CIT(A) order, the assessee has filed an appeal before the Tribunal challenging the sustainment of disallowance of interest expenses of Rs.2,43,521/-.

The Authorised Representative of the assessee (AR) Mehul Shah, submitted that CIT (A) had over looked the facts that the interest on unsecured loans disallowed by the AO, is in respect loans obtained in earlier years and interest was paid subject to TDS (Tax Deducted at Source).

Further the AR referred to the ledger account of interest on loan paid to the unsecured loan creditors placed in the paper book.The contentions of the AR that there is opening balance of unsecured loan creditors and was disclosed in the balance sheet and there is no dispute with respect to loans obtained in earlier years.

R.M.Brindha appeared as Departmental Representative (DR).

The Single Member Bench of Pavan Kumar Gadale, Judicial Member Observed that there is no dispute that the assessee has obtained loans in earlier years and has paid interest to the unsecured loan creditors and debited in the profit and loss account.

Further he noted that the AO has not disputed on the genuineness of loans and the loan funds were utilized wholly and exclusively for the purpose of business.

Considering the facts, circumstances and the information filed in the course of hearing find that there is no dispute with respect to the interest paid to the unsecured loan creditors on the opening balances and further the revenue has been accepting the interest claim in earlier years.

Therefore the order of the CIT (A) on this disputed issue was set aside and the AO was directed to delete the disallowance of interest on unsecured loans of Rs.2,43,521.

Hence the appeal of the assessee was allowed.

To Read the full text of the Order CLICK HERE

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