Loans and Interest Payment Accepted in Past Years Cannot Be Disputed Without Fresh Grounds: ITAT Deletes Additions [Read Order]

The Kolkata Bench of the Income Tax Appellate Tribunal ( ITAT ) held that interest paid on a loan cannot be disallowed merely based on suspicion. The tribunal found the addition unjustified since the payment had been accepted in earlier years, and no fresh evidence was brought on record to question its genuineness.

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Bagla Agro Limited, the assessee filed its return of income for the Assessment Year (A.Y) 2021-22 on 04.02.2022, declaring nil income and liabilities of ₹1,73,512.  Later on  05.10.2021, a search under Section 132(1) of the Income Tax Act, 1961, was conducted by the Assessing Officer (AO).

During assessment, the AO disallowed ₹1,70,607 paid as interest to Chordia Trade Credits Pvt. Ltd., which is alleged to be a shell company by the Directorate of Income Tax (Investigation) (DIT(Inv)). The AO considered this payment bogus and added it to the income.

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Aggrieved by the order of the AO, the assessee approached the Commissioner of Income Tax (Appeals) (CIT(A)), who also upheld the disallowance, leading the assessee to appeal before the tribunal.

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Ashish Rustogi, the counsel representing the assessee, contended that the addition made by the AO was unjustified.

He argued that the interest was paid on a loan obtained from  Chordia Trade Credits Pvt. Ltd., which had been accepted by the department in earlier years. Since both the principal and interest had been allowed in previous assessments, he contended that there was no valid reason to disallow the interest now.

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He stressed that no new evidence had emerged during the search to cast doubt on the genuineness of the transaction. In the absence of any incriminating material, the disallowance lacked merit and deserved to be deleted.

Meanwhile, the counsel representing the revenue, Prabhakar Prakash Ranjan, justified the addition made by the AO. He contended that the payment was made to a company included in the shell company list, making it non-genuine.

The ITAT bench, led by Rajesh Kumar (Accountant Member) and Sonjoy Sarma (Judicial Member), reviewed the facts and submissions made by both parties.

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The bench observed that the loan and interest payments had been accepted without issue in previous assessments, and no new evidence emerged during the search proceedings to suggest that the transaction was non-genuine. The tribunal also noted that the Revenue had not raised objections regarding the interest rate or the nature of the loan in earlier years.

Given these circumstances, the tribunal concluded that there was no justification for disallowing the interest payment in the current year. The payment was considered legitimate, and the addition made by the AO was thus deleted.

To Read the full text of the Order CLICK HERE

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