Money Borrowed for Business Purpose is Allowable as Business Expenditure :ITAT [Read Order]

The Ahmedabad Bench of Income Tax Appellate Tribunal (ITAT) has held that the money borrowed for business purposes was allowable as business expenditure.

The assessee Applitech Solution Ltd. was engaged in business of development of software and providing IT consultancy services. For assessment year 2000-01, the then A.O. disallowed assessee’s claim of depreciation on computer hardware and interest paid to bank for term loan and working capital vide order dated 28-03-2023.

Subsequently, the assessee preferred appeal against the order of A.Y. 2000-01 before Income Tax Appellate Tribunal. In the meantime on the basis of order for A.Y. 2000-01, the successor assessing officer was reopened the assessments for earlier Assessment Years till AY 1997-98, and passed re-assessment orders vide orders dated 23-03-2005, making disallowance of depreciation and interest relying primarily upon the order passed by his predecessor for A.Y. 2000-01.

The Commissioner of Income Tax Appeal (CIT(A)) following the  order dated 19-04-2016, deleted the addition made by the AO for all the three years in respect of assessee’s claim of depreciation on computer hardware and interest paid to bank for term loan and working capital.

Anil Kshatriya,appeared on behalf of the assessee Alay Anil Kshatriya,appeared on behalf of the revenue.

The two-member Bench of Waseem Ahmed, (Accountant Member) and Siddhartha Nautiyal, (Judicial Member) noted that the interest was paid on term loans taken for the business purpose of the company. It was explained that out of the total loan of Rs.5 crores, interest on term loan was paid to the Bank and rest of interest pertained to others on working capitals.

In the first round of litigation, the A.O. did not accept the contention of the assessee because the purchase of computers had been held to be bogus. In the set aside proceeding, the A.O. had simply borrowed the findings of his own predecessor given in the first round of litigation.

Since the purchase of computers were found to be genuine the Bench dismissed the appeal filed by the revenue holding that the money had been borrowed for the purpose of business and therefore any interest paid would be allowed as business expenditure.

To Read the full text of the Order CLICK HERE

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?The DCIT vs Applitech Solution Ltd , 2023 TAXSCAN (ITAT) 1280 , Shri Anil Kshatriya, & Shri Alay Anil Kshatriya , Shri Sudhendu Das