The Delhi Bench of Income Tax Appellate Tribunal (ITAT) has held that no disallowance on an ad hoc basis on the plank that interest-bearing funds are diverted.
The appellant, Guardian Nutrition and Health Supplements Pvt. Limited, is engaged in the business of rental trading of pharmaceutical products. During the assessment proceedings, the Assessing Officer (AO) made proportionate disallowance of interest on an ad hoc basis after noting that the assessee had both interest-bearing funds and interest-free funds at his disposal. The CIT (A) confirmed the disallowance and the aggrieved appellant filed an appeal before ITAT.
The Tribunal observed that the disallowance has been made on an ad hoc basis on the plank that interest-bearing funds have been diverted. The AO despite noting that the assessee had interest-bearing funds as well as interest-free funds. It is settled law that if the assessee has sufficient interest-free funds the right of attribution lies with the assessee and AO cannot insist upon one nexus between the funds.
The Coram of Mr. Shamim Yahya, Accountant Member, and Mr. Anubhav Sharma, Judicial Member has held that “in our considered opinion, this plank is not acceptable as Revenue authorities are accepting the sales and no disallowance has ever been done in this regard. Moreover, the genuineness of the debtors cannot be doubted without any enquiry in this regard. In this view of the matter, in our considered opinion, the matter needs to be remitted back to AO. AO is directed to decide the issue afresh in the light of our observation herein above”.
Ms. Anupama Singla appeared on behalf of the revenue.
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