The Delhi High Court has affirmed the decision of the Income Tax Appellate Tribunal (ITAT) and stated that it was not necessary to establish or explicitly state the commercial expediency of a loan transaction for each subsequent year, following its initiation in a specific assessment year.
The High Court allowed the condonation of delay of 23 days in filing and 90 days in re-filing the appeal by the revenue. The concerned assessment year was 2015-26.
The fact is that in and about AY 2005-06 respondent/assessee had taken a loan from the bank. During the period spanning between AY 2005-06 and AY 2011-12,interest paid by the respondent/assessee to the bank was allowed as deductible expenditure.
It was only in A.Ys 2012-13, 2013-14 and 2014-15, that the concerned officer veered away from this and disallowed the interest expenditure. As noticed above, in the instant AY as well, i.e., AY 2015-16, the AO has chosen to disallow the interest expenditure.
The Assessing Officer (AO) disallowed interest paid to the bank by the respondent/assessee on account of loan transaction in view of the fact that the respondent/assessee had not been able to demonstrate “commercial expediency.”
Accordingly, the AO disallowed interest expenses amounting to Rs.5,16,16,215/- in proportion to the non-interest bearing advances extended to each of the partners.
The respondent/assessee, being aggrieved by the order, preferred an appeal with the Commissioner of Income Tax (Appeals), reversed the view taken by the AO.
Further, the appellant/revenue carried the matter in appeal to the Income Tax Appellate Tribunal. The Tribunal concurred with the CIT(A) and dismissed the appeal of the appellant/revenue.
Sanjay Kumar, Senior Standing Counsel, who appeared on behalf of the appellant/revenue, submitted that it was incumbent on the respondent/assessee to demonstrate commercial expediency and, having failed to do so, the interest expenditure was rightly disallowed by the AO.
The Counsel also stated that the appeal concerning A.Y 2012-13 was not preferred before this Court against the order of the Tribunal which was not in favour of the appellant/revenue, on account of the fact that the tax effect was below the prescribed threshold monetary limit.
The bench of Justice Rajiv Shakhder and Justice Manmeet Pritam Singh Arora observed that “If the loan availed on account of stated commercial expediency, which has, in a sense, received the imprimatur of the appellant/revenue when the loan was first taken and several years thereafter, surely, the respondent/assessee is not required, once again, to demonstrate commercial expediency in each year. The AO seems to have disregarded this aspect in the AY in issue.”
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