Payment of Higher Tax Rate of Interest under Commercial Expediency Cannot Attracts any Disallowance u/s. 40A(2) of Income Tax Act: ITAT [Read Order]

The New Delhi bench of the Income Tax Appellate Tribunal (ITAT) held that the payment of a higher tax rate of interest under commercial expediency cannot attract any kind of disallowance defined under section 40A(2) of the Income Tax Act,1961. 

Shantiniketan Properties Pvt. Ltd, the appellant assessee appealed against the order passed by the Commissioner of Income Tax (Appeals) for confirming the action of the assessing officer in disallowing interest paid on loans obtained from corporate entities holding that the same is not for business purposes and was excessive without appreciating the commercial expediency. 

K.M. Gupta and Rishbh Malhotra, the counsels for the assessee contended that the 

The Commissioner of Income-tax (Appeals) ought to have appreciated that the finding of the assessing officer that the interest paid was excessive was based on assumptions and speculations and was therefore not sustainable.

It was further submitted that the Commissioner ought to have appreciated that the interest had been paid to other resident entities that are also subject to tax in India and therefore under no circumstances was there any loss of tax revenue to the income tax department which leads to double taxation of the income of the assessee. 

Meenakshi Dohre, the counsel for the revenue relied on the decisions made by the lower authorities and contended that the assessing officer was right in making addition/disallowance due to the large difference within the rate of interest paid by the assessee ranging from 16% to 9% per annum. 

It was also submitted that the addition made by the assessing officer was as per the law and liable to be sustained. 

The two-member bench comprising Chandra Mohan Garg (Judicial) and Pradip Kumar Kedia (Accountant) held that the payment of a higher rate of interest under commercial expediency and convenience cannot be alleged as unreasonable attracting the disallowance under section 40A(2) or any other provisions of the Income Tax Act. 

Additionally, it was held that the entire disallowance made by the assessing officer is liable to be deleted while allowing the appeal filed by the assessee. 

To Read the full text of the Order CLICK HERE

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