The Income Tax Appellate Tribunal (ITAT), Ahmedabad Bench observed that Deloitee Haskins and Sells paid taxes at maximum marginal rate, no loss to revenue for not charging interest.
The assessee, Deloitee Haskins and Sells is a partnership firm engaged in the activities of Chartered Accountancy. The AO during the assessment proceedings found that the assessee has incurred interest expenses amounting to Rs. 5,45,63,251/- comprising interest on borrowing from the bank and on the capital of the partners.
At the same time the assessee has extended interest free loans and advances to its group concerns amounting to Rs. 90,19,24,628 whereas the partner’s capital funds stand at Rs. 57,11,48,093/- only.
Accordingly, the AO was of the view that the assessee has diverted its interest bearing funds amounting to Rs.33,07,76,535. As per the AO the assessee on one hand is incurring interest expenses on the borrowed fund and on the other hand, it has provided interest free loans and advances to its group concerns. Accordingly the AO worked out proportionate amount of interest attributable on Rs.33,07,76,535/- being interest free loans and advances over and above the partners capital amounting to Rs. 1,92,18,117/- and disallowed the same by adding to the total income of the assessee.
However, the CIT (A) deleted the addition made by the AO by observing that the interest free loans and advances were extended as a measure of commercial expediency.
The CIT (A) also found that there was no loss to the Revenue for not charging interest by the assessee from the group concerns as the assessee and other group concerns were paying the taxes at the maximum marginal rate.
The revenue urged that CIT(A) erred in allowing the interest of Rs. 1,92,18,117/- by treating it as business expenditure ignoring the fact on record that the AO had disallowed interest of Rs. 1,92,18,117/- at the rate of 5.81% on interest free loan amounting to Rs.33,07,76,535/- given by the assessee as it agreed and also opening 85 closing balances of advances to DTTIPL were same at the figure of Rs. 68,51,33,061/-. The assessee had not submitted any evidence as to what it had gained from DTTIPL.
The coram headed by the Vice President Rajpal Yadav while upholding the order of CIT(A) held that the assessee and its group concerns were paying the taxes at the maximum marginal rate as evident from the income tax acknowledgements of its group companies. Accordingly, there was no loss to the revenue for not charging interest on the amount extended by the assessee as interest-free loan to its group companies.
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