Interest Deduction u/s 57: ITAT Allows Claim After Verifying Payments and Interest Earned [Read Order]
The assessee later submitted ledger confirmations, ITRs, PANs, and bank statements for almost all parties, showing that the effective interest rate earned and paid was 12%.
ITAT - Verifying Payments - Interest Earned - taxscan
ITAT - Verifying Payments - Interest Earned - taxscan
The Ahmedabad Bench of Income Tax Appellate Tribunal ( ITAT ) allowed the assessee’s claim for interest deduction under section 57 of Income Tax Act,1961 after verifying payments and interest earned.
Ghanshyam Arjanbhai Patel,appellant-assessee, filed his income tax return under section 139(1) on January 6, 2021, declaring a total income of Rs. 24,71,050 for the assessment year 2020-21, which included salary, house property, capital gains, and income from other sources. His case was selected for scrutiny, during which the Assessing Officer(AO) observed that he claimed a deduction under section 57 for interest expenses of Rs. 55,54,000 on borrowed funds.
The assessee stated that loans carried an interest rate of 9% per annum, but ledger records showed rates varying from 6% to 18% for six parties. He submitted a list of 16 parties to whom interest was paid, but for eight parties, neither income tax returns nor bank statements were provided.
The AO noted that total receipts amounted to Rs. 76,58,253, including interest income of Rs. 57,33,580, and that salary was received as a director of M/s. Accent Microcell Pvt. Ltd.
Since the assessee failed to provide a satisfactory explanation regarding the interest rates and genuineness of transactions with the eight unverified parties, the AO disallowed the interest payments and treated Rs. 21,98,647 as unexplained creditors. The assessee’s appeal before the Commissioner of Income Tax(Appeals)[CIT(A)] was dismissed.
The assessee counsel submitted that, in a letter dated February 17, 2024, the assessee had provided copies of ledger confirmations, ITRs, PAN, and bank statements for all parties except five. The overall interest, averaging 12%, was received and paid by the assessee.
At the hearing, the assessee counsel also produced bank statements, ledger accounts, and confirmations from the remaining eight persons.
The Departmental Representative relied on the assessment order and the CIT(A)’s order.
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The two member bench comprising Dr.BRR Kumar (Vice President) and Suchitra Kamble (Judicial Member) heard both parties and reviewed the record. There was a delay of 356 days, which was explained and condoned. The assessee had earned about Rs. 60 lakhs as interest and paid around Rs. 55 lakhs, resulting in an effective interest rate of 12%. The CIT(A) had ignored these facts.
The appellate tribunal noted that the parties whose details were not filed had no loans during the assessment year, and the opening balances confirmed that 12% interest was paid. The tribunal held that the assessee had proven the deduction claimed under section 57 and allowed the appeal.
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