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ITAT upheld deletion of addition, and restriction of disallowance@10%
ITAT upheld deletion of addition, and restriction of disallowance@10%
Berry & Co borrowed Rs 21 crores as unsecured loans from various parties (some of which were related parties) at interest rates of 9% to 15% per annum. AO found interest rate in excess of 9% was excessive and invoked s 40A(2)(b). AO disallowed interest. AO disallowed repairs and maintenance etc expenses @15% on an estimated basis as the vouchers were self made. CITA deleted addition, and restricted disallowance to 10%. ITAT upheld CIT(A)’s order.-500413
1. Berry & Co was a partnership firm dealing in cotton and denim fabrics.
2. It borrowed unsecured loans from various parties the tune of Rs 21 crores at interest rates of 9% to 15% per annum.
3. Some of the parties who had advanced monies to the assessee include related parties of the assessee.
4. AO found any rate in excess of 9% to be excessive and invoked s 40A(2)(b).
5. AO disallowed interest.
6. Assessee debited repairs and maintenance and coolie and cartage expenses in its P&L and claimed the same as deduction.
7. AO disallowed them @15% of aforesaid expenditure on an estimated basis as the vouchers were self made.
8. CITA deleted the addition, and restricted disallowance to 10%.
On Revenue’s appeal, the ITAT held as under:
9. Moreover, the intention behind introduction of section 40A(2)(b) (of Income Tax Act, 1961) is only to ensure that the assessee should not take away the profits of the business by paying business expenditures to related parties in order to avoid tax liability.
10. But we find that this intention is totally absent and the assessee had actually conducted its business in the situation completely favourable to the revenue and hence there cannot be any disallowance of interest u/s 40A(2)(b) (of Income Tax Act, 1961) or any other section in the Income Tax Act in the facts and circumstances of the case.
11. We find that both the lower authorities had come to a conclusion that the possibility of inflating the expenditures by way of self made vouchers cannot be ruled out which fact is not refuted by the Learned AR.
12. Hence in these facts and circumstances, we find to meet the ends of justice, disallowance made by the Learned CITA is reasonable and hence we do not find any reason to interfere with his order.
Case Reference - A.C.I.T Vs. M/s. Berry & Co.
IN THE INCOME TAX APPELLATE TRIBUNAL, "C" BENCH, KOLKATA
Before : Shri Mahavir Singh,Judicial Member, and
Shri M. Balaganesh, Accountant Member
I.T.A No. 104/Kol/2013
(A.Y : 2009-10)
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