ITO Vs Discovery Liquor House (ITAT Delhi)
The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) dismissed the Revenue’s appeal and upheld the order of the Commissioner of Income Tax (Appeals) [CIT(A)], which had deleted additions relating to disallowance of interest expenditure, unexplained cash credits under Section 68, and addition to business income arising from alleged discrepancies in purchase figures for Assessment Year 2022-23.
The first issue concerned the disallowance of interest expenditure amounting to Rs. 1,26,30,730. The Assessing Officer had disallowed the entire interest expense on the ground that interest-bearing funds had allegedly been diverted for non-business purposes, particularly in relation to a debit balance in the account of one of the members of the assessee association of persons (AOP). However, the CIT(A) observed that the assessee possessed sufficient non-interest-bearing funds that exceeded the amount withdrawn by its members. The appellate authority further noted that the assessee had purchased liquor, wine, and beer largely on credit while most sales were made in cash, resulting in the availability of substantial interest-free funds. The CIT(A) concluded that the Assessing Officer had failed to establish any nexus between the interest-bearing loans and the advances to members. It was also found that the borrowed funds had been utilized for business purposes, including payment of excise licence fees and settlement of trade creditors. Since no material evidence was produced to show diversion of borrowed funds for non-business purposes, the disallowance of interest expenditure was deleted.
