Raj Kumar Goenka Vs DCIT (ITAT Kolkata)
Borrow at 12%, Lend at 5% ITAT Kolkata Partly Upholds Interest Disallowance – Interest-Free Funds Presumption Applied – ITAT Kolkata Remands Excess Disallowance for Verification
Assessee filed return declaring income of ₹1.18 crore. AO selected the case under CASS for large deduction claimed u/s 57 & after scrutiny, disallowed ₹89.61 lakh. AO noted that Assessee borrowed ₹15.27 crore at 10.67% & advanced loans of ₹46.34 crore at 4.79%, holding that no prudent person borrows at higher rate to lend at lower rate. Excess claim of interest was thus disallowed.
CIT(A) confirmed the addition, observing that doctrine of real income applied only in limited cases & charging of lower interest on borrowed funds defied business logic.
Before Tribunal, Assessee argued that he had substantial own capital of ₹38.36 crore & also received interest-free loans of ₹67.10 crore from friends/relatives. Advances were out of these funds, not only out of interest-bearing borrowings. Interest was in fact charged at varied rates ranging from 5% to 15%, & lower rates were only to related parties. Reliance was placed on SC ruling in South Indian Bank Ltd. v. CIT (2021) holding that where own interest-free funds exceed investments, presumption is that investments are from own funds.
