Case Law Details
Apostle Trading Consultants Private Limited Vs DCIT (ITAT Delhi)
ITAT Delhi held that huge amount as interest free advances given to company which is neither relative/ partner nor connected with Assessee based on MOU which is neither on stamp paper nor stamped or registered creates a reasonable doubt. Matter remanded for further inquiry.
Facts- On perusing the financials of the Assessee, AO observed that the Assessee has claimed large business losses set-off against other heads of income. The Assessee has borrowed long term and short-term capital loans of ₹. 15,14,96,918/- ₹. 5,02,14,477/- respectively. AO further observed that nature of business of the Assessee is to trade in Ladies Garments and Rental Income and has no other business apart from these two. The Assessee has borrowed huge loan and same has been diverted in the form of loans and advances and given to M/s. Flourish Decorators Pvt. Ltd., (in short “FDPL”). Therefore, the Assessee had to pay large interest on loan. The Assessee has also shown outstanding loan and advances of ₹.11,94,87,926/- while total loan and advances given to FDPL is of ₹.13,80,00,000/-.
Consequently, AO show caused the Assessee, as to why the interest expenses of ₹.1,65,60,000/-(outstanding loan advances of ₹.13,80,00,000 x rate of interest @12% on loan borrowed) should not be disallowed. AO disallowed the proportionate interest expenses of ₹.1,65,60,000/- u/s.36(1)(iii) of the Act and added back the same to the total income of the Assessee.
Conclusion- Held that the Assessee though given huge amount of ₹.15 crores to ‘FDPL’ who admittedly is neither relative/partner nor connected with the Assessee in any mode except as claimed and infact is a stranger, but still without securing its interest paid the huge amount of Rs. 15 Crores, on the basis of alleged MoU which is neither on stamp paper nor stamped or registered and even unsigned by the witnesses and therefore at its prima facie look, creates a reasonable doubt. In the absence of registered documents/MoU and on failure to get implementation of terms and conditions of MoU, the Assessee would have produced ‘FDPL’ and/or other connected persons and any corroborative cogent evidence qua transaction entered into between the Assessee and FDPL for establishing the genuineness of transaction of Rs. 15 Crores, but still it failed to do so and therefore acts of the Assessee appears, to be against the theory of Human Probability.
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