Case Law Details
Subhakaran Sampatlall (HUF) Vs ITO (ITAT Kolkata)
The issue under consideration is whether the AO is correct in disallowing the net interest as debited to Profit & Loss A/ c of the proprietary concern?
In the present case, it is noted that the assessee has received deposit from several persons (details set out by AO at page 2 & 3 of his order) and paid to them interest @ 12.2% and has lent/given loan @ 7.25% and 10%. The AO has made the disallowance of interest by taking note that the assessee has taken deposit at 12.2% and has given loan at 7.25% and 10%, [which comes to an average interest rate of 8.62%]. Therefore, he (AO) restricted the average interest expenditure claimed by assessee at 12.2 % to 8.625% and made the said.
ITAT states that the AO has neither doubted the genuineness of the borrowings/receiving deposits as well as payment of interest on the deposit nor the assessee giving loan to two companies and in-turn receiving interest. No material has been relied by the AO in the assessment order to show that any amount of interest higher than the amount shown by the assessee in his account was received by the assessee. Thus, the entire transaction of taking of loan and payment of interest thereon and giving of loan and earning of interest there from was duly established. The only factor that prompted the AO for making the disallowance was that there was no prudence in carrying out the activity in such a manner, which culminated in incurring of net interest loss which fact could have at the best be a triggering point for further investigation, but could not have been the basis or foundation for the disallowance of interest expenditure claimed by the assessee. Since the disallowances made was merely on surmises and conjectures, it needs to be deleted.
FULL TEXT OF THE ITAT JUDGEMENT
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