Disallowance of interest on bank overdraft u/s 40(a)(ia) of the Income Tax Act

IN THE INCOME TAX APPELLATE TRIBUNAL
“B’’BENCH: BANGALORE
BEFORE SHRI B. R. BASKARAN, ACCOUNTANT MEMBER
AND
SMT. BEENA PILLAI, JUDICIAL MEMBER

ITA No.2633/Bang/2019
Assessment Year: 2016-17

TUV Rheinland NIFE Academy
Private Limited
No.27/B, 2nd Cross, 13,
Konappan
Agrahar Begur Hobli
Electronic City
Bangalore 560 100
PAN NO : AAECT8703A

vs

ACIT Circle-7(1)(1)
Bangalore

Appellant by : Smt. Kavitha Paramesh, A.R.
Respondent by : Shri Muzaffar Hussain &
Shri Priyadarshi Mishra, D.Rs.
Date of Hearing : 02.09.2021
Date of Pronouncement : 01.11.2021
O R D E R

 The assessee has filed this appeal challenging the order dated 21.10.2019 passed by Ld. CIT(A)-7, Bengaluru and it relates to the assessment year 2016-17.

2. The first issue relates to disallowance of depreciation claimed on goodwill. The A.O. noticed that the assessee has claimed depreciation on goodwill. The depreciation was claimed on the amount of Rs.25.38 crores @ full rate, since it was used for more than 180 days and on Rs.5.18 crores @ 50% of eligible amount of depreciation, since it was used for less than 180 days. The total amount of depreciation claimed on Good will was Rs.6,99,31,440/-. In this regard, the AO noticed that the assessee had acquired a vocational training institute giving training to the students from a person named Shri M.V. Thomas, who was running the said institution under the name and style “NIFE ACADEMY”. It was noticed that the holding company of the assessee has entered into a Business Transfer Agreement (BTA) on 4.12.2013 with Shri M.V. Thomas for acquiring the academy NIFE for a lumpsum amount of Rs.28.50 Crores plus some adjustment on slump sale basis. In pursuance of the above said agreement entered by holding company, the assessee had paid aggregate amount of Rs.30.56 crores (Rs.25.38 crores plus Rs.5.18 crores) and treated the same as “Good will” and claimed depreciation thereon.

3. We heard Ld D.R on this issue and perused the record. We notice that the issue considered by Hon’ble Kerala High Court in the case of Dhanalakshmy Weaving works (supra) is related to the very chargeability of interest u/s 201(1A). The issue here is whether such interest paid is allowable as business expense or not. We notice that an identical issue has been considered by Delhi bench of Tribunal in the case of New Modern Bazaar vs. ITO ( ITA. No. 590/Del/2018 dated 08-04-2021) and it was decided against the assessee.

4. In the result, the appeal of the assessee is treated as partly allowed.
Order pronounced in the open court on 1st Nov, 2021.

Please find attached the enclosed file for the full judgement