Taxability of interest expenses not relatable to business activity conducted by the assessee company

Last updated: 13 September 2021

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Quick Summary

This Income Tax Appellate Tribunal ruling concerns the taxability of interest expenses on loans obtained from shareholders. The tribunal reviewed an appeal where the Assessing Officer disallowed a portion of the interest paid, amounting to Rs. 3,64,942, under Section 36(1)(iii) of the Income-tax Act. The judgement clarifies the conditions under which such interest payments are considered relatable to business activities and thus eligible for tax deductions.

Court :
ITAT Delhi

Brief :
These two cross appeals by Revenue and Assessee are filed against the order of Learned Commissioner of Income Tax (Appeals)-25, Delhi.

Citation :
ITA No:- 198/Del/2018

IN THE INCOME TAX APPELLATE TRIBUNAL
(DELHI BENCH: ‘F’: NEW DELHI)
(THROUGH VIDEO CONFERENCING)
BEFORE MS. SUCHITRA KAMBLE, JUDICIAL MEMBER
AND
SHRI ANADEE NATH MISSHRA, ACCOUNTANT MEMBER
ITA No:- 198/Del/2018
(Assessment Year: 2014-15)

DCIT,
Circle 20(1),
New Delhi.

M/s Provestment Securities Pvt.
Ltd.,
305, Rattan Jyoti Building,
18, Rajendra Place,
New Delhi-110008.

ITA No:- 293/Del/2018

(Assessment Year: 2014-15)

M/s Provestment Securities
Pvt. Ltd.

DCIT,
Circle 20(1),
New Delhi.

Revenue By : Shri Jagdish Singh, Sr. DR
Assessee By : Shri Rahul Chaurasia, CA

That the order dated 13-10-2017passed u/s 250 of the Income-tax Act, 1961 by the Learned Commissioner of Income-Tax (Appeals) 25, New Delhi is against law and facts on the file in as much as he was not justified to partly uphold the action of the Learned Deputy Commissioner of Income-Tax, Circle -20(1), New Delhi by sustaining the addition of Rs. 3,64,942/- made by the Assessing Officer by resort to the provisions of s. 36(1 )(iii) of the Income-tax Act, 1961 on account Interest paid on the loans received from shareholders.

2. Before we part, we hereby clarify, by way of abundant caution, that if for some reason it is found by either Revenue or the assessee, that the disputes under these appeals before us are not fully settled under the aforesaid VSVS, then Revenue and / or assessee, as the case may be, will be at liberty to approach ITAT for restoration of these appeals, in accordance with law.

3. This order was already pronounced on 01st September, 2021 in Open Court, in the presence of Representatives of both sides; after conclusion of the hearing. Now this written order is signed today on 02/09/2021.

Please find attached the enclosed file for the full judgement

FAQ :

The main issue is whether interest paid by a company on loans received from its shareholders is tax-deductible as a business expense.

Section 36(1)(iii) of the Income-tax Act, 1961, which deals with the deductibility of interest on borrowed capital for business purposes, is relevant.

The Assessing Officer disallowed an amount of Rs. 3,64,942/- made on account of interest paid on loans received from shareholders.

The ITAT is reviewing the decision of the Commissioner of Income-Tax (Appeals) regarding the disallowance of interest expenses.

Yes, if the dispute is not fully settled, either the Revenue or the assessee can approach the ITAT for restoration of the appeals.