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Pr. Commissioner of Income Tax Vs. N.S. Software - (High Court of Delhi) (10 Jul 2023)

Assessee need not to demonstrate commercial expediency in each year concerning a loan transaction


Direct Taxation

In facts of present case, the Assessing Officer (AO) concluded that, the disallowance was mandated in view of the fact that the Respondent/Assessee had not been able to demonstrate "commercial expediency". Accordingly, the AO disallowed interest expenses amounting to Rs. 5,16,16,215in proportion to the non-interest bearing advances extended to each of the partners.

The Respondent/Assessee, being aggrieved by the order, preferred an appeal with the Commissioner of Income Tax (Appeals). CIT(A), via order, reversed the view taken by the AO. The Appellant/revenue carried the matter in appeal to the Income Tax Appellate Tribunal ["Tribunal"]. The Tribunal concurred with the CIT(A) and dismissed the appeal of the Appellant/revenue.

The moot point which arises for consideration is, does the Respondent/Assessee need to demonstrate commercial expediency in each year concerning a loan transaction which took place in and about AY 2005-06?

If the loan availed on account of stated commercial expediency, which has, in a sense, received the imprimatur of the Appellant/revenue, when the loan was first taken and several years thereafter, surely, the Respondent/Assessee is not required, once again, to demonstrate commercial expediency in each year. The AO seems to have disregarded this aspect in the AY in issue.

Second, the interest expenditure is revenue neutral. In case this was to be disallowed in the hands of respondent/assessee i.e., the partnership firm, it would have to be allowed in the hands of the partners. Present Court is not inclined to interfere with the decision of the Tribunal.


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