Revenue officers cannot decide expediency in business: HC

High Court in the matter of IDRS LABS PRIVATE LIMITED (the assessee) and DEPUTY COMMISSIONER OF INCOME TAX (DCIT) affirmed that it is settled that the Revenue officers cannot sit in the chair of the assessee and decide the expediency in business. It is for the assessee, to take its business call while conducting its business.

Brief facts of the case are, the assessee was borrowing a loan from one of its directors Shri. Yogesh Bhandari. As of April 1st, 2014, the loan amount had accumulated to Rs.2,22,43,087/-. For the Assessment Year 2015-16, the interest of Rs. 77,84,526/- was paid by the company to the Director by computing the interest at 18%. The Assessing Officer restricted it to 12%. The Commissioner of Income Tax (Appeal) (“CIT(A)” for short) allowing the appeal in part increased the interest at 15.5% and the same has been confirmed by the Income Tax Appellate Tribunal (for short ‘ITAT’).

Shri. Sudheendra, learned advocate for the assessee submitted that transaction is not in dispute. The Director has declared the interest received in his return of income and paid tax on it. The CIT(A) has partly allowed the appeal on the premise that the company had obtained secured loan at 14.5% from M/s. Siemens Financial Services Private Limited. He argued that Revenue cannot fix the rate of interest arbitrarily. Accordingly, sought for allowing this appeal.

Shri.Dilip for the Revenue, opposing the appeal submitted that secured loan was available at 14.5%. However, the company has chosen to pay interest at 18%, therefore, no interference is called for.

As per the High Court, there is no rationale in reducing the rate of interest by the Assessing Officer and arbitrarily increasing the same to 15.5% by the CIT(A) on the premise that the secured loan was obtained at 14.5%.

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