ITAT Allows Interest Claim on Existing Business Loan Liability

The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) on 15 April allowed the appeal filed by Bright Enterprises Pvt. Ltd. and deleted disallowances made towards consultancy charges paid to a sister concern and interest on vehicle loans. A bench comprising Accountant Member S. Rifaur Rahman and Judicial Member Vimal Kumar set aside the findings of the Assessing Officer and the Commissioner of Income Tax (Appeals), who had sustained additions aggregating to Rs. 76.05 lakh for AY 2016-17. The Tribunal observed that once the scope of work, agreements, invoices, and tax compliances are on record, the genuineness of expenditure cannot be doubted merely because each individual service is not specifically mentioned in the bills. The court pointed out that “Merely because each and every service is not mentioned on the bills cannot doubt the actual rendering of services.”

The Assessing Officer had disallowed 50% of consultancy charges amounting to Rs. 65.55 lakh paid to sister concern M/s Oxbridge International Pvt. Ltd. under Section 40A(2)(b) of the Income-tax Act, 1961. The AO alleged that the assessee failed to furnish adequate evidence regarding the nature of consultancy services rendered and held that the payments were excessive. The Commissioner of Income Tax (Appeals) affirmed the addition.

Before the ITAT, Bright Enterprises submitted that Oxbridge International Pvt. Ltd. was engaged in providing day-to-day consultancy and supervision services relating to repairs, engineering and maintenance work for its hotel property, Radisson Blu MBD Hotel, Noida. The assessee relied on consultancy agreements, invoices, employee details, TDS deductions and service tax payments to establish the genuineness of the expenditure. It was further argued that similar disallowances made in earlier years had already been substantially deleted by the Tribunal, while no additions were made in subsequent assessments.

The Tribunal noted that the Revenue had neither disputed the identity of the sister concern nor brought any comparable market material to establish that the payments were excessive. It further observed that the lower authorities had incorrectly concluded that the contractual value was Rs. 82.80 lakh, whereas the agreements on record clearly reflected a total contractual value of Rs. 1.33 crore.

“When the scope of work is clear from the agreements and the necessity of such expenditure is also beyond doubts and sample evidences of such expenditure have also been brought on record, the genuineness of such expenditure cannot be doubted.”

On the issue of vehicle loan interest, the Tribunal deleted the disallowance of Rs. 10.49 lakh after observing that the increase in interest expenditure was attributable to loans taken for vehicles purchased in the earlier year. It held that merely because no fresh vehicle was purchased during the relevant year, the interest claim could not be disallowed when the loans continued to remain outstanding.

Thus, the ITAT deleted both additions and allowed the appeal in favour of the assessee.

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