Dismissed

The Commissioner of Income Tax -Iv v. M/s. Lokesh Machines Limited

Telangana HC26 Nov 2012ITTA/471/2011

Case brief

AI extract

What is this about?

The ITAT dismissed an income tax appeal challenging a lower order which disallowed compounded interest as not being interest on borrowed capital. The Supreme Court upheld the Tribunal's view that Section 36(1)(iii) permits deduction of interest regardless of whether it is simple or compounded.

What did the court decide?

Appeal dismissed at the stage of admission in favour of the assessee.

The Commissioner of Income Tax -Iv Vs M/s. Lokesh Machines… — Income Tax | Telangana HC (2012)

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THE HONOURABLE SRI JUSTICE GODA RAGHURAM AND

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THE HONOURABLE SRI JUSTICE M.S.RAMACHANDRA RAO

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ITTA No. 471 of 2011

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Dated: 26-11-2012

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Between: The Commissioner of Income Tax-IV Hyderabad And M/s Lokesh Machines Ltd., Hyderabad

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…Appellant

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…Respondent.

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THE HONOURABLE SRI JUSTICE GODA RAGHURAM AND THE HONOURABLE SRI JUSTICE M.S.RAMACHANDRA RAO

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ITTA No. 471 of 2011

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Judgment (Per Hon’ble Sri Justice Goda Raghuram)

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Heard Sri J.V.Prasad, learned Standing counsel for Income Tax.

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Revenue has preferred this appeal under Section 260-A of the Income Tax Act, 1961 (for short ‘the Act’) against the order dated 3-32008 of the Income Tax Appellate Tribunal, Hyderabad Bench, which allowed ITA No. 1233/Hyd/2006 preferred by the respondent.

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The assessee is a company registered under the Companies Act, 1956 engaged in manufacturing activity. For the Assessment Year 2003-04 the assessee filed its return of income showing nil income and book profit of Rs.2,12,82,457/- under Section 115JB of the Act. While proceeding to assessment under Section 143(3) of the Act, the Assessing Officer observed that during the financial year 2000-01 the assessee had obtained a loan of Rs.2,90,00,000/- from Mahindra and Mahindra and as on

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1-4-2002 the principal amount stood at Rs.2,50,00,000/-. The Assessing Officer further observed that the interest is being added every year to the principal and interest was being charged on the principal as well as on the interest component which is compounded. Accordingly by the order of Assessment dated

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20-3-2006 interest paid on the compounded interest component on the liability of the assessee was disallowed holding it to be not interest

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paid on borrowed capital, as per provisions of Section 36(1) (iii) of the Act. The Assessing Officer allowed interest at the rate of 20% on Rs.2.50 crores, the principal and disallowed “the excess interest of Rs.15,23,323/-”. The assessee unsuccessfully preferred an appeal and thereafter carried the matter further to the Tribunal.

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By the order impugned, the Tribunal concluded and rightly that the disallowance of interest of Rs.15,23,323/- is contrary to the true and fair construction of the provisions of Section 36(1) (iii) of the Act, which makes no distinction between the deductions of the amount of interest paid in respect of the borrowed capital for the purpose of business or profession, whether the interest being paid at simple or compounded rate.

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We find no error in the order of the Tribunal warranting appellate scrutiny under Section 260-A of the Act. The appeal is accordingly dismissed at the stage of admission.

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_________________________ GODA RAGHURAM, J

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26^th November, 2012

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_______________________________ M.S.RAMACHANDRA RAO, J

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GRR

The Commissioner of Income Tax -Iv v. M/s. Lokesh Machines Limited

Case brief

What is this about?

What did the court decide?

The Commissioner of Income Tax -Iv v. M/s. Lokesh Machines Limited

Case brief

What is this about?

What did the court decide?

What the court decided

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