Itta/471/2011 Of The Commissioner Of Income Tax -Iv v. M/S. Lokesh Machines Limited

THE HONOURABLE SRI JUSTICE GODA RAGHURAMAND THE HONOURABLE SRI JUSTICE M.S.RAMACHANDRA RAO ITTA No. 471 of 2011 Dated: 26-11-2012 Between: The Commissioner of Income Tax-IVHyderabad And M/s Lokesh Machines Ltd.,Hyderabad …Appellant …Respondent. THE HONOURABLE SRI JUSTICE GODA RAGHURAMANDTHE HONOURABLE SRI JUSTICE M.S.RAMACHANDRA RAOITTA No. 471 of 2011 Judgment(Per Hon’ble Sri Justice Goda Raghuram) Heard Sri J.V.Prasad, learned Standing counsel for IncomeTax. Revenue has preferred this appeal under Section 260-A of theIncome Tax Act, 1961 (for short ‘the Act’) against the order dated 3-3-2008 of the Income Tax Appellate Tribunal, Hyderabad Bench, whichallowed ITA No. 1233/Hyd/2006 preferred by the respondent. The assessee is a company registered under the CompaniesAct, 1956 engaged in manufacturing activity. For the AssessmentYear 2003-04 the assessee filed its return of income showing nilincome and book profit of Rs.2,12,82,457/- under Section 115JB of theAct. While proceeding to assessment under Section 143(3) of the Act,the Assessing Officer observed that during the financial year 2000-01the assessee had obtained a loan of Rs.2,90,00,000/- from Mahindraand Mahindra and as on 1-4-2002 the principal amount stood at Rs.2,50,00,000/-. TheAssessing Officer further observed that the interest is being addedevery year to the principal and interest was being charged on theprincipal as well as on the interest component which is compounded.Accordingly by the order of Assessment dated 20-3-2006 interest paid on the compounded interest component on theliability of the assessee was disallowed holding it to be not interest paid on borrowed capital, as per provisions of Section 36(1) (iii) of theAct. The Assessing Officer allowed interest at the rate of 20% onRs.2.50 crores, the principal and disallowed “the excess interest ofRs.15,23,323/-”. The assessee unsuccessfully preferred an appealand thereafter carried the matter further to the Tribunal. By the order impugned, the Tribunal concluded and rightly thatthe disallowance of interest of Rs.15,23,323/- is contrary to the trueand fair construction of the provisions of Section 36(1) (iii) of the Act,which makes no distinction between the deductions of the amount ofinterest paid in respect of the borrowed capital for the purpose ofbusiness or profession, whether the interest being paid at simple orcompounded rate. We find no error in the order of the Tribunal warranting appellatescrutiny under Section 260-A of the Act. The appeal is accordinglydismissed at the stage of admission. _________________________ GODA RAGHURAM, J 26[th] November, 2012 GRR _______________________________ M.S.RAMACHANDRA RAO, J