The case ITA No. 5245/DEL/2019 involves SKG Wooden Works Pvt. Ltd., which appealed against the disallowance of interest deduction claimed on a business loan utilized differently than originally intended.
SKG Wooden Works Pvt. Ltd. faced a disallowance of Rs. 7,53,425 for interest paid on a loan from M/s. Oswal Greentech Limited. The loan, intended for business expansion, was invested in shares of subsidiary companies, which led to the tax dispute.
During the tribunal proceedings, the company’s counsel argued that the loan was used for investments in subsidiaries as a measure of commercial expediency. They cited the Supreme Court’s ruling in SA Builders Ltd vs. CIT to support the claim that such expenditures are permissible if they are for commercial expediency.
The authorities initially contested that since the loan was invested in shares, it does not qualify for an interest deduction. However, the company provided substantial documentation, including bank statements and corporate agreements, to demonstrate the intent and utilization of the funds.
The tribunal acknowledged the company’s strategic financial management, recognizing the investment in shares as a measure of commercial expediency. It ruled in favor of the company, allowing the interest deduction and overturning the initial disallowance by the tax authorities.
The decision highlights the importance of the intent behind financial transactions and their alignment with business objectives. It also sets a precedent for other companies that financial decisions, if well-documented and aligned with business purposes, can withstand scrutiny from tax authorities. The case reaffirms the principle that the purpose of expenditure, rather than its nature, determines tax deductions.
SKG Wooden Works Pvt. Ltd. vs. ITO: Interest Deduction Claim on Business Loan ITA 5245/DEL/2019
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