A write-off of accrued interest income is an allowable bad debt, provided that the interest was offered to tax in a previous year.

Issue

Is a moneylender entitled to a bad debt deduction under Section 36(1)(vii) of the Income-tax Act, 1961, for writing off accrued interest income, if that interest was duly offered to tax in a prior year?

Facts

The assessee, a money lending firm, wrote off a certain amount of outstanding interest income receivable as a bad debt in its books of account.
The Assessing Officer (AO) disallowed this claim, arguing that it was not properly substantiated.
However, the Commissioner (Appeals) deleted the addition. The facts on record clearly showed that:
1. The assessee provided details proving that the interest income being written off had been duly offered to tax on an accrual basis in previous years.
2. The amount was actually and genuinely written off in the books of account for the current year, which was evident from the audited financial statements.

Decision

The court ruled in favour of the assessee.

It held that the assessee had fulfilled the two key conditions for claiming a bad debt deduction as laid out in Section 36 of the Act:
1. The debt was irrefutably written off as irrecoverable in the accounts for the year.
2. The amount of the debt (the interest income) had been taken into account while computing the taxable income of a previous year, as required by Section 36(2).
Since both mandatory conditions were met, the disallowance was incorrect and was rightly deleted by the Commissioner (Appeals).

Key Takeways

The “Income Offered to Tax” Test is Crucial: The most important condition for claiming a bad debt is that the amount must have been previously included in your taxable income. You cannot claim a bad debt for an amount, like a principal loan for a non-moneylender, that was never offered to tax in the first place.
An Actual Write-off in the Books is Mandatory: Following the Supreme Court’s landmark decision in T.R.F. Ltd., the only condition under Section 36(1)(vii) is that the assessee must have actually written off the debt as irrecoverable in their books of account. They are not required to provide any further proof that the debt has actually become irrecoverable.

No interest expenditure can be disallowed if borrowed funds are used for business purposes, even if they are advanced to related parties at a lower interest rate.

Issue

Can a portion of a taxpayer’s interest expenditure be disallowed under Section 36(1)(iii) of the Income-tax Act, 1961, on the grounds that they used borrowed funds to give advances to related parties at an interest rate that was lower than their own average cost of borrowing?

Facts

The assessee, a money lending firm, had borrowed funds at an average cost of 10%. It had also given various loans and advances to its related parties at what the AO calculated was an average rate of only 6%.
The Assessing Officer (AO) disallowed the “differential interest” of 4%, arguing that the assessee had diverted high-cost borrowed funds to its related parties at lower rates for non-business purposes.
The assessee provided detailed commercial justifications for these advances, showing that they were made for commercial expediency. For example, some loans were to trusts that carried a high 12% interest, some were advances for land for business purposes, and others were to companies with a 50% profit-sharing arrangement.

Decision

The court ruled in favour of the assessee.

It held that there is no mandate in the law that requires a taxpayer to prove that the deployment of its borrowed capital has produced a matching or corresponding income.
The crucial test for allowing an interest deduction is whether the borrowed funds were used for the purpose of the business.
Since the borrowings were deployed in the course of the assessee’s money lending business, a disallowance under Section 36(1)(iii) was not permissible, even if some of the loans were given at a lower interest rate due to valid commercial considerations.

Key Takeways

Commercial Expediency is the Guiding Principle: The allowability of interest expenditure depends on whether the borrowed funds were used for the purpose of the business. The rate of return that is earned on the deployment of those funds is not the deciding factor.
No One-to-One Correlation is Required: A business person is free to make decisions based on their commercial wisdom. This might include giving a loan to a related party at a lower interest rate to foster a business relationship or to participate in a larger, profitable venture. The tax law does not require a direct one-to-one correlation between the cost of borrowing and the income earned from that specific fund.
The Onus is on the AO: If the AO alleges that funds were diverted for non-business purposes, the burden is on them to prove it. A lower rate of interest on an advance, by itself, is not proof that the advance was for a non-business purpose.

A notional interest addition based on an assumed rate of interest is not valid if it is made without any supporting evidence.

Issue

Can an Assessing Officer make a substantial addition for “short declaration of interest” based on a purely notional and assumed rate of interest, without any evidence to support that assumption, especially when no defects are found in the assessee’s books?

Facts

The assessee, a money lending firm, had credited an accrued interest of ₹21.31 crores in its books of account.
The Assessing Officer (AO), however, made a massive addition of ₹23.62 crores for what he alleged was a “short declaration of interest.”
The entire basis for this huge addition was the AO’s own assumption. He simply assumed that all loans advanced by the assessee must have carried an interest rate of 24%, calculated a notional total interest income based on this rate, and added the difference.
The AO did not point to any basis or evidence to support his assumption of a 24% interest rate.
Furthermore, no incriminating material or evidence was found during the search conducted on the assessee to suggest that they were actually charging a higher rate of interest than what was recorded in their books.

Decision

The court ruled in favour of the assessee and deleted the entire addition.

It held that an addition to income cannot be made based on pure conjecture and assumption.
The AO’s action of adopting a notional interest rate without any supporting evidence was arbitrary, had no legal basis, and was therefore unsustainable.

Key Takeways

Assessments Must Be Based on Evidence, Not Assumption: An Assessing Officer cannot make an addition based on their personal theories or assumptions about what the income should have been. There must be some credible material or evidence on the record to support any addition to the income that the taxpayer has declared.
The Onus is on the Revenue to Disprove the Books: If the revenue department wants to allege that a taxpayer has suppressed their income, the burden is on them to prove it with evidence. They cannot simply reject the figures in the assessee’s books and substitute their own higher figures without first finding any specific defects or falsehoods in the books.
A Search Does Not Justify Arbitrary Additions: The fact that a search was conducted on a taxpayer does not give the AO a license to make arbitrary additions. Any addition, even in a search case, must be based on the material that was found during the search or other independent, corroborative evidence.

An amount of suppressed income that the assessee has already quantified and included in their filed tax return cannot be added again by the Assessing Officer.

Issue

Can an Assessing Officer make a separate addition for an amount of suppressed income that the assessee has already quantified and voluntarily included in their total income in the income tax return that has been filed?

Facts

Following a search operation, the assessee themselves quantified a suppressed business income of ₹47.92 crores.
The assessee stated that this amount had been duly incorporated into its financial statements and was included in the total income that was declared in the income tax return they filed.
The Assessing Officer (AO), however, made an addition of the same ₹47.92 crores again. The AO’s reason for this was that the amount was not separately and clearly “discernible” from the profit and loss account.
The Commissioner (Appeals) verified the assessee’s financial records and came to a clear factual finding that the amount had in fact already been included in the computation of income. The CIT(A) therefore deleted the addition, stating that it would amount to double taxation.

Decision

The court ruled in favour of the assessee and dismissed the revenue’s appeal in limine (at the very outset, without a full hearing).

It noted that the correctness of the Commissioner (Appeals)’s factual finding was not even disputed by the revenue.
Since it was a proven fact that the income had already been included in the return, making a separate addition for the same amount was legally incorrect and amounted to double taxation.

Key Takeways

No Double Taxation: It is a fundamental and unshakable principle of tax law that the same income cannot be taxed twice in the hands of the same person for the same assessment year.
The Substance of the Return Matters: The tax is ultimately levied on the “total income” that has been computed. As long as an amount has been correctly included in that final computation, the AO cannot add it again simply because it is not presented in the profit and loss account in a specific manner that the AO would prefer.
Verification is the AO’s Job: If an assessee claims that an income has been included in their return, the AO’s duty is to verify this from the financial statements and the detailed computation of income. They cannot make a blind addition without conducting this basic verification.
An Undisputed Factual Finding is Final: When an appellate authority like the CIT(A) gives a clear factual finding after verifying the records, and the revenue department does not dispute the correctness of that finding, the issue is settled.

IN THE ITAT CHENNAI BENCH ‘C’

DCIT

Jayapriya Company

ABY T. VARKEY, Judicial Member
and AMITABH SHUKLA, Accountant Member

IT Appeal Nos. 1251 and 1252 (Chny) of 2025
Cross-Objection Nos.43 and 44 (Chny) of 2025
[Assessment years 2021-22 and 2022-23]

SEPTEMBER 12, 2025

Mrs. Yamuna, CIT for the Appellant. G. Baskar, Adv. for the Respondent.

ORDER

Aby T. Varkey, Judicial Member.- These appeals preferred by the Revenue and the cross-objections of the assessee are against the orders passed by the Learned Commissioner of Income Tax (Appeals)-19, (hereinafter referred to as ‘Ld. CIT(A)’), Chennai, both dated 12.02.2025, for the Assessment Years (hereinafter referred to as ‘AY’) 2021-22 & 2022-23 u/s. 250 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’)

2. Since the issues involved in both these appeals are common, they were heard together. Both the parties also argued them together raising similar arguments on these issues. Accordingly, for the sake of convenience and brevity, we dispose both these appeals by this consolidated order.

3. The background facts are that, the assessee is a partnership firm which was formed on 01.04.2009. The assessee is carrying on several businesses inter alia including the business of real estate under the name & style of M/s Jayapriya Property Developers. The assessee firm is also involved in the business of money lending which is carried out in the name & style of M/s Jayapriya Financiers. The assessee also operates a guest house and theatre by the name of M/s Jayapriya Guest House and M/s Jayapriya Theatre respectively. A search action u/s 132 of the Act was conducted upon the assessee on 16.12.2021 in the course of which, several incriminating material concerning the unaccounted income generated from real estate business and unaccounted payments made for purchase of lands was found. Before the AO, the assessee vide letter dated 14.03.2022 is found to have quantified and offered to tax the following additional income across AYs 2013-14 to 2022-23:

S.No	FY	Suppressed Business Income
1	2012-13	Rs.17,98,23,006/-
2	2013-14	Rs.5,84,64,526/-
3	2014-15	Rs.6,48,65,821/-
4	2015-16	Rs.7,89,54,033/-
5	2016-17	Rs.20,49,494/-
6	2017-18	Rs.41,46,485/-
7	2018-19	Rs.1,11,09,637/-
8	2019-20	Rs.26,86,26,011/-
9	2020-21	Rs.60,01,58,900/-
10	2021-22	Rs.47,91,86,185/-
Total		Rs.174,73,84,099/-

4. The AO in the assessment order(s) is noted to have extensively examined the electronic data found from cloud server and material seized from the several premises of the assessee. Upon such examination, the AO found the quantification of the above additional income offered by the assessee to be in order. Upon being questioned as to whether the above additional income had been offered to tax, the assessee explained that the same was considered and offered to tax in the returns of income filed u/s 147 of the Act for AYs 2013-14 to 2020-21, which are noted to be as follows:-

Assessment Year	Income as per Original Return	Tax paid as per Original return	Income as per returns filed in response to notice U/s. 148	Tax paid as per Return filed in response to notice U/s. 148
2013-14	40,55,540	13,23,358	18,38,78,550	2,44,37,065
2014-15	56,34,181	19,02,677	6,40,98,710	4,65,89,930
2015-16	68,76,690	21,53,308	7,17,42,510	3,76,53,308
2016-17	98,29,529	30,56,909	8,87,83,560	5,63,13,914
2017-18	1,44,35,318	50,05,920	1,64,84,811	62,86,626
2018-19	1,73,70,240	60,21,575	2,15,16,725	1,45,40,313
2019-20	2,99,83,910	1,05,33,315	4,10,93,545	1,67,85,553
2020-21	3,27,21,870	1,15,87,490	30,13,47,880	15,45,14,092

5. The assessee further demonstrated before the AO that, the additional income offered qua AYs 2021-22 & 2022-23 were appropriately incorporated in the financial statements and disclosed in the return(s) of income filed u/s 139 of the Act subsequent to completion of the search. The AO is found to have examined the details furnished by the assessee and recorded a categorical finding that, the assessee had disclosed the suppressed business income unearthed during the course of search across the AYs, as tabulated earlier above. The AO accordingly did not make any further addition/disallowance in this regard.

6. The AO is noted to have made disallowances/ additions on account of bad debts u/s 36(1)(vii) of the Act, interest expenditure u/s 36(1)(iii) of the Act, short credit of interest income etc. in AYs 2021-22 & 2022-23, against which the assessee preferred appeal before the Ld. CIT(A). It is noted that the Ld. CIT(A) had partially allowed the appeal(s) of the assessee for both the years. Aggrieved by the order(s) of Ld. CIT(A) for AYs 2021-22 & 2022-23, the Revenue has preferred appeal before us and the assessee has filed cross objections against the same.

7. We first take up the appeal of the Revenue in ITA No.1251/Chny/2025 and the assessee’s cross objections in CO No. 43/Chny/2025 for AY 2021-22. Ground No. 1 of the Revenue’s appeal is general in nature and therefore does not call for any specific adjudication and is accordingly dismissed.

8. Ground No. 2 raised by the Revenue relates to the disallowance of bad debts of Rs.57,33,66,645/-. The facts as noted in brief are that, the assessee is engaged in the business of money-lending in the name and style of M/s Jayapriya Financiers. The assessee is also holding valid license No.17/96-97 required to carry out the financing business. The AO observed from the audited tally accounts which was seized in the course of search that, the assessee had written off outstanding interest income receivable by way of bad debts to the tune of Rs.57,33,66,645/-. According to the AO however, the party wise details of quantum of loan advanced, repayment, interest collected and interest written off etc. was not available. It is noted that, the AO vide show cause dated 24.12.2022 required the assessee to provide the foregoing details and substantiate the claim of bad debts on or before 26.12.2022. On the scheduled date i.e. 26.12.2022, the AO issued another reminder requiring compliance by 27.12.2022. In reply, the assessee is noted to have provided the yearwise details of accrued interest which was accounted and offered to tax in the earlier years, out of which the impugned bad debts were written off. The assessee however expressed his inability to furnish the party-wise details as the same was not readily available with them. The AO therefore held that the assessee was unable to substantiate the claim of bad debts and therefore, disallowed the impugned claim and added the same to the total income. Aggrieved by the order of the AO, the assessee preferred an appeal before the Ld. CIT(A). On appeal, the Ld. CIT(A) is noted to have examined the details of the bad debts in light of the provisions of Section 36(1)(vii) of the Act and CBDT Circular No. 12/2016 and held that the impugned disallowance was unjustified. Being aggrieved by the order of Ld. CIT(A), the Revenue is now in appeal before us.

8.1 The Ld. CIT, DR, appearing for the Revenue submitted that, the assessee had not furnished the specific details of the loans advanced, repayments made, the year in which interest income was offered to tax to which the corresponding write off was made. According to the Ld. CIT, DR, the assessee also failed to show that the alleged irrecoverable interest written off had been offered to tax in earlier years and why these debts became bad during the year. The Ld. CIT, DR thus claimed that the AO had rightly disallowed the impugned claim and urged us to restore the order of the AO. Per contra, the Ld. AR for the assessee supported the order of the Ld. CIT(A).

8.2 Heard both the parties. The undisputed facts are that, the assessee is engaged in the business of money lending and holds a license to carry on such business. The assessee advances loans to several individuals, small businesses etc. under their different loan schemes on varied tenure(s) and rate(s) of interest. The assessee ordinarily accounts the interest income on such loans and offers the same to tax, on accrual basis. In case, the outstanding receivables becomes bad or irrecoverable, the same is written off by way of bad debts and is claimed as deduction u/s 36(1)(vii) of the Act. The Ld. AR pointed out that, during the relevant year, one of the assesssee’s major borrower, Shri. Anandharajan had declared bankruptcy and therefore the corresponding interest income lying outstanding in the books of accounts had become bad and was thus written off. He further explained that, the FY 2020-21 was a unusual year, when there was a complete lockdown and disruptions of businesses across India due to COVID-19, because of which several of the assessee’s borrowers had either gone out of business or were faced with several financial crunch, due to which there was no possibility of recovery of outstanding interest from them, and thus the assessee had given interest waivers, with the intent to protect the principal sum(s) and attempt its realizability at a later date. The assessee is accordingly noted to have written off the outstanding irrecoverable accrued interest income of Rs.57,33,66,645/-, which was also reflected on the face of the audited financial statements for the year ended 31^st March 2021. The case of the Revenue before us is that, the assessee had not provided the party-wise details of bad debts written off and the year in which such debt was offered to tax and therefore the assessee’s case was not covered by the CBDT Circular No. 12/2016.

8.3 It is observed that, search was conducted upon the assessee on 16.12.2021, which was much later to the close of the relevant FY 2020-21 and admittedly, the complete set of books of accounts maintained by the assessee in electronic form and on cloud server was found and seized by the Investigating Authorities. The Ld. AR pointed out that, the seized books of accounts/material inter alia contained the details of the bad debts written off during the year along with the party wise ledgers and therefore the AO had incorrectly asserted that the relevant details were not available in his record. To corroborate this contention, the Ld. AR invited our attention to Para 8 of the assessment order wherein the AO had observed as follows:-

“On examination of the audited tally of the assessee company for the F.Y. 2020-21, it is seen that the assessee had given loan to the individuals/ entities not connected to the assessee under scheme “ML II Loan” and “Loan ML II CRBF” @24% of interest per annum. It is also seen that the assessee had written off interest income offered during previous years on accrual basis to the tune of Rs.57,33,66,645/-.

8.4 It is seen that, the AO had examined the audited tally wherefrom he had noted that the assessee had written off interest income, offered in earlier years on accrual basis, by way of bad debts during the year. We thus observe that the AO had acknowledged the fact that, the bad debts written off in the accounts was out of the interest income, which was offered to tax in the earlier years and hence the condition laid down in Section 36(2) r.w. 36(1)(vii) of the Act was met. Though having observed so, the AO is noted to have subsequently held that the impugned claim was not allowable for want of specific party wise details, which according to him, was not available in the balance sheet of the tally accounts. In this regard, we observe that, the Ld. CIT(A) had taken note of the material contemporaneous facts, as discussed in the foregoing, and found that, the impugned details were already available in the seized material, before the AO. The Ld. CIT(A) accordingly held that, the reason given by the AO for rejecting the claim of bad debts viz. non availability of supporting evidence, was not justified, as they were already available in the seized records. The Ld. AR, at the time of hearing, took us through the summary statement containing the party wise details of bad debts written off which was prepared from the data available in the seized books of accounts, copy of which was placed at Page 204 to 227 of Paper Book. He correlated this summary statement with the ledgers printed from the electronic books of accounts, which was placed at Pages 228 to 304 of Paper Book. It is seen that, each ledger contained the name of the party, their address, the loan amount, the tenure of loan, the due date for collection, the interest accrued across each year and the amount written off. Having perused the same, we are in agreement with the Ld. CIT(A) that, the party-wise details of bad debts were indeed available in the seized material, and therefore the AO was unjustified in disallowing the impugned claim for alleged want of supportings. We thus countenance the following findings of the Ld. CIT(A) recorded in the appellate order :-

“6.3.4 The undersigned has carefully examined the submission of the appellant. The AO, during the course of assessment proceedings, reviewed the audited financials and noted that the appellant firm has granted loans to unrelated parties under two schemes, “ML II Loan” and “Loan ML II CRBF.” at an interest of 24%. The appellant firm had written off interest income of Rs. 57,33,66,645/- that was recognized in previous years on an accrual basis. However, the AO observed that there were no party-wise details, which led to the conclusion that the write-off was done on an ad-hoc basis vide AO’s letter dtd.24.12.2023, the appellant firm was requested to substantiate its claim with documentary evidence. The appellant, in response to the AO’s notice, submitted its explanation on 27.12.2022 regarding the write-off, which included details about of accrued interest, interest received, the balance written off for different years and expressed its difficulty in providing party wise details due to a technical issue in connecting to the server. The appellant firm’s representative, in person, had clarified to the AO, that the party wise details are available in seized material. Despite the submission, the AO rejected the claim on the grounds of lack of sufficient evidence to substantiate the write-off of Rs.57,33,66,645/- and added the same to the Retuned Income of AY 2021-22.

6.3.5 During the course of appellate proceedings, the appellant submitted a detailed explanation, including a breakup of interest accrued, interest received, and the balance written off for multiple financial years). The appellant also referred to the seized data containing the required partywise details, which had been overlooked by the AO. The undersigned after considering the appellant’s submissions and the materials available on record, observes that the appellant firm had made a genuine claim for the bad debts write-off. The claim was based on the recognition of interest income in earlier years, which, upon non-recovery, was appropriately written off in the current year. The disallowance of bad debts by the AO is not based upon any findings of the search. The AO’s observation that the write-off was done on an ad-hoc basis appears to be based on nonavailability of party-wise details, which the appellant explained that the same was available with the AO in the form of seized material. The appellant has provided a detailed breakup of the amounts written off, including the list of loan parties, accrued interest, interest received, and balance written off for various years all of which support its claim of Bad debts

6.3.6 It is significant to bring on record that the AO had access to the seized materials containing all the relevant details, including party-wise details of loans, repayments, and interest. Failure to analyse these materials led to an erroneous conclusion regarding the write-off claim. The Appellant’s books of accounts are subjected to Audit as per the provisions of section 44AB of the Act. The AO has not made any findings of shortcomings / defects in the books of accounts by the appellant especially with regard to the write off of bad debts in the earlier years. Since the appellant has duly followed the procedure to write off the bad debts, and the supporting evidence were available in the seized records, the rejection of the bad debt claimed by the AO is not justified.”

8.5 Before us, the Revenue was unable to negate the fact that the seized material / books of accounts did not contain the details of bad debts written off by the assessee, which print-outs were placed at Pages 228 to 304 of the Paper Book. According to us therefore, the details concerning the bad debts written off was available on record. Thus, the plea of the Revenue to confirm the impugned disallowance for nonavailability of details is rejected.

8.6 The Ld. AR further pointed out to us that, at no point of time, in the entire assessment proceedings did the AO raise any specific issue concerning the claim of bad debts. Rather, it was only at the fag-end of the assessment proceedings that, the AO issued a show cause on 24.12.2022 seeking to disallow the impugned bad debt claim, if the partywise details of the bad debts written off was not furnished by the assessee before 26.12.2022. Inviting our attention to the show cause notice, which was placed at Page 180 – 181 of the paper book, he pointed out that, this notice was issued only at 08.03 PM on 24.12.2022 requiring compliance by 11.00 AM on 26.12.2022, in spite of the AO being aware that 25.12.2022 was a public holiday. According to him, therefore, the aforesaid show cause notice was a mere ruse to make the impugned disallowance by alleging non-availability of purported details, though these details were already available in the seized material. The aforesaid sequence of events narrated by the assessee assailing the action of the AO, coupled with our above findings, does appear to suggest that the impugned disallowance was made by the AO on the incorrect pretext of non-availability of details.

8.7 We now proceed to examine the merits of the impugned claim of bad debts. As per the provisions of section 36(1)(vii) of the Act which deals with allowability of bad debt or part thereof. The said section, as amended w.e.f. 1-4-89, provides that the following shall be allowed:

“subject to the provisions of sub-section (2), the amount of any bad debt or part thereof which is written off as irrecoverable in the accounts of the assessee for the previous year.”

8.8 From the plain reading of the provisions of section 36(1)(vii) of the Act, it is abundantly clear that from AY 1989-90 onwards, the preconditions for allowability of a debt is that, the assessee should have bona fide belief that the debts are not recoverable and that they are written off in the books of accounts. Hence, it is not necessary for the assessee to establish that the debts become bad in the previous year under consideration for claiming the same as deduction.

8.9 As per section 36(2)(i) of the Act, in order to claim deduction under section 36(1)(vii) of the Act, the precondition is that the debt or part thereof should have been taken into account in computing the income of the assessee of the previous year in which the amount of such debt or part thereof is written off or of an earlier previous year. In this connection, we note that the assessee has already provided the details of the year(s) in which the revenue pertaining to bad debts were offered to tax before the authorities below. We also note that the Central Board of Direct Taxes (‘the CBDT’) vide Circular No.551 dated 23^rd January 1990 has provided that bad debt written off is allowed as deduction in the year in which it is written off as irrecoverable in the account. The relevant extracts of the circular is reproduced below:

“6.6 The old provisions of clause (vii) of sub-section (1) read with subsection (2) of the section laid down conditions necessary for allowability of bad debts. It was provided that the debt must be established to have become bad in the previous year. This led to enormous litigation on the question of allowability of bad debt in a particular year, because the bad debt was not necessarily allowed by the Assessing Officer in the year in which the same had been written off on the ground that the debt was not established to have become bad in that year. In order to eliminate the disputes in the matter of determining the year in which a bad debt can be allowed and also to rationalize the provisions, the Amending Act, 1987, has amended clause (vii) of sub-section (1) and clause (i) of sub-section (2) of the section to provide that the claim for bad debt will be allowed in the year in which such a bad debt has been written off as irrecoverable in the accounts of the assessee.

6.7 Clauses (iii) and (iv) of sub-section (2) of the section provided for allowing deduction for a bad debt in an earlier or later previous year. if the Income-tax Officer was satisfied that the debt did not become bad in the year in which it was written off by the assessee. These clauses have become redundant, as the bad debts are now being straightaway allowed in the year of write off. The Amending Act, 1987 has, therefore, amended these clauses to withdraw them after the assessment year 1988-89.”.

8.10 The CBDT reiterated their above view in Circular No. 12/2016 dated 30.05.2016 wherein it was again stated that, once the debts has been written off in the books of accounts and the assessee has satisfied the conditions laid down in Section 36(2)(i) of the Act. Hence, in view of Section 36(1)(vii) r.w. 36(2) of the Act and CBDT Circular Nos. 551/1990 & 12/2016, the twin conditions to be met are viz., (a) the debts has been written off and debited in the books of accounts and (b) such debt was offered to tax in the earlier years. Once these two conditions are fulfilled, the assessee is legally entitled to claim bad debts u/s 36(1)(vii) of the Act.

8.11 In the present case, it is undisputed that the impugned amount was written off and debited in the books of accounts for the year ended 31^st March 2021 and the same is discernible from the face of the audited financial statements as well. The books of accounts are noted to have been audited u/s 44AB of the Act and the tax auditor had not adversely commented on the bad debts claimed by the assessee. The AO has also not made out any case for rejecting the books of accounts u/s 145(3) of the Act. As already noted earlier, the party-wise details along with sample ledgers placed before us in support of the bad debts written off during the year. It is further seen that, the assesse had also submitted the financial year wise details of the accrued interest income offered to tax in the earlier years, out of which the bad debts were written off during the year. The relevant summary statement, which was submitted before the lower authorities as well, is as under:

Jayapriya Company

	31.03.2019	31.03.2020	31.03.2021
Accrued Interest Accounted	19,51,66,456	23,95,19,370	7,74,00,116
Interest Received	3,66,33,994	2,05,28,303	7,74,00,116
Balance Accrued Interest Woff	15,85,32,462	21,89,91,067

Jayapriya Financiers

	31.03.2019	31.03.2020	31.03.2021
Accrued Interest Accounted	11,79,30,727	19,59,99,365	13,56,06,937
Interest Received	5,02,09,125	6,79,64,144	13,56,06,937
Balance Accrued Interest W/off	6,77,21,602	12,80,35,221

8.12 It is seen that, even the AO has acknowledged in the impugned order that, the bad debts written off, was out of the interest income offered to tax in the earlier years. In our considered view therefore, the twin conditions laid down in Section 36(2) r.w. 36(1)(vii) of the Act was fulfilled and therefore in terms of the CBDT Circular (supra), which is binding upon the Revenue, the Ld. CIT(A) had rightly deleted the impugned disallowance by holding as under:-

“6.3.7 The provisions of section 36(1)(vii) of the Act clearly allows deduction of bad debts written off. The same is clarified by the CBDT vide Circular No. 12/ 2016 in F.NO.279/MISC./140/2015-ITJ dated 30-5-2016. It is most appropriate to refer to and rely on the CBDT ‘s Circular No. 12/2016 [F.NO.279/MISC./140/2015-ITJ] dated 30.05.2016 regarding the admissibility of claim of deduction of bad debts. The same is reproduced as under.

“Proposals have been received by the Central Board of Direct Taxes regarding filling of appeals/pursuing litigation on the issue of allowability of bad debt that are written off as irrecoverable in the accounts of the assessee. The dispute relates to cases involving failure on the part of assessee to establish that the debt is irrecoverable.

2. Direct Tax Laws (Amendment) Act, 1987 amended the provisions of sections 36(1)(vii) and 36(2) of the Income Tax Act 1961, (hereafter referred to as the Act) to rationalize the provisions regarding allowability of bad debt with effect from the 1st April, 1989.

3. The legislative intention behind the amendment was to eliminate litigation on the issue of the allowability of the bad debt by doing away with the requirement for the assessee to establish that the debt, has in fact, become irrecoverable. However, despite the amendment, disputes on the issue of allowability continue, mostly for the reason that the debt has not been established to be irrecoverable. The Hon’ble Supreme Court in the case of TRF Ltd. In CA Nos. 5292 to 5294 of 2003 vide judgment dated 9-2-2010, has stated that the position of law is well settled. “After 1-4-1989, for allowing deduction for the amount of any bad debt or part thereof under section 36(1) (vii) of the Act, it is not necessary for assessee to establish that the debt, in fact has become irrecoverable; it is enough if bad debt is written off as irrecoverable in the books of account of assesses.”

4. In view of the above, claim for any debt or part thereof in any previous year, shall be admissible under section 36(1)(vii) of the Act, if it is written off as irrecoverable in the books of account of the assessee for that previous year and it fulfils the conditions stipulated in sub-section (2) of sub-section 36(2) of the Act.

5. Accordingly, no appeals may henceforth be filed on this ground and appeals already filed, if any, on this issue before various Courts/Tribunals may be withdrawn/not pressed upon.

6. This may be brought to the notice of all concerned”.

6.3.8 The above Circular was issued by the CBDT after the interpretation of section 147 of the Act by the Hon’ble Supreme Court in the case of T.R.F. Ltd. v. CIT 391 (SC)/[2010] [2010] 190 391/T.R.F. Ltd. v. Commissioner of Income-tax [2010] 230 CTR 14/323 ITR 397/190 391 (SC) (SC) (SC). The Head note of the case and relevant paragraph of the decision are reproduced below:

“Section 36(1)(vii) of the Income-tax Act, 1961 Bad debts Assessment years 1990-91, 1993-94 and 1994-95 Whether after 1-4-1989, it is not necessary for assessee to establish that debt, in fact, has become irrecoverable; it is enough if bad debt is written off as irrecoverable in accounts of assessee Held, yes”

“4. This position in law is well-settled. After 1-4-1989, it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable. It is enough if the bad debt is written off as irrecoverable in the accounts of the assessee. However, in the present case, the Assessing Officer has not examined whether the debt has, in fact, been written off in accounts of the assessee. When bad debt occurs, the bad debt account is debited and the customer’s account is credited, thus, closing the account of the customer. In the case of companies, the provision is deducted from sundry debtors. “

6.3.9 In view of the above judgment of Hon’ble Apex Court and the CBDT Circular, it is clear that the AO cannot sit in judgment, on the claim of bad debts once the debts were written off as irrecoverable in the books of accounts. It is not necessary to prove that the debt actually became bad or irrecoverable.

6.3.10 Further in the case of CIT v. ING Vysya Bank Ltd. 80 (Karnataka) the Hon’ble Karnataka High Court held that the bad debts written off in books are to be allowed deduction u/s 36(1)(vii) of the Act irrespective of whether the said amounts were recoverable or not from the customers. Head note of the decision is reproduced below:

“For claiming deduction of bad debt under section 36(1)(vii), it is enough if bad debt is written-off as irrecoverable in books of account of assessee.

Section 36(1)(vii)/(2) of the Income-tax Act, 1961-Bad debts (Conditions precedent) Assessment year 2004-05-Whether while claiming deduction of bad debt under section 36(1)(vii), it is not necessary for assessee to establish that debt has become irrecoverable but it is enough if bad debt is written-off as irrecoverable in books of account of assessee Held, yes -Whether thus, where amounts recoverable from customers had been written-off by assessee-bank, Tribunal rightly allowed relief to assessee -Held, yes”

6.3.11 In the case of CIT v. T. Anobala Rao reported in (2014) 41 90 (Karnataka), the Hon’ble Karnataka High Court held that in order to claim Bad debts u/s 36(1) (vii) of the Act, the assessee need not be called to prove the same; writing off of amount as a Bad debt is sufficient compliance. The head note of the decision is reproduced below:

“Section 36(1) (vii) of the Income-tax Act, 1961 Writing off] Block period 1-4-1995 to 7-6-2001 Bad debts Assessing Officer disallowed claim of bad debts on ground that no effort had been made by assessee to recover loan advance and it was difficult to conclude that debts had become irrevocable – Whether in view of amendment to section 36(1)(vii) w.e.f. 1-4-1989, in order to claim bad debts assessee could not be called to prove same; writing off of amount as a bad debt is sufficient compliance – Held, yes”

6.3.12 In the case of Pr. CIT v. Shreno Ltd. 813 (Gujarat), the Hon’ble Gujarat High Court held that once debts were written off in books, it was to be allowed without expecting the assessee to prove that debts had actually become bad or they were recoverable or recovered in subsequent years. Head note of the decision is reproduced below:

“Section 36(1)(vii) of the Income-tax Act, 1961 Bad debts (Writing off) Assessment year 2012-13 Assessee-company had provided advances to its subsidiary – In relevant assessment year also, assessee provided advance to its subsidiary Up to assessment year 2011-12, assessee showed interest income on loans and advances given to subsidiary in its books of account However, net worth of subsidiary eroded and balance interest outstanding in books of assessee was written off during relevant assessment year as irrecoverable – Assessee claimed bad debts under section 36(1)(vii) Assessing Officer disallowed claim of assessee on ground that fresh loans were advanced during relevant year and, therefore, it could not be said that recovery of interest had become bad -Commissioner (Appeals) upheld disallowance on ground that though liability of subsidiary ceased but no taxes were paid due to heavy losses and assessee had created camouflaged transactions to avoid tax liability -Whether once debts were written off in books, it was to be allowed without expecting assessee to prove that debts had actually become bad Held, yes “Whether it was altogether irrelevant, whether subsidiary actually paid tax or not; if a liability had ceased, then it would be added back in taxable income of subsidiary and if subsidiary was unable to pay tax as it was suffering huge losses, same could not be reason to disallow assessee’s claim of bad debt – Held, yes”.

6.3.13 In the case of ACIT v. Dr. S Venkatesh ITA No 1805/Mds/2014 dated 15-07-2016 (ITAT, Chennai), the jurisdictional Chennai, ITAT followed the decision of Hon’ble Apex Court in the case of T.R.F. Ltd. v. CIT (supra) & CBDT circular and allowed bad debts written off. Operative part of the decision is reproduced below:

“The Assessing Officer found that the assessee has not established that the debt has become irrecoverable. This Tribunal is of the considered opinion that when the assessee written off the bad debt in the books of account, it is not necessary for the assessee to establish that the debt has become bad. In view of the language employed by the legislature in sec. 36(1)(vii) of the Act, this Tribunal is of the considered opinion that it is for the assessee to decide whether the debt has become bad or not. When the assessee has decided that the debt has become bad, it is always open to the assessee to write off the same in the books of account. Once it is written off as bad debt in the books of account, it is not for the Assessing officer to challenge the correctness of the fact of writing off the bad debt. In view of the judgement of the Apex Court in TRF Ltd(supra) the Assessing Officer cannot ask to establish the fact of debt become bad. It is always the decision of the assessee to treat a particular debt as bad or not. Therefore, the CIT(A) has rightly deleted the addition made by the Assessing Officer”

6.3.14 In the case of Pranava Electronics (P.) Ltd. v. DCIT 9 (Bangalore – Trib.) the Hon’ble ITAT, Bangalore Bench held that writing off a debt in books is sufficient to claim deduction u/s 36(1)(vii) of the Act. Head note of the decision is as under:

“Section 36(1) (vii) of the Income-tax Act, 1961- Bad debts (Writing off of debt) Assessment year 2010-11 Whether where assessee advances money without money lending business, if advance becomes bad, it should be allowed as a bad debt in terms of section 36(1)(vii) read with section 36(2)(i) – Held, yes – Whether writing off of irrecoverable loan in books of account is sufficient to claim deduction for bad debts under section 36(1)(vii) Held, yes – Whether for grant of claim of assessee as bad debt, holding money lending business is an irrelevant consideration -Held, yes”

6.3.15 The Hon’ble ITAT, Delhi Bench in the reported decision ACIT v. Syed Habibur Rehman 582 (Delhi – Trib.) held that it is enough if bad debt is written off as irrecoverable in accounts of assessee even though it pertains to the income of the current year. Head note is given below:

“Section 36(1)(vii), read with section 36(2), of the Income-tax Act, 1961 Bad debts – Assessment year 2014-15 Whether after 1-4-1989, it is not necessary for assessee to establish that debit, in fact, has become irrecoverable; it is enough if bad debt is written off as irrecoverable in accounts of assessee – Held, yes – Whether where assessee included outstanding bad debt as income in its profit and loss account during previous year 2013-14 and irrecoverable amount out of said bad debts was written off by assessee during relevant assessment year, conditions laid down in section 36(1)(vii) read with section 36(2)(i) were satisfied, and thus, Assessing Officer could not have disallowed such claim of bad debts on ground that sum was prematurely written off by assesssee -Held, yes”.

6.3.16 In the case of Commissioner of Income Tax v. M/s. Hero Cycles Pvt. Ltd. (2015) 379 ITR 347 (SC) the Hon’ble Apex Court reiterated that once the debt is written off in the books of accounts as bad debt, the same shall be allowed as a deduction under Section 36(1)(vii) of the Income Tax Act, 1961. This case reinforces the principle that bad debts, once written off, are no longer assets but should be treated as an expense.

6.3.17 In the case of CIT v. Vithaldas H. Dhanjibhai Bardanwala (1981) 130 ITR 95 (Guj) the Hon’ble Gujarat High Court held that when the assessee writes off a debt as bad, it is a decision taken in the ordinary course of business, and the Income Tax Officer cannot question the correctness of this decision unless there is evidence of fraud or mala fide.

6.3.18 In the case of CIT v. Morgan Securities and Credits Pvt. Ltd. (2013) 357 ITR 588 (Delhi HC) the Hon’ble Delhi High Court held that a bad debt written off in the books of accounts need not be proven as irrecoverable to claim a deduction under Section 36(1)(vii) of the Income Tax Act.

6.3.19 In the case of Catholic Syrian Bank Ltd. v. CIT (2012) 343 ITR 270 (SC) the Hon’ble Apex Court held that the benefit of deduction under Section 36(1)(vii) for bad debts written off is available to all debts irrespective of their classification as rural or urban advances.

6.3.20 In light of the above discussions, judicial precedents, and the CBDT Circular/Instructions, the undersigned is of the considered view that the AO’s disallowance of the bad debt claim, on the ground that the requisite details were not furnished by the appellant, is unjustified, especially when the necessary information was already available before him in the form of seized material. Such a disallowance is contrary to the principles of equity and fairness. Therefore, the action of the AO in disallowing the Bad debt written-off amounting to Rs. 57,33,66,645/- is not sustainable on merits. Accordingly, the grounds raised with regard to write off of Bad debts are hereby treated as allowed and the AO is directed to delete the addition amounting Rs. 57,33,66,645/- made in the AY 2021-22.”

8.13 Further, we note that the issue as to whether the assessee is required to justify the writing off the debts in the books of accounts as bad in a year, has now been settled and decided by the decision of the Supreme Court in the case of T.R.F. Ltd. v. Commissioner of Income-tax [2010] 230 CTR 14/323 ITR 397/190 391 (SC), wherein it has been held that, it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable and the accounting entry for write off is sufficient to claim the deduction for bad debts. The Hon’ble Supreme Court held as under:

“In these appeals, we are concerned with Assessment year 1990-1991 and Assessment Year 1993-1994. Prior to 1st April, 1989, every assessee had to establish, as a matter of fact, that the debt advanced by the assessee had, in fact, become irrecoverable. That position got altered by deletion of the word “established”, which earlier existed in section 36(1)(vii) of the Income-tax Act, 1961.”

For the sake of clarity, we reproduce herein below provisions of section 36(1)(vii) of the Act, both prior to 1st April, 1989 and post 1st April, 1989:

“Pre-1st April, 1989:

Other deductions.

36.(1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28—

….

(vii) subject to the provisions of sub-section (2), the amount of any debt, or part thereof, which is established to have become a bad debt in the previous year.

Post-1st April, 1989:

Other deductions.

36.(1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28-

…..

(vii) subject to the provisions of sub-section (2), the amount of any bad debt or part thereof which is written off as irrecoverable in the accounts of the assessee for the previous year.”

“This position in law is well settled. After 1st April 1989, it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable. It is enough if the debt is written off as irrecoverable in the books of account of the assessee.”

8.14 The above judgment (supra) was followed with by the Hon’ble jurisdictional Madras High Court in the case of Citadel Fine Pharmaceuticals Ltd. v. Deputy Commissioner of Income-tax 142/476 ITR 193 (Madras), wherein it was held that, the deduction for bad debts is allowable upon write-off in relevant year, without necessitating justification that debt has actually gone bad. The relevant portion of the decision is as follows:-

“22. The Supreme Court in TRF Ltd (supra), has held that post amendment to Section 36(1)(vii) of the Act, with effect from 01.04.1989, all that is necessary for an assessee to claim a bad debt is for reversal or write-off of the debt in the relevant financial year. There is no necessity for a justification that the debt has, in fact, gone bad. The relevant portion of the judgment is extracted below:

…

23. In the present case, the assessing authority finds that the assessee has, during the year in question written off bad debts of a sum of Rs.4.94 crores, restricted to a sum of Rs.4.07 crores (incidentally, the assessee states that it has filed an appeal as against the said restriction which is pending before the Commissioner of Income Tax (Appeals)). With the aforesaid finding, the claim as regard bad debts is liable to be allowed applying the ratio of the judgement in TRF Ltd (supra).

8.15 Considering the facts as discussed above and in light of the decisions (supra), we see no reason to interfere with the order of Ld. CIT(A) and thus dismiss this ground of the Revenue. The Cross Objection No. 1 being in support of the order of Ld. CIT(A) deleting the impugned addition, is accordingly dismissed as infructuous.

9. Ground No. 3 raised by the Revenue reads as under:

3. The Ld.CIT(A) failed to appreciate that the amount of undisclosed income to be offered for taxation year wise from FY 2012-13 to FY 2021-22 and the amount of undisclosed income com for the FY 2020-21 relevant to the AY 2021-22 worked out to be Rs.60,01,58,900/- as per the search findings but the assessee had offered Rs.68,16,31,295.80/- as “Income from Jayapriya Property Developers” & had not furnished the breakup of such income for income tagging purposes.

9.1 It is seen that the ground of the Revenue is that, though the amount of undisclosed income relevant to AY 2021-22 worked out to Rs.60,01,58,900/- as per search findings but the assessee had offered higher sum of Rs.68,16,31,295/- whose break-up was not provided for tagging purposes. At the outset, it was pointed out to us that, this ground does not emanate from the order of the lower authorities and therefore deserves to be dismissed in limine. It was also brought to our notice that, no such higher offer was made by the assessee and that the additional income offered to tax was Rs.60,01,58,900/- which was commensurate with the quantum as per the Revenue’s findings and therefore this ground has no legs to stand on. The Ld. AR also showed us that, no such finding was rendered by the Ld. CIT(A) as well. Moreover, we are also unable to comprehend as to what could be the grievance of the Revenue, if the assessee had offered higher undisclosed income than what was quantified as per search findings. Even the Ld. CIT, DR appearing before us was unable to explain the exact grievance of the Revenue raised in this ground.

9.2 To put the facts in perspective, admittedly, several incriminating material concerning the real estate dealings of the assessee firm was found during the course of search which was extensively examined by the AO, in Paras 4 & 5 at Pages 2 to 52 of the assessment order. Thereafter, at Para 6, the AO proceeded to quantify the suppressed income found in seized material. Before the AO, the assessee vide submission dated 14.03.2022 inter-alia submitted detailed working of the suppressed income with reference to the seized material, which included offer of Rs.60,01,58,900/- for the relevant AY 2021-22. Taking note of this submission, the AO summoned the partner of the assessee firm, Shri. C R Jayasankar u/s 131 of the Act, and his statement was recorded on 21.03.2022, wherein, he inter alia affirmed the offer of undisclosed income of Rs.60,01,58,900/- in the real estate business in AY 2021-22. After examining and verifying the details, the AO is noted to have recorded the following finding of fact at Paras 7.3 & 7.4 of his impugned order:-

“7.3 In light of the above discussion, show cause notice dated 14/12/22 was issued to assessee as to why Rs. 60,01,58,900/- should not be added to income for A.Y. 2021-22. The assessee vide letter dated 16/12/2022 has stated that it has already included Rs. 60,01,58,900/- in the income tax return filed for A.Y. 2021-22. In response to the same, the reply of the assessee is reproduced below:

…..

7.4 On Verification of the return of Income and the financials for A.Y. 2021-22, it is seen that the assessee had disclosed Rs.60,01,58,900/- as additional income in view of the various omissions discussed in the preceding paragraphs.”

9.3 In view of the above, it is seen that it is not even the AO’s case that there was any infirmity in the suppressed business income quantified and disclosed by the assessee. Rather, the AO had recorded a categorical finding that the same was in order. Hence, for the above reasons, we decline to entertain this ground of the Revenue and dismiss the same in limine.

10. Ground No. 4 of the Revenue’s appeal and Cross Objection No. 2 & 3 raised by the assessee, relates to disallowance of interest expenditure of Rs.6,62,48,343/- which corresponded to loans advanced to related parties. Briefly stated, the AO observed that, the assessee had made substantial borrowings to the tune of Rs.624 crores (approx.) on which it had incurred interest expenditure to the tune of Rs.65.04 crores. The AO worked out the implied cost of borrowing at 10% per annum. According to the AO, the assessee had advanced loans both to related & unrelated parties, out of which the outstanding balance of loans given to related parties as on 31.03.2021 was Rs.161.89 crores. The AO further observed that, the assessee had offered interest income of Rs.9.56 crores qua loans advanced to related parties. Having regard to the outstanding balance of loans given to related parties as on 31.03.2021, the AO worked out implied rate of interest charged from related parties at 6% per annum. According to the AO, the assessee had paid higher interest cost whereas it had charged lower interest rate from related parties. The AO thus concluded that, the differential excess interest expenditure incurred by the assessee by paying 10% on loans which was advanced to related parties at 6%, was not incurred for business purposes. He accordingly computed and disallowed an amount of Rs.6,62,48,343/-. Aggrieved by the order of the AO, the assessee carried the matter in appeal before the Ld. CIT(A).

10.1 The Ld. CIT(A) is noted to have extensively examined the details and purpose of loans advanced to each of the related parties. The Ld. CIT(A) is found to have observed that, the loans were advanced at 12% and not 6% to M/s Shri Shanmugam Educational Trust and M/s APJ Abdul Kalam Educational Trust. Because the interest rate charged from these two related parties was higher than the interest paid i.e. 10%, the interest disallowance corresponding to these loans was deleted by the Ld. CIT(A). In respect of advanced paid to related party, Shri C R Jayashankar, the Ld. CIT(A) noted that, it was not an ‘advance’ or ‘loan’ but payment to partner under his current capital account and therefore the question of charging interest did not arise. The Ld. CIT(A) accordingly deleted the corresponding interest disallowance to this amount as well. Qua the loans advanced to M/s Jayapriya Food products private limited, M/s Jayapriya property developers private limited & M/s Jayapriya Trading Company, the Ld. CIT(A) after examining the terms of arrangement, noted that these loans were given for business purposes which would yield returns at a later date and therefore held that the corresponding interest cost was incurred for business purposes. In respect of the loan advanced to M/s Jayapriya Charitable Trust, the Ld. CIT(A) was of the view that the loans were advanced from mixed pool of funds viz., own funds and borrowed funds and worked out the average interest rate charged on this loan at 9.45%. Since the interest rate charged was comparatively lower to the effective interest cost of 10%, the Ld. CIT(A) re-worked the interest disallowable corresponding to this loan at Rs.48,66,743/-. With these observations, the Ld. CIT(A) is found to have deleted the disallowance of interest to the extent of Rs.6,13,81,600/- and restricted the same to Rs.48,66,743/-. Aggrieved by the order of the Ld. CIT(A), the Revenue is in appeal before us against the disallowance deleted by him and the assessee has preferred cross objection nos. 2 & 3 assailing the disallowance retained by the Ld. CIT(A).

10.2 Assailing the action of Ld. CIT(A), the Ld. CIT, DR contended that, in totality, the assessee had charged average rate of 6% on the loans to related parties in comparison to 10% paid on the corresponding borrowings and therefore it was a case of diversion of higher cost bearing borrowed funds to sister concerns at lower rates for non-business purposes. According to the Ld. CIT, DR, the AO had rightly worked out the impugned disallowance and urged us to restore his order. Per contra, the Ld. AR supported the order of the Ld. CIT(A), except his action of restricting the disallowance of interest in relation to the loans advanced to M/s Jayapriya Charitable Trust to Rs.48,66,743/-. The Ld. AR submitted that the terms of this loan was influenced by commercial factors and also sought to justify the lower interest rate charged thereon. He accordingly prayed that the disallowance retained by the Ld. CIT(A) be also deleted.

10.3 Heard both the parties. It is noted that the assessee had advanced loans to related parties, whose details are as under :-

S.No.	Name of the concern	Loans given (in Rs.)
1.	Sree Shanmugam Educational Trust, Vadalur	11,95,70,035
2.	APJ Adbul Kalam Educational Trust	5,04,33,836
3.	CR Jayasankar Current account	13,02,61,737
4.	Jayapriya Charitable Trust	1,12,53,64,017
5.	Jayapriya Food products private limited	4,59,82,869
6.	Jayapriya property developers private limited	2,43,54,370
7.	Jayapriya Trading Company	8,26,56,356
8.	Land Advance-APJ Abdulkalam Educational Trust	4,063,74,000
	Total	1,61,89,97,220/-

10.4 It is observed that the assessee had derived interest income of Rs.9,56,51,379/- on these loans advanced to related parties. According to the Revenue, the assessee had borrowed funds at an average interest of 10%, out of which the above tabulated loans had been advanced to related parties at lower interest rate of 6%. The act of charging lower interest rate than the cost of borrowings was claimed to lack any business rationale. Accordingly, the differential interest of 4%, which was worked out to Rs.6,62,48,343/-, is sought to be disallowed and added back to the total income. We find that the Ld. CIT(A) has elaborately discussed the nature of the loans advanced to each of these related parties and the terms on which interest was provided for and thereafter quantified the interest disallowable at Rs.48,66,743/-. Having perused the material placed on record and taking into account the rival contentions, we also consider it fit to examine the nature and terms of each of the loan(s) advanced to related parties, on their respective facts and circumstances.

10.5 In respect of loans advanced to M/s Sree Shanmugam Educational Trust & M/s APJ Adbul Kalam Educational Trust, the Ld. CIT(A) has recorded a categorical finding that these loans carried interest rate of 12% and not 6% and therefore there was no under-charge of interest income. The relevant findings of the Ld. CIT(A) taken note of by us, is as follows:-

“Loan advanced to M/s. Sree Shanmugam Educational Trust

6.4.6 The undersigned has carefully examined the above submission made. The AO’s observation that the appellant firm advanced a loan of Rs. 11,95,70,035/- to M/s. Sree Shanmugam Educational Trust at an interest rate of 6% per annum is incorrect. The appellant to support the above claim has submitted the copy of the relevant ledger extract which was made available before the AO during the course of assessment proceedings. The relevant extract of the same is reproduced here as under.

…..

As evidenced by the above ledger account, it can be seen that the opening balance as of 01.04.2020 was at Rs.3,11,15,952/-, and the outstanding balance as of 31.03.2021 was Rs.11,14,27,552/-. The appellant firm advanced loans for specific periods, ranging from 1 to 25 days, and charged an interest rate of 12% per annum. The total interest collected during the year amounted to Rs.88,02,683/-, which is duly acknowledged. A careful review of these annexures and the corresponding calculations reflects that the appellant firm applied an interest rate of 12% per annum on the loan granted to M/s. Sree Shanmugam Educational Trust. These facts clearly contradict the AO’s assertion that the interest rate was 6% per annum. In light of the appellant’s substantiated calculations and supporting documentation, the AO’s findings are inconsistent with the actual facts. Consequently, there is no basis for disallowing the interest expenses related to the loan advanced to M/s. Sree Shanmugam Educational Trust.

Loan advanced to M/s. APJ Abdul Kalam Educational Trust

…

6.4.8 The undersigned has examined the issue carefully. As evident in the assessment order the contention of the AO is that the appellant firm has advanced loan to M/s. APJ Abdul Kalam Educational Trust, a related entity, an amount of Rs.5,04,33,836/- and charged interest @ 6% as against interest paid on the borrowed loan @ 10%. The appellant to support the above claim has submitted the copy of the relevant ledger extract which was made available before the AO during the course of assessment proceedings. The relevant extract of the same is reproduced here as under.

….

As evidenced by the above ledger account, it can be seen that the opening balance as of 01.04.2020 was at Rs.1,00,00,000/-, and the outstanding balance as of 31.03.2021 was Rs.3,75,53,313/-. The appellant firm advanced loans for specific periods, ranging from 1 to 76 days, and charged an interest rate of 12% per annum. The total interest collected during the year amounted to Rs.26,61,942/-, which is duly acknowledged. A careful review of these annexures and the corresponding calculations reflects that the appellant firm applied an interest rate of 12% per annum on the loan granted to M/s. APJ Abdul Kalam Educational Trust. These facts clearly contradict the AO’s assertion that the interest rate was 6% per annum. In light of the appellant’s substantiated calculations and supporting documentation, the AO’s findings are inconsistent with the actual facts. Consequently, there is no basis for disallowing the interest expenses related to the loan advanced to M/s. APJ Abdul Kalam Educational Trust.”

10.6 The details of the interest charged on the loans advanced to M/s Sree Shanmugam Educational Trust & M/s APJ Adbul Kalam Educational Trust have also been placed before us, at Pages 305 to 312 of the Paper Book. Having gone through the same, we concur with the Ld. CIT(A) that these loans carried reasonable interest rate of 12%, which was higher than the average cost of borrowing of 10% and therefore no portion of interest cost corresponding to these loans could have been disallowed. Nothing contrary to these admitted facts was brought on record by the Revenue before us. We thus see no reason to interfere with the order of Ld. CIT(A) deleting the interest disallowance in relation to these loans advanced to M/s Sree Shanmugam Educational Trust & M/s APJ Adbul Kalam Educational Trust.

10.7 It is seen that, apart from the above, another separate advance of Rs.4,03,74,000/- was given to M/s APJ Abdul Kalam Educational Trust. It is observed that, this amount was not given by way of ‘loan’ but was in the nature of an advance paid towards acquisition of land for assesee’s real estate business. The nomenclature of the ledger also reveals that, this was a separate transaction, which was in the nature of ‘land advance’. The narrations contained therein evidences that, it was towards acquisition of land at DD Green Park School of the said Trust. The Ld. AR explained that, the assessee had two separate financial transactions with M/s APJ Abdul Kalam Educational Trust viz., (a) interest bearing loan which was advanced at the rate of 12%, as already discussed earlier, and (b) advance paid towards acquisition of land for their real estate business, which understandably did not carry any interest. It is for this reason that, the assessee had maintained two separate and distinct ledgers of M/s APJ Abdul Kalam Educational Trust in their books of accounts. Having considered the foregoing in light of the material placed before us, we concur with the Ld. CIT(A) that, this amount was not in the nature of a loan but a land advance. Having held so, the interest corresponding to such land advance, which was given in the course of assessee’s real estate business, was incurred for the purposes of the business. We thus see no reason to interfere with the Ld. CIT(A)’s order deleting the interest expenditure corresponding to this land advance.

10.8 Next we proceed to examine the terms relating to the amount of Rs.13,02,61,737/- advanced to Shri C R Jayashankar. It was brought to our notice that, Shri C R Jayashankar is one the partners of the firm and this amount was paid in relation to his current capital account balance. This amount did not represent any ‘loan’ advanced to him and therefore did not carry any interest rate. The Ld. AR thus explained that, the AO had thus proceeded on an incorrect premise that the assessee had advanced loan to Shri C R Jayashankar at 6%, whereas the actual fact was that, this was a payment made to partner in the form of advances / adjustments to his current account, which was not subject to interest charge as it was not expressly agreed in the partnership agreement. Having considered the foregoing, we thus find that the Ld. CIT(A) had rightly deleted the disallowance of interest expense qua this current account transaction of the assessee firm’s partner, by holding as under:-

“6.4.20 The undersigned, on examination of the assessment order and financials of the appellant firm observes that the AO has incorrectly presumed that the appellant has advanced loans to Shri. C.R. Jayasankar at an interest rate of 6% per annum. It is to be noted that Shri C.R. Jayasankar is the Managing Partner of the appellant firm, and the amounts paid to him are in the nature of current account adjustments, Payments made to partners, especially in the form of advances or adjustments to their current accounts, are not subject to interest charges unless expressly agreed upon. Given the fact that these payments are reflected as current account transactions, there is no requirement to charge interest on them. Therefore, the presumption of the AO regarding the applicability of interest on these amounts is incorrect. The undersigned is of the view that No interest is required to be charged on the current account balance of the partner. Consequently, there is no basis for disallowing interest expenses related to these transactions.”

10.9 We now turn our attention to the nature and terms of the loans advanced to M/s.Jayapriya Property Developers Pvt. Ltd., Jayapriya Food Products Pvt Ltd & Jayapriya Trading Company. It is seen that all these loans were advanced in earlier years(s) pursuant to Memorandum of Understanding (in short ‘MOU’) entered into between the assessee and these borrower(s), copies of which were placed at Pages 1 to 30 of the Paper Book. Having perused these MOUs, we find that the nature & terms of these three loans were similar and therefore we take up the MOU entered into with M/s Jayapriya Property Developers Pvt Ltd (in short ‘JPDPL’) on sample basis, and our findings in related thereto would apply mutatis mutandis to the loans advanced to the other two related parties.

10.10 It is observed that the loan was advanced to JPDPL starting from FY 2015-16 and onwards, pursuant to a Memorandum of Understanding dated 4^th March 2016. In terms of this arrangement, the assessee had sanctioned financial support of Rs.10,00,00,000/- towards a real estate project to be undertaken by the company in lieu of which it was agreed that the assessee shall be entitled to a financial return, which would be 50% share of the profits generated from the project(s). It was further agreed that JPDPL could seek release of sanctioned loan support upon submission of the proposed costs to be incurred, which would be subject to examination and thereafter the assessee would extend the loan. JPDPL had also agreed to provide quarterly update of the activities being conducted along with the evidence for utilization of the funds released by the assessee. It was also agreed that JPDPL will not dispose of any assets created out of the loan, without first seeking approval from the assessee. The relevant terms agreed upon between the parties, is noted to be as under:-

“And WHEREAS, the First Party has been approached by the Second Party That the Second Party is having some developers of land and properties business project with the specific aims and objects. Therefore, after considering the aim and objectives of the project, the First Party has agreed that a project in this regard need to be supported by First Party and whereas the SECOND PARTY had submitted a proposal for Rs 10,00,00,000/-,

On the basis of proposal from the Second party, the First party has approved and sanctioned the proposal for financial assistance at an estimated cost of Rs-10,00,00,000/- spread over in the period of 10 Years commencing from 04/03/2016.

….

AND WHEREAS, the First party has agreed to sanction a Loan of Rs 10,00,00,000/- as cost to carry on the activities under the Project (hereinafter referred to as the ‘Loan) subject to the condition and satisfaction of the First Party that the Loan will be used for the desired purpose and Second Party agrees to abide by the terms and conditions.

…

II. RESPONSIBILITIES AND OBLIGATIONS OF FIRST PARTY

(a)

The FIRST PARTY will provide financial support to the Second Party for 10 Years. After the completion of 10 years, the profit accumulated over the project of the Second Party will be shared by the first party in the following ratio.

The First Party – 50%

The Second Party – 50%

(b)

The FIRST PARTY neither will be responsible nor liable for any claims or liabilities of any nature whatsoever, including those arising from the employment of contractual manpower employed by the Second Party of any status and nature, if any to arise or arising out of or in the course of employment of any employee.

(c)

The FIRST PARTY shall introduce a system of concurrent evaluation for E regular feedback regarding the functioning of the sanctioned project. The second part will not raise any objection or obstacle of any kind whatsoever

(d)

The FIRST PARTY will periodically monitor the progress. of activities under the project through an Executive committee, set up for the purpose. The committee will meet every three months and recommend subsequent release of instalment of Loans.

III RESPONSIBILITIES AND OBLIGATIONS OF SECOND PARTY

1. The Second Party will submit the proposal for the release of the second installment of funds and the release of funds will be based on the statement of Expenditure and the recommendation of the Executive Committee, the record of which is to be maintained properly by the Second Party.

2. The Second Party shall keep the FIRST PARTY informed of the progress made it project, on a quarterly basis.

….

IV TERMS AND CONDITIONS

…

2. (a) It is agreed by the Second Party that all assets including Physical and intellectual property and patents created out of the Loan released by the First Party for the project of Second Party would be the property of the First Party and the First Party can make them freely utilize itself or can make available and accessible to anyone at its instance.

(b)

The Second Party shall extend all the requisite support to the First Party in fulfilling the procedural formalities to acquire the legal rights thereon.”

10.11 Having perused the terms of this MOU, it is observed that, the assessee had entered into an arrangement with its related party, in terms of which, it had agreed to provide financial assistance in lieu of share of profits from the said project. According to us, this loan advanced by the assessee under the MOU, constituted a joint venture between the assessee and the company, undertaken in the course of business in which the assessee, being in the business of money lending, was acting as a financial co-venturer. Hence, any interest relatable to this loan support having been incurred for the purposes of business, is allowable u/s 36(1)(iii) of the Act. It is to be kept in mind that, the loans advanced pursuant to the MOUs were not interest free and instead the assessee was entitled to share of 50% of the profits of the related parties, which would fall due at a later date. The Ld. AR pointed out that, it was a conscious call taken by the assessee to charge variable return rather than fixed return on capital, with the hope of maximizing the yield and reaping better profits. Hence, we find that, it is not a case that the loan advanced was interest free or carried interest rate of 6% or would not yield any income at all. Rather, the MOU would result in windfall income at a later date. We agree with the Ld. AR that, there is no ‘matching concept’ in respect of claim of interest expenditure under Section 36(1)(iii) of the Act. So long as the interest paid on borrowings is shown to have been used for the purposes of business, the said interest cost is allowable as deduction from the profits of business.

10.12 In this context, let us now take a look at the extant provisionsof Section 36(1)(iii) of the Act which reads as under:

“36. (1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28—

…

(iii)

the amount of the interest paid in respect of capital borrowed for the purposes of the business or profession :

Provided that any amount of the interest paid, in respect of capital borrowed for acquisition of an asset (whether capitalised in the books of account or not); for any period beginning from the date on which the capital was borrowed for acquisition of the asset till the date on which such asset was first put to use, shall not be allowed as deduction.

Explanation.—Recurring subscriptions paid periodically by shareholders, or subscribers in Mutual Benefit Societies which fulfil such conditions as may be prescribed, shall be deemed to be capital borrowed within the meaning of this clause;”

10.13 Under the above provisions, an assessee is entitled to claim deduction of the interest paid in respect of the capital which is borrowed for the purpose of business or profession. It is thus observed that, the deduction of interest is allowed on satisfaction of the following conditions:

(a)

Interest is incurred on the capital borrowed by the assessee;

(b)

The capital borrowed has been used for the purpose of business; and

(c)

Interest has been paid on the capital borrowed.

10.14 Hence, in order to claim deduction u/s 36(1)(iii) of the Act, we find that there is no mandate in law that the assessee is required to prove that the deployment of borrowed capital has produced matching or corresponding income. The interest paid is to be allowed, irrespective of whether the assessee has been able to generate or produce any income or not, by utilizing borrowed capital for the purposes of business. It is now a settled judicial position that the expression “used for the purposes of business” is much wider in its scope and connotation and it does not mandate earning of income as a pre-condition for claiming deduction of interest. In this regard, we gainfully refer to the following observations made by the Hon’ble Supreme Court in the case of Madhav Prasad Jatia v. Commissioner of Income-tax [1979] 10 CTR 375/118 ITR 200/1 477 (SC), which is as under:-

“In order to claim deduction under clause (iii) of sub-section (2) of section 10 (Section 36(1)(iii) of IT Act), the assessee is required to satisfy three conditions, namely, that the money must have been borrowed by the assessee, that it must have been borrowed for the purpose of business, and that the assessee must have paid interest on the said amount and claimed the same to be allowed as a deduction.

…….

The expression “for the purpose of his business” occurring in clauses (iii) and (xv) of sub-section (2) of section 10 is wider in scope than the expression “for the purpose of earning income, profits or gains” occurring in sub-section (2) of section 12. Therefore, the scope for allowing a deduction under clause (iii) or (xv) of sub-section (2) of section 10 would be much wider than the one available under sub-section (2) of section 12.”

10.15 The decision rendered by the Hon’ble Supreme Court in the case of Commissioner of Income-tax, Madras v. Indian Bank Limited [1965] 56 ITR 77 (SC), is also found to be relevant in the given facts before us. In the decided case, the Hon’ble Supreme Court has held that, if the interest expenditure had been incurred for business purpose, then it is not necessary to check whether it had resulted into any income or not. The same if not resulted into any income will surely result into income at later stage and thus this is not worth the effort to check whether the interest expenditure had resulted into any income or not in the year in which expenditure had been incurred. The relevant extracts of the judgment are as under:

“The legislature stops short at directing that it be ascertained what was the purpose of the expenditure. If the answer is that it is for the purpose of the business, Parliament is not concerned to find out whether the expenditure has produced or will produce taxable income. Secondly, the reason may well be that Parliament assumes that most types of expenditure which are laid out wholly and exclusively for the purpose of business would directly or indirectly produce taxable income, and it is not worth the administrative effort involved to go further and trace the expenditure to some taxable income.

Therefore, it seems to us that there is nothing in the language of section from which it can be fairly implied that an expenditure or allowance falling within the section must fulfil some other condition before it can be allowed.”

10.16 We also rely on the decision of the Hon’ble Supreme Court in the case of Taparia Tools Ltd. v. Jt. CIT 5/372 ITR 605 (SC), wherein it was explained that, the “matching concept” has no application with respect to claim of interest expenditure under Section 36(1)(iii) of the IT Act. The relevant portion of the judgment is as follows:

“While examining the allowability of deduction of this nature, the AO is to consider the genuineness of business borrowing and that the borrowing was for the purpose of business and not an illusionary and colourable transaction. Once the genuineness is proved and the interest is paid on the borrowing, it is not within the powers of the AO to disallow the deduction either on the ground that rate of interest is unreasonably high or that the assessee had himself charged a lower rate of interest on the monies which he lent.

…The High Court chose to decline the whole deduction in the year of payment, thereby affirming the orders of the authorities below, by invoking the ‘Matching Concept’. It is observed by the High Court that under the mercantile system of accounting, book profits are liable to be taxed and in order to determine the net income of an Accounting Year, the revenue and other incomes are to be matched with the cost of resources consumed (expenses). For this reason, in the opinion of the High Court, this matching concept is required to be done on accrual basis. As per the High Court, in this case, payment of Rs. 55 per debenture towards interest was made, which pertained to five years, and, thus, this interest of five years was paid in the first year. We are of the opinion that it is here the High Court has gone wrong and this approach resulted in wrong application of Matching Concept.”

10.17 We also refer to the decision rendered by the Hon’ble Apex Court in the case of S.A. Builders Ltd. v. Commissioner of Income-tax (Appeals), Chandigarh [2006] 206 CTR 631/[2007] 288 ITR 1/158 74 (SC), wherein the AO had disallowed portion of the interest paid on the premise that, the assessee had diverted to its borrowed capital to the subsidiary and associate concerns from which no income was realized, which was confirmed by the High Court. On appeal by way of Special Leave Petition, the Hon’ble Apex Court however held that, the authorities below had approached the matter from an erroneous angle. The Hon’ble Apex Court held that, for both the purposes for Section 37 as well as Section 36(1)(iii) of the Act the expression ‘for the purpose of business’ had to be considered and interpreted from the view point of commercial expediency and for that purpose it was wholly immaterial if a third party also benefitted from the same. The Hon’ble Apex Court held that, what is relevant is whether the amount was advanced as a measure of commercial expediency and not from the point of view whether the amount was advanced for earning profits. The Hon’ble Apex Court held that once it is established that there was nexus between the expenditure and purpose of the business which need not necessarily be the business of the assessee itself the revenue cannot justifiably claim to put itself in the arm chair of the businessman or in the position of the board of directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case.

10.18 We also gainfully refer the decision of the Hon’ble jurisdictional Madras High Court in the case of Commissioner of Income-tax v. RPG Transmissions Ltd. 57/[2013] 359 ITR 673 (Madras), wherein the Hon’ble High Court held that Section 36(1)(iii) of the IT Act does not mandate earning income for the purpose of claiming deduction of interest expenditure. The relevant extracts of the judgment are as under:

“Section 36(1)(iii) contemplates that, firstly, the money should have been borrowed by the assessee, secondly, it must have been borrowed for the purpose of business and, thirdly, the assessee must have paid interest on the said amount.

Furthermore, section 36(1)(iii) does not contemplate any test that the amounts so invested should be wholly and exclusively for making or earning such income. On a plain reading of section 36(1)(iii), there is no such requirement mandated in the section to confine such expense. Furthermore, the section also does not place any embargo on investments to be made in group concerns and subsidiary concerns.

The investment made in shares by the assessee by utilizing borrowed capital was for strategic business purposes because the companies were promoted as special purpose companies to strengthen and promote its existing business by combining different business segments.”

10.19 Considering the facts of the case and ratio laid down in the above decisions, it is seen that, in the present case also, the loans were advanced pursuant to MOUs entered into in the course of money-lending business which, as discussed above, was prompted on the principle of commercial expediency, and this arrangement was expected to yield better financial returns to the assessee. Only because, this arrangement did not result in accrual of any income during the relevant year cannot take away the fact that the impugned loan was not for business purpose, as it was still expected to generate income at a later date. Therefore, in our considered view, the conditions specified in Section 36(1)(iii) was satisfied in the present case, and accordingly the interest expenditure corresponding to these loans was allowable as deduction from the profits of the business.

10.20 It was also brought to our notice that, these loans had been advanced to these related entities in earlier years and the interest expenditure corresponding to these loans have been allowed as deduction from the profits of the business across all the earlier years. As such, it is noted that, the factual matrix permeating through the years has remained same and there is no change either in the factual matrix or the legal provisions governing allowability of deduction u/s 36(1)(iii) of the Act. We are aware that, the principle of res judicata does not apply to income-tax proceedings yet the established rule of consistency must also be followed on factual matters permeating through the years. It is a well settled position that factual matters which permeate through more than one assessment year, if the Revenue has accepted a stand in the past, it is not open for the Revenue to take a different stand in a later year on the same issue, unless and until a case is made out or a change in fact position or in law. Before us, since no contrary case has been made out by the Revenue, following the decision of Hon’ble Supreme Court in the case of Radhasoami Satsang v. Commissioner of Income-tax [1991] 100 CTR 267/[1992] 193 ITR 321/60 248 (SC), we hold that the AO was unjustified in disallowing the interest expenditure corresponding to these loans brought forward from earlier years.

10.21 For the above reasons, we see no infirmity in the order of the Ld. CIT(A) deleting the interest disallowance in relation to these loans advanced to M/s.Jayapriya Property Developers Pvt. Ltd., Jayapriya Food Products Pvt Ltd & Jayapriya Trading Company.

10.22 We now take up the loan which was advanced to M/s Jayapriya Charitable Trust (in short ‘JCT’). The facts relating to this loan are that, the assessee had advanced loans to this charitable trust amounting to Rs.17,58,50,787/- in FY 2014-15. Thereafter, the assessee continued to advance loans to this trust, which the latter repaid also from time to time as well, and the closing balance as at the year-end was Rs.112,53,64,017/-. It is seen from the ledger that, this closing balance inter alia included accrued interest of Rs.10,60,09,458/- which was not yet received. Hence, the principal loan amount advanced to JCT was Rs.1,01,93,54,559/-, on which the assessee had accrued interest income of Rs.8,35,89,307/-. Having gone through the summary accounts of JCT, which is found placed at Page 337 of paper book, it is seen that the interest rate charged by the assessee, works out between 8% – 9%. The issue in dispute before us is that, because the loan carried interest rate which was lower than the average rate of borrowing for the year, i.e. 10%, the differential interest was to be disallowed.

10.23 According to the Ld. AR, the loans were advanced to JCT at commercial rates of interest which was influenced by various factors viz., credibility of the borrower, asset base of the borrower for recovering its dues, tenure of loan, terms of repayment etc. and only because the cost of borrowings at the year-end turned out to be higher, cannot be reason to disallow the same on proportionate basis. He pointed out that, the assessee was engaged in the business of money lending, in the course of which, it would borrow monies at different rates of interest and advance the same to customers at a premium interest rate(s). He explained that, there would arise situations when the value of borrowings would be higher than the value of advances deployed and hence there would be idle funds with the assessee-lender. Hence, ordinarily, any money lender would make fixed deposits or invest in liquid securities during the intervening period until these borrowings are again deployed to customers, to reduce the overall cost of borrowings. The Ld. AR explained that, instead of making time deposits which carried lower rates of interest, the assessee considered it to be commercially prudent to advance these monies to its related party, JCT who was willing to pay comparatively higher rates and the loans were also repayable on demand. It is therefore not a case where the assessee has not charged interest on the loans advanced. The comparatively lower rates were actually meant to offset the cost of borrowings of idle funds and to ensure that on overall basis, the assessee is able to generate positive returns from the money lending business. The Ld. AR submitted that, the AO had not disbelieved the loan transactions with JCT or treated the transaction to be malafide. The Ld. AR thus claimed that, the difference in cost of borrowings and the interest charged on this loan ought not to be disallowed u/s 36(1)(iii) of the Act. In support, he relied on the following decisions:-

–Birla

Gwalior Private Ltd. v. Commissioner of Income-tax [1962] 44 ITR 847 (Madhya Pradesh)

–

CIT v. Pudukottai Co. Pvt. Ltd. [1972] Commissioner of Income-tax v. Pudukottai Company P. Ltd. [1972] 84 ITR 788 (Madras)

–Hindalco

Industries Co. v. CIT 532/[2016] 389 ITR 430 (Allahabad)

–

CIT v. Williamson Magor & Co. Ltd. 533 (Calcutta)

–Commissioner

of Income-tax v. Sahni Silk Mills (P.) Ltd. [2002] 253 ITR 294/[2001] 119 133 (Delhi)

10.24 The undisputed facts, as noted above, are that, the assessee had incurred average cost of borrowings at 10% per annum and that the loan advanced to JCT carried lower interest ranging from 8% to 9%. The assessee firm is inter alia engaged in the business of money lending. In this line of business, it is a common occurrence that, both the borrowings and advances carry varied rates of interest. There is merit in the submission of the Ld. AR that, in this business, there can be several commercial considerations because of which the monies borrowed are deployed in advances which may yield lesser returns. It is not for the Revenue to decide as to how the assessee should run their business or dictate as to how the assessee ought to have maximized its profits. So long as the transactions are bona fide and was conducted in the course of business, in our considered view, the interest cost incurred on the capital used for business purposes cannot be scaled down only because it correspondingly yielded lower returns. The explanation furnished by the Ld. AR for the assessee elucidating the reasons for charging lower interest rate of 8% – 9% from JCT is found to be plausible, on the given facts placed before us. Even the AO has not alleged that the loans advanced to JCT was a subterfuge to avoid taxes or reduce their income. We are therefore of the opinion that, as the loans were obtained in the course of money-lending business and it was deployed in the same line of business, the condition set out in Section 36(1)(iii) was fulfilled and the interest paid could not be proportionately disallowed, because the deployment yielded lower returns.

10.25 In support of our above view, we gainfully refer to the decision of the Hon’ble jurisdictional Madras High Court in the case of Pudukottai Co Pvt Ltd (supra). In this case also, the assessee was engaged in the business of money lending, in the course of which, it had borrowed loans at 6.01% and had realized interest income of 4.92%. The AO had disallowed proportionate interest expenditure on the ground that the loans advanced was at lower rates. On appeal, the High Court concurred with the Tribunal’s view that the scaling down of interest cost was not permissible, once it was established that the capital borrowed was used for business purposes. The relevant portion of this decision is extracted below:-

“The assessee is a private limited company carrying on money-lending business. For the assessment year 1960-61 the assessee returned an income of Rs. 1,68,567. The assessee paid a sum of Rs. 1,02,092 during the accounting year by way of interest on loans borrowed by it and claimed allowance of this amount under section 10(2)(iii) of the Act. The fact as found by the Income-tax Officer is while the company had paid interest on its borrowings at an average rate of 601 per cent. it had charged interest only at the rate of 4.92 per cent. on its lendings. The Income-tax Officer sought to disallow the difference of interest between 6.01 per cent. and 4.92 per cent. The finding of the Income-tax Officer is that the capital was borrowed for the purpose of the business and if that finding is to stand then there is no reason why the interest should not be deducted under section 10(2)(iii) of the Act. The reason given by the Income-tax Officer for disallowing this amount was that the interest charged on the lending was at a lower rate than that on the borrowing and that the lending was in favour of persons who were intimately connected with the assessee. This cannot be a ground for disallowing the interest. Once it is found that the capital was borrowed for the purpose of the business, the assessee is entitled to deduct the interest paid for that borrowed capital. It may also be mentioned that the Income-tax Officer himself accepted that the capital was borrowed for the purpose of the business because he has permitted a deduction of 492 per cent. though the borrowing was on 6.01 per cent. The scaling down of the interest is not permitted when once the Income-tax Officer accepts that the capital was borrowed for the purpose of the business. On almost identical facts, the Madhya Pradesh High Court in Birla Gwalior Private Ltd. v. Commissioner of Income-tax [1962] [1962] Birla Gwalior Private Ltd. v. Commissioner of Income-tax [1962] 44 ITR 847 (Madhya Pradesh) (Madhya Pradesh) (MP) has also taken a similar view. The reference is, therefore, answered in favour of the assessee and against the revenue with costs.”

10.26 In the above decision, the Hon’ble High Court relied upon the decision of the Hon’ble Madhya Pradesh High Court in the case of Birla Gwalior Pvt Ltd. (supra). In this case, the assessee had paid certain sums to four ladies by way of interest at 6.75%, which was invested at 3%. According to the Revenue, no person would borrow at higher rates and invest at lower rates and therefore held that the interest paid in excess of 3% was for non-business purposes and accordingly disallowed the same. The Hon’ble High Court is noted to have examined the provisions of Section 10(2)(iii) [now Section 36(1)(iii)] of the Incometax Act, 1922, and held that, for a deduction under this clause, all that is necessary is that, first, the money, that is the capital, must have been borrowed by the assessee; secondly, it should have been borrowed for the purposes of the business, profession or vocation of the assessee; and, thirdly, the assessee should have paid the interest amount claimed by him as an allowance under that clause. According to the Hon’ble High Court, the interest paid cannot be tested for reasonableness or be scaled down to 3%.

10.27 Identical view is found to have been expressed by the Hon’ble Delhi High Court in the case of Sahni Silk Mills Ltd. (supra). In the instant case, it was seen that the assessee had advanced loan to three parties carrying interest rate of 12%, whereas it had borrowed the funds at 16%. The Hon’ble High Court held that, once the transactions were held to be real and bonafide, the interest paid on capital borrowed could not be disallowed.

10.28 We further observe that somewhat similar question came up for consideration before the Hon’ble Calcutta High Court in the case of Williamson Magor Co. Ltd. (supra), which was as follows:-

“(a) Whether in the facts and in the circumstances of the case, the Learned Income Tax Tribunal erred in law in deleting the disallowance of Rs.71,53,542 for the Assessment year 1998-1999 and Rs.2,92,99,950.00 for the Assessment year 1999-2000 on account of interest made by the Assessing officer proportionately on prorata basis and confirmed by the Commissioner of Income Tax (Appeals) under Section 36(1)(III) of the Income Tax Act, 1961 being the interest under charged by the respondent/assessee to the extent of 5% on borrowed capital given on loan to its associate concerns following the Judgment of the Learned Tribunal in the case of the Respondent/assessee itself for the Assessment years 1996-97 and 1997-98 ?

(b) Whether in the facts and in the circumstances of the case, the Learned Income Tax Tribunal erred in law in holding that the borrowed capital given on loan by the respondent/assessee to its associate concerns undercharging interest was properly used by the respondent/assessee for its business so as to eligible for the deduction under Section 36(1)(III) of the said Act?”

10.29 The Hon’ble High Court is noted to have answered the above question against the Revenue and in favour of the assessee by following the decision of the Hon’ble Delhi High Court (supra). Similar view was also laid down by the Hon’ble Allahabad High Court in the case of Hindalco Industries Co. (supra) wherein the disallowance of proportionate interest expenditure on the ground that loans advanced to related party was at lower interest rate, was deleted, by holding as under:-

“4. Assessing Officer came to the conclusion that market rate of interest was 16 percent yet Assessee advanced loan to Sister Subsidiary Company at a lesser rate of 6 percent or 12 percent. The difference between interest i.e. market rate and the rate at which loan advanced to Sister Company, was disallowed. It has been affirmed by Commissioner Income Tax (Appeal) [hereinafter referred to as ‘CIT(A)’] on the ground that Assessee was not a financing company, had it not advanced loan, money could have been available to Assessee for its own business purpose and to that extent it may not have borrowed from Banks. It disallowed difference of interest under Section 36 (1) (iii) of Act 1961, and upheld by Tribunal also.

5. From the record, we find that it is not the case of Revenue Authorities that loan advanced to Sister Subsidiary Company was for non-business purpose. Tribunal has recorded a finding concurrent with CIT(A) that no direct link could be established between borrowing and lendings and it is also not the case that loan was not advanced for commercial expediency of Sister Subsidiary Companies. But on mere fact that Assessee Company was a profit making Company, itself has paid higher rate of interest hence it was not justified to advance loan on lower rate of interest, hence difference has been disallowed under Section 36 (1) (iii) of Act 1961. The moot question is whether this approach of Revenue is justified.

…

10. In S.A. Builders Ltd. (supra) Court held that true test is, whether the amount advanced to subsidiary or associated company or any other party was advanced as a measure of commercial expediency. If so, interest was deductible.

11. Recently in Hero Cycles P. Ltd. v. CIT, 308/379 ITR 347 (SC), matter has been discussed and Court agreeing with Delhi High Court judgment in CIT v. Dalmia Cement (P.) Ltd. 706/254 ITR 377 (Delhi), has observed;

“Once it is established that there was a nexus between the expenditure and the purpose of business, the Revenue cannot justifiably claim to put itself in the armchair of a businessman or in the position of the board of directors and assume the said role to decide how much is reasonable expenditure having regard to the circumstances of the case. Court also observed that no businessman can be compelled to maximise his profits and the Income Tax Authority must put themselves in the shoes of Assessee and see how a prudent businessman would act. The authorities must not look into the matter from their own point of view but that of a prudent businessman.

” 12. In the present case, financial condition of Sister concerned was not good and to help those, for their smooth running, loan was advanced and a lesser rate of interest was charged. Both Sister Companies are subsidiary of Assessee and there is nothing per-se averse. For the welfare and proper functioning of Sister Companies, Assessee in its wisdom, if decided to advance loan so that ultimately Sister Company may function properly, Assessee being holding Company would also be benefited. Thus, the loan advanced to Sister Companies was for commercial expediency and not for any charity, sentimental or personal reasons.

13. We therefore, answer the question in favour of Assessee and hold that Assessee was entitled for deduction of interest under Section 36(i) (III) and the view taken by Tribunal otherwise is not correct. Reference is answered accordingly and stands disposed of.”

10.30 Considering the facts as discussed earlier in light of the above decisions (supra), we are of the view that, so long as the borrowings were deployed in the course of money lending business viz., advanced to JCT albeit, it carried lower interest rate, no disallowance under section 36(1)(iii) of the Act is permissible in relation thereto. We thus direct the AO to delete the disallowance of interest expenditure corresponding to this loan to JCT as well.

10.31 Overall, for the above set out reasons, we direct the AO to delete the entire disallowance of interest expenditure of Rs.6,62,48,343/-. Hence, this ground of the Revenue is dismissed and Cross Objection Nos. 2 & 3 of the assessee is allowed.

11. Ground No. 5 of the Revenue relates to Ld. CIT(A)’s action of deleting the addition made by the AO on account of short declaration of accrued interest income. Briefly stated, the AO was of the view that the assessee had given loans to unrelated parties under their scheme Loan ML II at the rate of 24% interest per annum. The details of the loans as tabulated by the AO was as follows:

S.No.	Name of the concern	Loans given (in Rs.)
1.	Loan ML II CRBF	16,00,00,000
2.	ML II Loan	87,05,61,902
3.	Loans and advances other (pertaining to Jayapriya Financiers)	68,78,24,236
4.	Anshika Trading Private Limited	15,36,50,302
	Total:	1,87,20,36,440

11.1 According to the AO, the assessee had shown accrued interest income from the above, to the tune of Rs.21,30,88,248/- as against the accrued interest income which ought to have been Rs.44,92,88,746/-24% X Rs.1,87,20,36,440]. The AO accordingly added the difference of Rs.23,62,00,498/- [Rs.44,92,88,746 – Rs.21,30,88,248] by way of income of the assessee. Aggrieved by the order of the AO, the assessee preferred an appeal before the Ld. CIT(A).

11.2 Before the Ld. CIT(A), the assessee pointed out that, the AO had simply worked out the addition by multiplying 24% to the outstanding balance of loans of Rs.1,87,20,36,440/- (as tabulated above), which he reduced from the interest amount disclosed in the return and treated the difference as accrued interest not credited in the accounts. It was the assessee’s case that, the AO proceeded on a false notion that all the loans carried uniform interest of 24%. The assessee submitted that, the AO had not cited any material or evidence, basis which he assumed that all the loans were being advanced carrying rate of interest of 24%. The assessee showed to the Ld. CIT(A) that, the loans were provided at different interest rates generally varying between 12% to 18% depending on various factors such as tenure of loan, relationship with borrower, credibility of borrower etc. It was thus claimed that the impugned addition, having been made on surmises and incorrect notion, be deleted. The assessee also furnished party wise ledgers and loan details before the Ld. CIT(A) to support their case. Further, to show the apparent fallacy in the AO’s approach, the assessee pointed out that, the loan ML – II CRBF of Rs.16 crores was advanced only on the last day of the financial year i.e. 31.03.2021 and therefore, no interest income could have accrued on this loan. The assessee further showed that, the overall outstanding loan balance of Rs.187,20,36,440/- inter alia included interest accrued but not received of Rs.31,30,45,429/-, which understandably was to be excluded, as no interest on interest can be charged. The assessee thus explained that, if the loan of Rs.16,00,00,000/- advanced on last day of the year and the interest, which accrued but was not received, of Rs.31,30,45,429/- is excluded, then the remaining loan balance is Rs.138,89,91,011/- on which the effective rate of interest income works out to 15.23%. This according to the assessee was commensurate with the commercial interest rates of 12%-18%, which was actually charged by the assessee on these loans. After considering these submissions put forth by the assessee, the Ld. CIT(A) is noted to have called for further details. Upon examining the same, the Ld. CIT(A) upheld the claim of the assessee and deleted the impugned addition. Being aggrieved by the order of the Ld. CIT(A), the Revenue is now in appeal before us.

11.3 Heard both the parties. It is seen from the assessment order that the AO while calculating the interest income which ought to have accrued during the year had proceeded on an assumption that all the loans were advanced at 24% rate of interest and multiplied this rate to the closing balance of loans & advances of Rs.1,87,20,36,440/- to estimate the actually credited in P&L A/c was Rs.21,30,88,248/-, it is the case of the Revenue before us that, there was short declaration of interest income to the extent of Rs.23,62,00,498/-. On the other hand, the assessee has disputed the AO’s action of assuming the interest rate on loans at 24%, which according to them, has no basis and is based on surmise.

11.4 Having perused the assessment order, we find that there is no basis or evidence pointed out by the AO in support of his assumption of interest rate of 24%. Even the Ld. CIT, DR appearing for the Revenue was unable to explain with any cogent evidence as to how was the Revenue claiming that all the loans advanced by the assessee carried interest rate of 24%. It is also not the AO’s case that any incriminating material or evidence was unearthed in the course of search, which suggested that the assessee was actually charging interest of 24% on these loans. We thus countenance the Ld. CIT(A)’s finding that the foundational basis of making the impugned addition was based on an incorrect assumption regarding the interest rates charged by the appellant firm, on its loans. The relevant portion of the Ld. CIT(A) order, is reproduced below:-

“6.5.9 The appellant’s books of accounts are subject to Audit as per the provisions of Section 44AB of the Income Tax Act, and the Auditor did not report any discrepancies or issues with the maintenance of the accounts. The AO did not raise any objections regarding the accuracy or completeness of the books of accounts. During the course of assessment proceedings, the appellant provided party-wise details of the loans advanced and the interest received, which were in line with the Returned income. The AO assumed that the appellant had charged 24% interest on all loans, which lacks factual support. The interest rates varied amongst the loans.

6.5.10 Further it is brought on record that during the course of the search, no incriminating material was found that would substantiate the AO’s assumption of interest being charged at 24% on all loans uniformly. The appellant has provided adequate explanations and supporting documents regarding the Interest Income, declared in its Return of Income.

6.5.11 In view of the above discussions, it is clear that the addition of Rs. 23,62,00,498/- made by the AO was based on an incorrect assumption regarding the interest rates charged by the appellant firm, on its loans.”

11.5 It is further observed that, the AO’s assumption and working of the alleged accrued interest income also suffered from fundamental infirmities. Upon perusal of the loan ledger of Rs.16,00,00,000/- under “Loan ML II CRBF” Account, we find that this loan was advanced only on 31.03.2021 and therefore obviously no interest could have been accrued or been received for FY 2020-21. The Ld. AR thereafter took us through the details of the loans of Rs.87,05,61,902/- advanced under their ‘ML-II Scheme’, details of which was placed at Pages 344 to 352 of the Paperbook along with the details of loans of Rs.68,78,24,236/- advanced by ‘M/s Jayapriya Financers’, which was placed at Pages 353 to 381 of Paper book. It is observed that, the closing balance of ‘ML-II Scheme’ of loans comprised of principal of Rs.63,78,21,850/- and outstanding interest which had accrued but was not received was Rs.23,27,40,052/-. Similarly, the closing balance of loans advanced by ‘M/s Jayapriya Financers’ was divisible into two components viz., principal of Rs.59,52,63,574/- and accrued interest of Rs.8,03,05,377/-. We thus observe that, the outstanding principal loan amount was actually Rs.123,30,85,424/- [Rs.63,78,21,850 + Rs.59,52,63,574] and not Rs.155,83,86,138/- [Rs.87,05,61,902 + Rs.68,78,24,236]. Hence, upon excluding the “Loan ML II CRBF” of Rs.16,00,00,000/- and accrued interest which was not received amounting to Rs.31,30,45,429/-[Rs.23,27,40,052 + Rs.8,03,05,377], the correct loan balance, which should have been considered for the purposes of interest calculation and comparison, ought to have been Rs.1,39,89,91,011/- [Rs.1,87,20,36,440 – Rs.16,00,00,000 – Rs.31,30,45,429]. Having regard to the fact that, the interest accrued and credited in P&L A/c was Rs.21,30,88,248/-, the average interest rate charged on the loan advanced works out to 15.23% per annum.

11.6 We find that, the Ld. CIT(A), in exercise of powers conferred u/s 250(4) of the Act, had also called for and examined the party-wise reconciliations of the loans and found that the actual interest rate charged on the loans varied between 12% to 18%, depending on various factors such as longstanding relationships with customers, quantum of loan granted and the duration of repayment of loan etc. This exercise conducted by the Ld. CIT(A) dispelled the AO’s assumption that the interest rate was 24%. The relevant findings rendered by the Ld. CIT(A) taken note of by us, is as follows:-

6.5.5 The undersigned has carefully examined the issue under consideration. On examination of the assessment order passed by the AO, it is seen that the AO has brought on record that the appellant firm has advanced loans to various parties under “Loan ML II” scheme, totalling to Rs.187,20,36,440/- as on 31.03.2021. These loans were provided at different rates of interest, as per the firm’s business practices. The interest rate varied between 12% and 18%, depending on factors such as the relationship with the borrower, the nature of the loan, and tenure. The appellant has declared Rs. 21,30,88,248/- as the actual ‘Interest income’ for the assessment year, which corresponds to the Interest received on these loans, during the year.

….

6.5.8 As evident in the assessment order, the AO, while calculating the accrued Interest income, applied a uniform interest rate of 24% on the total loan amount of Rs. 1,87,20,36,440/-, which resulted in an amount of Rs. 44,92,88,746/-. However, this rate was not in line with the actual interest charged by the appellant on its loans, which ranged between 12% and 18% on account of various factors such as longstanding relationships with customers, quantum of loan granted and the duration of repayment of loan etc. The appellant provided a detailed reconciliation of the interest received and the loans advanced, reflecting the actual interest charged was lower than the rate assumed by the AO.”

11.7 The Revenue was also unable to show any defects in the party-wise details of the loans furnished by the assessee, which were available at Pages 342 to 394 of the Paper Book. Having examined the entire gamut of facts placed on record, we are of the considered view that the Ld. CIT(A) had rightly deleted the impugned addition of alleged short accrued interest income, as it was based on incorrect assumption made by the AO. We thus see no reason to interfere with the order of the Ld. CIT(A). Accordingly Ground No. 5 of the Revenue’s appeal is dismissed. The cross objection Ground No. 4 of the assessee, being only in support of the Ld. CIT(A)’s order deleting the impugned addition, is dismissed as infructuous.

12. We now take up the appeal of the Revenue in ITA No.1252/Chny/2025 and CO No. 44/Chny/2025 of the assessee.

13. Ground No. 1 of the Revenue’s appeal is general in nature which does not call for separate adjudication and is therefore dismissed.

14. Ground No. 2 raised by the Revenue is as under:-

“2. The Ld.CIT(A) failed to appreciate that the amount of undisclosed income to be offered for taxation year wise from FY 2012-13 to FY 202122 based on the findings of the search for the FY 2021-22 relevant to the AY 2022-23 worked out to be Rs. 47,91,86,185/- but the assessee had not furnished the breakup of such income for income tagging purposes to consider it as having been included in the total income disclosed in response to the search proceedings.”

14.1 It is seen that this ground also does not emanate from the AO’s order. We note that, the assessee has offered suppressed business income of Rs.47,91,86,185/- on the basis of the search findings, in the return of income filed u/s 139 of the Act. According to the AO, this offer was not discernible from the face of the P&L A/c and therefore added the same to the total income. It was brought to our notice that, the Ld. CIT(A) had factually verified this issue and found that the assessee had disclosed and offered the suppressed business income in the P&L A/c and their return of income. The Ld. CIT(A) therefore deleted the separate addition again made by the AO as it amounted to double addition. The relevant findings of the Ld. CIT(A) are noted to be as follows:-

“6.2.7 During the course of appellate proceedings, the AR reiterated that the amount of Rs.47,91,86, 185/- has already been accounted for in the financial statements and submitted along with supporting documentation, which included the Profit and Loss account, to substantiate its claim. Upon verification of the financial records, it is noted that the appellant firm has duly incorporated the admitted income of Rs. 47,91,86,185/-, that resulted in a computed business income of Rs. 10,52,82,666/-…..

….

6.2.8 It is a well-settled principle of taxation that the same income cannot be taxed twice. In the present case, the appellant firm has submitted that the alleged undisclosed income has already been subjected to tax as part of its return of income. The findings of the AO in the assessment order, which suggest that the appellant firm failed to disclose the said amount, do not hold merit in light of the clarification furnished, which was already made available before the AO during the course of assessment proceedings.

6.2.9 The undersigned, therefore, finds that the addition of Rs. 47,91,86,185/-made by the AO is erroneous and unsustainable on merits. Since the appellant has already offered the said amount to tax, the addition results in unjustified double taxation. Therefore, the addition of Rs. 47,91,86,185/- made by the AO in the assessment order is unjustified and requires to be deleted. In view of the above findings, the grounds raised on this issue are treated as allowed and the AO is directed to delete the addition of Rs. 47,91,86,185/- for the AY 2022-23.”

14.2 It is noted that the Revenue has not disputed the above factual finding rendered by the Ld. CIT(A), which according to us, has since attained finality. Rather, the grievance now being raised by the Revenue before us is that, the assessee has not furnished the break-up of such additional income, which was offered to tax, for their tagging purposes. We are unable to comprehend the exact grievance of the Revenue, when they have not disputed the correctness of the Ld. CIT(A)’s finding, as reproduced above. According to us, this ground cannot be a cause for appeal before us. We thus decline to entertain this ground and dismiss the same in limine.

15. Ground No. 3 of the Revenue’s appeal and Ground Nos. 1 & 2 of the Cross Objections filed by the assessee relates to the disallowance of excess interest expenditure relatable to the loans advanced to related parties viz., M/s Jayapriya Charitable Trust, M/s APJ Abdul Kalam Educational Trust etc. It is observed that, identical impugned issue was involved in the preceding AY 2020-21 and that the findings rendered by the lower authorities was verbatim same. Even the submissions of both the parties before us was the same. Following our findings rendered while adjudicating Ground No.4 of the Revenue’s appeal & Ground Nos. 2 & 3 of assessee’s Cross Objections for AY 2020-21, we hold that the impugned loans given to related parties were advanced for business purposes and/or carried reasonable rates of interest and therefore the disallowance of interest expenditure made by the AO was unjustified. Following our findings rendered in AY 2020-21, we direct the AO to delete the disallowance of impugned interest expenditure in its entirety. Accordingly, Ground No. 3 of Revenue is dismissed and the cross objections nos. 1 & 2 of the assessee are allowed.

16. Ground No. 4 raised by the Revenue relates to the Ld. CIT(A)’s action of deleting the short declaration of accrued interest income on loans. Both the parties have agreed that, the issue involved in this ground is identical to the Ground No. 5 involved in the appeal for the preceding AY 2020-21. We also note that, the observations & findings rendered by the lower authorities and also the submissions of both the parties, except for variation of figures, was the same. Following our decision rendered while deciding Ground No. 5 of the Revenue in AY 2021-22, we see no reason to interfere with the order of the Ld. CIT(A) deleting the impugned estimated addition on account of short accrual of interest income. Accordingly, this ground of the Revenue dismissed. Ground No. 3 raised by the assessee in their cross objections being in support the order of the Ld. CIT(A) deleting the impugned addition, is dismissed as infructuous.

17. Ground No. 4 of the assessee’s cross objections is general is nature and is therefore dismissed.

18. In the result, both the appeals of the Revenue are dismissed and the cross objections of the assessee are partly allowed.