Disallowance under section 36(1)(iii) of interest paid citing no levy of onward lending to parties without interest - plea of Accounting Standard - 9 non-recoverability of interest income thereto

Facts:

Assessee had borrowed monies at interest of 10%/12%. It was noticed by the AO that the assessee did not charge any interest to certain parties to whom they had lent monies. On inquiry assessee cited Revenue Recognition (Accounting standard - 9) that the interest was not charged as even the principal portion themselves was doubtful in recovery from these parties. This did not meet the eye of the AO and disallowance was sustained. On appeal the CIT(A) reversed the order of the AO. On higher appeal by the revenue -

Held against the revenue that the applicability of AS-9 was correct and there was no interest which assessee could levy on these parties from whom even the principal amount that was lent themselves were in doubt. Order of CIT(A) requires no intervention.  

Ed. Note: It is not known if the onward lending was to related parties. The tax strategy adopted is to be noted.

Case: Dy. CIT v. Safari Biotech (P) Ltd. 2023 TaxPub(DT) 4382 (Ahd-Trib)