Business Expediency ITAT – Interest-Free Advances to Farmers

Case Details: Girraj Cold Storage (P.) Ltd. vs. Income-tax Officer - [2025] 174 taxmann.com 342 (Agra-Trib.)[06-12-2024]

Judiciary and Counsel Details

• Ramit Kochar, Accountant member
• Shailendra Srivastava, Sr. DR for the Respondent.

Facts of the Case

The assessee was operating a cold storage facility. During the year, the assessee raised interest-bearing loans from banks and claimed a deduction for the interest paid on these loans. The Assessing Officer (AO) disallowed the interest paid to the banks on the ground that interest-free advances were given by the assessee to the farmers out of interest-bearing loans raised by it and made an addition to the assessee’s income.

On appeal, CIT(A) upheld the order of AO. The aggrieved assessee filed the instant appeal before the Tribunal. Before the Tribunal, the assessee contended that it was running a cold storage facility and had to keep the farmers tied up with it so that these farmers could store their potatoes in its cold storage. It could earn rent from the potatoes stored in its cold storage.

ITAT Held

The Tribunal held that the assessee had given complete details of the advances paid to the farmers during assessment proceedings. The AO asked the assessee to produce 20 farmers, and the assessee claimed to have produced 17 farmers, as two farmers had died, and one was army personnel on duty. These farmers have also given affidavits. The assessee claimed that the AO recorded the statement of three farmers produced by the assessee before the AO, but did not record the statements of the remaining farmers produced by the assessee, as the AO held that the farmers were tutored.

The assessee asked the AO to issue a summons to the farmers. The AO did not issue a summons to the farmers to unravel the truth. Nor did CIT(A) make any enquiry and/or verification with the farmers. The powers of CIT(A) are co-terminus with the powers of the AO, including the power of enhancement.

The ITAT held that the assessee had duly explained the business expediency of providing interest-free advances to potato growers, i.e., to tie up with the farmers so that they store their potato crop or produce in the assessee’s cold storage. The assessee can earn rent from potatoes that the farmers keep in the assessee’s cold storage. Revenue cannot sit in the armchair of a business person and then decide how the business will be run.

Rather, business people have to arrange their affairs, keeping in view business expediencies, to maximize their revenues and profits. Thus, the addition made by the Assessing Officer was directed to be deleted.