INCOME TAX ACT, 1961

Section 36(1)(iii)

Business deduction under section 36(1)(iii) - Interest on capital borrowed - Interest free loans and advances to related party - Assessee having interest free funds available with it

AO noted that assessee-company had given interest free loans and advances to related party. the disallowance of interest expenses against these loans have been discussed in the assessment order passed for preceding assessment year 2011-12. In the same manner, interest on loans/advances given to M/s. P Resorts and Builders (P) Ltd. had been disallowed. The AO, therefore, disallowed Rs. 1,51,65,269 under section 36(1)(iii). CIT(A) allowed the appeal of assessee.Held: AO on this issue made the addition by following his Order for the assessment year 2011-2012 without giving any independent findings. In assessment year 2011-2012 the CIT(A) had allowed the claim of assessee and deleted the addition. Though the Department had filed an appeal before the Tribunal, but, no ground have been raised on this issue. These facts itself were sufficient to delete the addition. Tribunal may further note that assessee had own sufficient funds to give advance to M/s. P Resorts & Builders Pvt. Ltd., out of own funds. There was also an opening balance as contended by the assessee in preceding year, on which, addition had already been deleted. The assessee had also placed on record the correspondence between the parties to show that advance have been given for commercial expediency. It is well settled Law that when interest free funds were available to the assessee which were sufficient to made its investments, it would be presumed that the investments were made from the interest free funds available with the assessee. Considering the totality of the facts and circumstances of the case, there was no justification to sustain the addition. Accordingly, the Orders of the authorities below was set and the addition was deleted.

Relied:Reliance Utility & Power Ltd. (2009) 313 ITR 340 (Bom.) : 2009 TaxPub(DT) 1275 (Bom-HC), Munjal Sales Corporation (2008) 298 ITR 298 (SC) : 2008 TaxPub(DT) 1671 (SC)

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2012-13 to 2014-15

INCOME TAX ACT, 1961

Section 14A Rule 8D

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