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| The Tax Publishers2021 TaxPub(DT) 4452 (Chen-Trib) INCOME TAX ACT, 1961
Section 36(1)(iii)
Since assessee had sufficient own funds being share capital, reserves and balance in profit & loss account, which was sufficient to cover loans given to related parties without any interest, hence, no interest could be disallowed for diversion of funds to related parties.
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Business deduction under section 36(1)(iii) - Interest on borrowed funds - Sufficiency of own funds -
Assessee was engaged in business of manufacture and sale of chemicals and generation of power. AO completed assessment under section 143(3) by making additions towards disallowance of proportionate interest towards diversion of interest free funds to related parties without charging any interest. Held: The issue was squarely covered in favour of the assessee by the decision of the Tribunal in assessee's own case where Tribunal held that when interest free loan was extended they are firstly sourced out of interest free funds and if it is not sufficient to cover up the entire extent of interest free loan, the balance was met out of interest bearing funds. In the present case, assessee had sufficient own funds being share capital, reserves and balance in profit & loss account, which was sufficient to cover loans given to related parties without any interest and hence, no interest could be disallowed for diversion of funds to related parties.
Followed:CIT v. Reliance Utilities & Power Ltd. (2009) 313 ITR 340 (Bom) : 2009 TaxPub(DT) 1275 (Bom-HC) CIT v. Hotel Savera (1999) 239 ITR 795 (Mad) : 1999 TaxPub(DT) 0266 (Mad-HC) M/s. TCP Limited. v. ACIT [I.T.A.Nos.1627 to 1629/Chny/2018, dt. 8-5-2019] and M/s. TIL Healthcare Pvt. Ltd., v. ACIT [I.T.A.No.2416/Chny/2017, dt. 17-4-2018]
REFERRED :
FAVOUR : In assessee's favour
A.Y. : 2005-06
IN THE ITAT CHENNAI BENCH
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