The Tax Publishers2020 TaxPub(DT) 0149 (Kol-Trib)

INCOME TAX ACT, 1961

Section 36(1)(iii)

Tribunal took a note of factual position and held that loans advanced by assessee was a business expediency by relying in case of SA Builders Ltd. v. CIT (2007) 288 ITR 1 (SC) : 2007 TaxPub(DT) 833 (SC). Merely because a reference was pending that did not mean that decision rendered by Supreme Court was no longer good law, therefore, pro rata interest disallowance could not be sustained.

Business deduction under section 36(1)(iii) - Intesest an borrowed capital - Assessee diverted its interest bearing funds to sister/associate concerns -

AO has disallowed the interest on proportionate basis under section 36(1)(iii) debited to P&L Account by assessee on the grounds that assessee was paying interest on the bank loans, unsecured loans and at the same time extending interest free loans to the sister concerns without any business consideration or commercial expediency. CIT(A) upheld the disallowance made by AO. Held: Tribunal took a note of factual position and held that loans advanced by assessee was a business expediency. Tribunal had recorded the facts to support its stand that decision in SA Builders Ltd. v. CIT (2007) 288 ITR 1 (SC) : 2007 TaxPub(DT) 833 (SC) would aid the case of assessee. CIT(A) was also satisfied with the nature of transaction and it would qualify as 'business expediency'. Merely because a reference is pending that did not mean that decision rendered by Supreme Court was no longer good law. Assessee's act of advancing interest bearing funds to its sister concern involved commercial expediency and therefore, pro rata interest disallowance could not be sustained.

REFERRED : Hero Cycles (P.) Ltd. v. CIT (2015) 379 ITR 347(SC) : 2015 TaxPub(DT) 4897 (SC) SA Builders Ltd. v. CIT (2007) 288 ITR 1 (SC) : 2007 TaxPub(DT) 0833 (SC)

FAVOUR : In assessee's favour

A.Y. : 2012-13



IN THE ITAT, KOLKATA BENCH

SUBSCRIBE TaxPublishers.inSUBSCRIBE FOR FULL CONTENT