INCOME TAX ACT, 1961

Section 36(1)(iii)

Business deduction under section 36(1)(iii) - Disallowance of interest expenses - Deemed interest on the loans and advances given to associate concern - Allowability

Assessee was in business of projects engineers and manufacturing of cattle feed, poultry feeds equipments and storage systems. On perusal of balance sheet it was noticed that assessee had advanced interest free loans and advances to firms in which directors were partners. Therefore, assessee was show-caused as to why interest at the rate of 12% on interest free advances to sister concerns should not be charged as it was charged in the assessment years 2008-09, 2009-10 , 2010-11 and 2011-12. However, AO was not convinced with the explanation advanced by assessee and accordingly made addtion. Held: As decided in assessee's own case [[ITA Nos. 836/Ahd/2012, 06/Ahd/2011, 2627/Ahd/2012 & 562/Ahd/2014, dt. 27-11-2017]], assessee had stopped charging interest and accounting it in the income on accrual basis. This was not a sound accounting policy as at outset it should have been recognized the same as income on accrual basis. Further, it was observed that interest income was recognized on accrual basis and thereafter claimed as a bad debt of its non-realization, this was allowed by CIT(A). It was to be recognized that in all three years the income from interest on accrual basis remained unrecoverable which was allowed as a bad debt. Thus, in order to avoid multiplicity of the proceedings, appeal of assessee was allowed

REFERRED :

FAVOUR : In assessee's favour

A.Y. : 2013-14

INCOME TAX ACT, 1961

Section 43B

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