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| The Tax Publishers2020 TaxPub(DT) 0641 (Chen-Trib) INCOME TAX ACT, 1961
Section 36(1)(iii)
Since AO had not doubted the genuineness of capital expenditure incurred by assessee nor there was any doubt about payment of interest on these trade advances by assessee and merely because trade advances were utilized for construction of factory building could not be a reason to disallow interest expenses once the said asset is put to use for business purposes, therefore interest expenses could not be disallowed.
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Business deduction under section 36(1)(iii) - Interest-free loans to sister concerns - Allowability -
Assessee was manufacturer of automobile components. AO observed from records that assessee has debited a sum under the head 'Interest Expenses' and asked assessee to explain the same. He submitted that amounts were received from M/s. B which were shown in books of account as trade advances. Assessee claimed that keeping in view provisions of section 2(28A), interest is allowable not only in respect of money borrowed but also for debt incurred. It was submitted that these trade advances are debt incurred and there is an obligation to adjust these advances with interest thereon. AO observed that assessee had not accounted for re-payment of principal which was an income of assessee and disallowed the same. Held: AO had not doubted the genuineness of capital expenditure incurred by assessee nor there was any doubt about payment of interest on these trade advances by assessee. As carefully perused audited financial statement of assessee, there was no diversion of funds by assessee for non-business purposes nor it was the case of AO that diversion of funds for non business purposes had taken place. Merely because trade advances were utilized for construction of factory building could not be a reason to disallow interest expenses once the said asset is put to use for business purposes.
REFERRED : CIT-1 v. Ansal Land Mark Township (P) Ltd. (2015) 377 ITR 635(Del) : 2015 TaxPub(DT) 3482 (Del-HC) CIT-3 v. Emerson Process Management (India) Pvt. Ltd. ITA No.237 of 2012 dated 11-6-2014 M/s. Centrica India Offshore Pvt. Ltd. v. CIT-I & Others (2014) 364 ITR 336(Delhi) : 2014 TaxPub(DT) 2335 (Del-HC) Canon India Pvt. Ltd. v. ACIT (2019) 103 taxmann.com 232(Delhi-trib.) : 2019 TaxPub(DT) 1060 (Del-Trib) Johnson Matthey Public Ltd. Company v. DCIT (International Taxation) (2018) 191 TTJ 1(Delhi-trib.) : 2017 TaxPub(DT) 5227 (Del-Trib)
FAVOUR : In assessee's favour
A.Y. :
IN THE ITAT, CHENNAI BENCH
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