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| The Tax Publishers2020 TaxPub(DT) 3572 (Hyd-Trib) INCOME TAX ACT, 1961
Section 36(1)(iii)
Where assessee had sufficient interest free own funds in its kitty in order to make interest free advances to its group concerns and own funds available with assessee were much more than the interest free advances given to the group concerns, therefore, it can be safely presumed that interest free advances given to the group concerns were only out of own funds of the assessee and accordingly no disallowance could be made.
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Business deduction under section 36(1)(iii) - Assessee diverted its interest bearing funds to sister/associate concerns - Interest on borrowed capital - Assessee levy sufficient own funds
Assessee was engaged in business transportation, packing and moving of household goods of logistic business. AO observed that assessee had given interest free advance to some parties. AO had observed that assessee on the one hand had paid interest on its borrowings and on the other hand had made certain interest free advances to its sister concerns. Accordingly, the assessee was show-caused as to why proportionate disallowance of interest be not made as borrowed funds were diverted for non-business purposes. Assessee submitted that these advances were made for the purposes of business and also placed reliance on the decision of the Supreme Court in the case of Hero Cycles Pvt. Ltd. v. CIT (Central) in Civil Appeal No. 514 of 2008 : 2015 TaxPub(DT) 4897 (SC). AO distinguished the said case as not applicable to assessee and proceeded to make addition @ 14% of the interest free advances given. Held: Assessee had sufficient interest free own funds in its kitty in order to make interest free advances to its group concerns. Own funds available with the assessee were much more than the interest free advances given to the group concerns. Hence, it can be safely presumed that interest free advances given to the group concerns were only out of own funds of the assessee and not out of borrowed funds. Following the ratio decided in Reliance Utilities Power Ltd. [(2009) 313 ITR 340 (Bom) : 2009 TaxPub(DT) 1275 (Bom-HC)] and in HDFC Ltd. reported in [(2014) 366 ITR 505 (Bom) : 2014 TaxPub(DT) 3351 (Bom-HC)], there cannot be any disallowance of interest on borrowed capital.
Relied:Hero Cycles (P.) Ltd. v. CIT [Civil Appeal No. 514 of 2008] : 2015 TaxPub(DT) 4897 (SC), CIT v. HDFC Bank Ltd. (2014) 366 ITR 505 (Bom) : 2014 TaxPub(DT) 3351 (Bom-HC) and CIT v. Reliance Utilities & Power Ltd. (2009) 313 ITR 340 (Bom) : 2009 TaxPub(DT) 1275 (Bom-HC).
REFERRED :
FAVOUR : In assessee's favour.
A.Y. : 2013-14
INCOME TAX ACT, 1961
Section 36(1)(va)
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