The Tax Publishers2020 TaxPub(DT) 3643 (Del-Trib)

INCOME TAX ACT, 1961

Section 36(1)(iii)

Where assessee argued only utilisation of loan funds by the subsidiary companies/sister concern for business purposes and for that too also no documentary evidences were submitted before AO, however, argument of availability of interest free funds and giving of loans to subsidiary companies/sister concern out of such interest-free funds, was raised for the first time, therefore in the interest of natural justice, matter was remanded back to AO for deciding afresh in accordance with law.

Business deduction under section 36(1)(iii) - Allowability of interest expenditure - Advances to subsidiary companies/sister concern -

Assessee was engaged in the business of the real estate. During assessment proceedings, AO observed that assessee had debited interest Rs. 11,49,085 but in the computation of the income filed, claimed interest of Rs. 2,40,49,065 on borrowed capital under section 36(1)(iii). AO denied this claim as it was not made by way of filing revised return of income. Further, regarding the interest which was debited in the profit and loss account, AO observed that assessee had given interest-free advances to the sister concern and subsidiary companies, whereas assessee has paid interest at the rate of 12-14% per annum on the money borrowed. Assessee submitted that advances were made for business purpose to subsidiary companies/sister concern, who was engaged in real estate business. However, disallowed the interest expenditure in terms of section 36(1)(iii). Held: Assessee argued only utilisation of loan funds by subsidiary companies/sister concern for business purposes and for that too also no documentary evidences were submitted before AO. Before CIT(A), assessee did not appear and not filed any submissions. The argument of availability of interest free funds and giving of loans to subsidiary companies/sister concern out of such interest-free funds, was raised for first time, therefore, in the interest of natural justice, matter was remanded back to AO for deciding afresh in accordance with law after providing adequate opportunity of being heard to the assessee.

Followed:CIT (LARGE TAX PAYER UNIT) v. Reliance Industries Ltd (2019) 410 ITR 466 (SC) : 2019 TaxPub(DT) 0659 (SC) M/s. ATS Infrastructure Ltd. v. ACIT 2020 TaxPub(DT) 0331 (Del-Trib)Relied:CIT v. Sahu Enterprise Pvt. Ltd. 2013 TaxPub(DT) 1074 (All-HC)

REFERRED :

FAVOUR : Matter remanded

A.Y. : 2010-11



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