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| The Tax Publishers2020 TaxPub(DT) 3830 (Jp-Trib) INCOME TAX ACT, 1961
Section 36(1)(iii)
Where interest-free advances given by assessee to its sister concerns were wholly and exclusively for the purposes of business, the AO was not justified in making any disallowance out of the interest expenditure claimed by the assessee.
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Business deduction under section 36(1)(iii) - Interest on borrowed capital - Interest-free advances to sister concerns - Business expediency
AO noticed that assessee-company claimed expenditure on account of interest whereas corresponding receipts on account of interest were less than the said interest expenditure. In view of the AO, the excess interest over and above the receipts of interest was on account of interest-free advances given by the assessee to its sister concerns. Assessee submitted that the loans advanced to its sister concerns were on account of business expediency as it was having business stakes in their business concerns. However, the AO disallowed the interest paid over and above the interest received. Held: It was found that assessee advanced loans to its sister concerns for conducting business. The said loans were advanced under development agreements, wherein the assessee was to act as a developer and was required to develop projects for its sister concerns. It was under such agreements that the assessee paid interest-free refundable security deposits to its sister concerns, who were the owners of the lands in lieu of the owners granting license for carrying out the development projects. Thus, the interest-free advances given by the assessee to its sister concerns were wholly and exclusively for the purposes of business. Hence, the AO was not justified in making any disallowance out of the interest expenditure claimed by the assessee.
Relied:SA Builders Ltd. v. CIT (2007) 158 Taxman 74 (SC) : (2007) 288 ITR 1 (SC) : 2007 TaxPub(DT) 0833 (SC) Madhav Prasad Jatia v. CIT (1979) 118 ITR 200 (SC) : 1979 TaxPub(DT) 1021 (SC) CIT v. Sales Magnesite (P) Ltd. (1995) 214 ITR 1 (Bom) : (1995) 81 Taxman 33 (Bom.) : 1995 TaxPub(DT) 0796 (Bom-HC) CIT v. Shahibag Enterpreneurs (P) Ltd. (1995) 215 ITR 810 (Guj) : 1995 TaxPub(DT) 0228 (Guj-HC) RB Bansilal Abirchand Spinning and Weaving Mills v. CIT (1971) 81 ITR 34 (Bom.) (FB) : 1971 TaxPub(DT) 0262 (Bom-HC)
REFERRED :
FAVOUR : In assessee's favour
A.Y. : 2014-15
IN THE ITAT, JAIPUR BENCH
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