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2016 (2) TMI 909 - AT - Income TaxAddition of interest made an account of interest free advances given - Held that - Impugned advance made to Deepak Infrastructure was from the interest free funds of the assessee firm more particularly out of the interest free capital of the partner Mr. Deepak Kumar and therefore no disallowance u/s 36(1)(iii) could be made in the present case. We therefore, find no infirmity in the order of ld. CIT(A) in this regard and concur which the finding of the Ld. CIT(A) directing the deletion of disallowance of interest - Decided in favour of assessee Disallowance of interest u/s 36(1)(iii) on interest free advances made by the assesee to certain person - Held that - At the impugned advance have been made out of interest free funds available with the assessee and thus there was no occasion what so ever of disallowing interest u/s 36(1)(iii) of the Income Tax Act, 1961. Reliance placed by the Ld. DR on the jurisdictional High Court decision in the case of Abhishek Industries 2006 (8) TMI 123 - PUNJAB AND HARYANA High Court is misplaced since the same has been overruled by subsequent decision of the the Apex Court in Hero Cycle Ltd. The argument of the Ld. DR that the advance were for non business purpose, we find has merit since no evidence was brought on record by the assessee before us or before the lower authorities to substantiate its arguments, but having said so no disallowance u/s 36(1)(iii) can still be made in the present case as we have held that there were sufficient interest free funds available with the assessee to make the impugned advance and the presumption in the such cases is that they are made out of the interest free funds available and not the interest bearing funds. In view of the above we hold that the disallowance of interest u/s 36(1)(iii) pertaining to the Miss. Anjali Dhand, Mr. Akash Singhal and Mr. Virender Kumar upheld by the Ld. CIT(A) be deleted. - Decided in favour of assessee
Issues Involved:
1. Deletion of addition of Rs. 13,67,164 on account of interest-free advances given. 2. Disallowance of interest u/s 36(1)(iii) on advances to certain individuals. Issue 1: Deletion of Addition of Rs. 13,67,164 on Account of Interest-Free Advances Given Facts: - During assessment, the A.O. noted an outstanding debt of Rs. 3,99,87,812 to M/s Deepak Buildcon Infrastructure without charging interest, while the assessee paid interest on borrowed funds. - The A.O. disallowed Rs. 13,67,164 as interest @12% on the debt. - The assessee argued that sufficient interest-free funds were available and relied on the case of M/s Bhogal Sons vs. ACIT. CIT(A) Decision: - CIT(A) allowed the appeal, relying on the judgment in M/s Bhogal Sons vs. ACIT. - It was noted that Mr. Deepak Kumar, a major partner with 81% share, had a capital balance of Rs. 4,40,33,756 on which no interest was paid. - The advance to M/s Deepak Buildcon Infrastructure was attributed to Mr. Deepak Kumar's capital, justifying non-charging of interest. ITAT Decision: - The ITAT upheld the CIT(A) decision, noting that the assessee had sufficient interest-free funds of Rs. 6,91,77,985, covering the advance. - The reliance on the decision of M/s Bhogal Sons was found valid. - The ITAT dismissed the revenue's appeal, stating that the decision in M/s Abhishek Industries was overruled by the Apex Court in Hero Cycles. Issue 2: Disallowance of Interest u/s 36(1)(iii) on Advances to Certain Individuals Facts: - Advances were given without charging interest: Rs. 50,00,000 to Mr. Virender Kumar, Rs. 15,00,000 to Ms. Anjali Dhand, and Rs. 20,24,482 to Mr. Akash Singhal. - The A.O. disallowed interest of Rs. 15,48,965 @ 12%. - The assessee argued that the advances were for business purposes and had sufficient interest-free funds. CIT(A) Decision: - CIT(A) deleted the disallowance for JV Steel Tubes, citing business purpose. - For other advances, CIT(A) upheld the disallowance, relying on M/s Abhishek Industries. ITAT Decision: - ITAT noted that the assessee had sufficient interest-free funds during the relevant years. - The presumption was that the advances were made out of interest-free funds. - The ITAT held that no disallowance u/s 36(1)(iii) could be made as the interest-free funds were sufficient to cover the advances. - The reliance on M/s Abhishek Industries was found misplaced due to the subsequent overruling by the Apex Court. - The ITAT allowed the assessee's cross-objection, deleting the disallowance of interest. Conclusion: - The appeal of the Revenue was dismissed. - The cross-objection of the assessee was allowed. - The ITAT found that the advances were made out of sufficient interest-free funds available with the assessee, justifying the deletion of interest disallowance.
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