2018 (3) TMI 1092 - AT - Income Tax

Disallowance on account of interest attributable to the interest free advance given by the assessee - Held that - We find merit in the contention of the learned counsel for the assessee and direct the A.O. to compute the interest to be disallowed as per the direction of the CIT(A) given in the impugned order @ 13% instead of 15%. Disallowance made by the A.O. on account of interest accordingly was sustained in A.Y. 2009-10 to the extent it was attributable to the balance amount of ₹ 51,00,000/- advanced to M/s. Phool Commercial Pvt. Ltd. Since the said amount which remained outstanding in the immediately preceding year was paid by the assessee during the year under consideration before 14.10.2009, the disallowance on account of interest attributable to the said amount was liable to be made for the period from 01.04.2009 to the time when the said amount had been returned back by M/s. Phool Commercial Pvt. Ltd. to the assessee company during the year under consideration. We, therefore, find no infirmity in the impugned order of the Ld. CIT(A) directing the A.O. to disallow interest attributable to the amount of ₹ 51,00,000/- advanced by the assessee company to M/s. Phool Commercial Pvt. Ltd. for the period from 01.04.2009 till the date when such amount has been refunded by M/s. Phool Commercial Pvt. Ltd. in the year under consideration @ 13% P.A.

Summary

Issues: Disallowance of interest on interest-free advance to M/s. Phool Commercial Pvt. Ltd.

Analysis:
1. The appeal was filed against the order of Ld. CIT(A) regarding the disallowance made by the A.O. on interest attributable to interest-free advance given to M/s. Phool Commercial Pvt. Ltd.
2. The A.O. disallowed interest expenditure as the advance was not for business purposes, leading to a disallowance of &8377; 22,48,695.
3. Ld. CIT(A) partly sustained the disallowance, directing the A.O. to disallow interest @ 15% P.A. on specific advances made by the assessee to M/s. Phool Commercial Pvt. Ltd.
4. The assessee contended that the interest rate should be 13% instead of 15%, as per the bank's overdraft rate, which was accepted by the Tribunal.
5. Another issue was the disallowance of interest on a specific amount of &8377; 51,00,000, which was part of the opening balance of the advance to M/s. Phool Commercial Pvt. Ltd.
6. The Tribunal upheld the disallowance of interest on the &8377; 51,00,000 amount for the period from 01.04.2009 until repayment by M/s. Phool Commercial Pvt. Ltd., at 13% P.A.
7. The Tribunal partially allowed the appeal, modifying the interest rate and upholding the disallowance on the specific amount, as directed by Ld. CIT(A).

This detailed analysis covers the issues involved in the judgment, including the disallowance of interest on interest-free advances and the specific amounts involved. The Tribunal's decision and reasoning behind modifying the interest rate and upholding the disallowance on the specific amount have been comprehensively explained.