2018 (4) TMI 1276 - AT - Income Tax

Disallowance of interest u/s. 36(1)(iii) - CIT-A allowed the claim - as per AO Assessee has made investments and given loans and advances of ₹ 205,20,21,046/- to the subsidiaries - Held that - As the company has advanced a loan of ₹ 205,20,21,046/- in the subsidiary companies. These details were available before the AO and he proceeded to make the disallowance of interest of ₹ 5,33,01,263/- brushing aside the crucial evidences placed on record. AO was rightly directed by the ld. CIT(A) to delete the disallowance of interest of ₹ 5,33,01,263/- made by the AO u/s. 36(1)(iii) of the Act, which does not need any interference on our part - Decided against revenue

Summary

Issues:
Disallowance of interest under section 36(1)(iii) of the Income Tax Act, 1961 for assessment year 2010-11.

Analysis:
The Revenue appealed against the CIT(A)'s order deleting the disallowance of interest amounting to ?5,33,01,263 under section 36(1)(iii) of the Act. The AO disallowed the interest based on the premise of diversion of interest-bearing funds towards non-business activities, as the assessee failed to establish a direct nexus between own funds and investments. The CIT(A) allowed the appeal, citing a case involving DLF Brands Limited for AY 2009-10, where a similar disallowance was deleted. The Revenue contended that the CIT(A) erred in deleting the disallowance, arguing that the facts of the current year were different from the previous case. The assessee, on the other hand, supported the CIT(A)'s order, emphasizing the principle of consistency.

The ITAT noted that the AO disallowed the interest on investments and loans to subsidiaries totaling ?205,20,21,046, under section 36(1)(iii), relying on judicial precedents. However, referring to the DLF Brands Limited case for AY 2009-10, the ITAT found that the disallowance was unjustified as the investments were made for business purposes, and the interest was allowable under section 36(1)(iii). The ITAT also highlighted that the CIT(A)-XIII's decision in the DLF Brands case was upheld by the ITAT 'B' Bench for AY 2009-10.

The ITAT observed that the Revenue failed to provide any decision by higher courts in the case at hand, while the CIT(A) had followed previous decisions applicable to the assessee's group companies. The ITAT upheld the CIT(A)'s order, emphasizing that the AO disregarded crucial evidence regarding the loans advanced to subsidiaries. The ITAT concluded that the CIT(A)'s decision to delete the disallowance of interest was appropriate, based on the facts and circumstances of the case and the material on record.

Therefore, the ITAT dismissed the Revenue's appeal, upholding the CIT(A)'s order to delete the disallowance of interest of ?5,33,01,263 made by the AO under section 36(1)(iii) of the Act for the assessment year 2010-11.