2019 (5) TMI 316 - AT - Income Tax

Addition of interest on advances given to the sister concern - calculation of notional interest taking rate of interest at 6% on the advance given to the sister concern - HELD THAT - Assessee has interest free fund of ₹ 3,22,11,819/- out of which it could be construed that the assessee must have given advance without charging interest. Since interest free funds are more than the interest free advance given by the assessee, therefore, there should not be any interest expenditure require to be disallowed from the claim of the assessee. As fortified by the decision of Cit Vs. Reliance Utilities and Powers Ltd., 2009 (1) TMI 4 - BOMBAY HIGH COURT allow the appeal of the assessee and delete disallowance.

Summary

Issues: Appeal against order of CIT(A) for Asstt.Year 2012-13. Grounds of appeal, disallowance of interest expenses, application under section 154, interest free funds, disallowance deletion.

The appellant appealed against the order of the ld.CIT(A)-8, Ahmedabad dated 16.6.2017 for the Assessment Year 2012-13. The appellant presented four grounds of appeal, withdrawing ground no.3. Grounds no.1 and 4 were deemed general and were rejected. The only pressed ground was no.2, objecting to the confirmation of an addition of ?3,30,500 by the ld.CIT(A).

Upon careful review of the records, it was noted that the ld.AO observed the appellant did not charge interest on an advance of ?1,44,50,000 provided to Solace Stock P.Ltd. Despite debiting interest expenses of ?7,89,041, the AO calculated notional interest at ?8,67,000, exceeding the claimed interest expenditure. Consequently, the AO disallowed the interest expenditure, which was later revised to ?3,30,500 after the appellant's application under section 154 was approved.

Considering the appellant's interest-free funds of ?3,22,11,819, it was inferred that the appellant might have provided advances without charging interest. Given that the interest-free funds exceeded the interest-free advance, it was deemed unnecessary to disallow any interest expenditure. Citing the decision of the Hon'ble Bombay High Court in Cit Vs. Reliance Utilities and Powers Ltd., 288 ITR 1 (Bom), the disallowance was deleted, and the appeal of the assessee was partially allowed.

The judgment was pronounced in the Open Court on 2nd May 2019 by Shri Rajpal Yadav, Judicial Member of the Appellate Tribunal ITAT Ahmedabad. The representatives present were Shri M.S.Chhajed, AR for the Assessee, and Shri B.L.Meena, Sr.DR for the Revenue.