2022 (9) TMI 1111 - AT - Income Tax

Disallowance u/s. 36(1)(iii) - interest paid on Working Capital Loan and Term Loan for purchase of investment in spite of assessee having sufficient funds of its own being available and no fresh investments having been made during the year - HELD THAT - As in assessee's own case for assessment year 2011-12 2022 (7) TMI 1321 - ITAT CHANDIGARH and had set aside the issues to the file of the AO vide order. Therefore, respectfully following the above said orders, the issues are set aside to the file of the AO to be decided as per the directions given vide the aforesaid referred - Accordingly, both the issues stand decided in favour of the assessee for statistical purpose.

Summary

Issues:
Cross-appeals filed against the Ld. CIT(A)'s orders partially allowing the appeals against assessment orders u/s. 143(3) of the Income Tax Act, 1961.

Analysis:
The appeals involved challenges to disallowances of interest paid on working capital loan and term loan for investments, and interest on cash credit account for fixed assets. The Ld. AR argued that the disallowances were unjustified as the investments were made from available funds, and the assessee had sufficient own funds. The AR cited judicial precedents supporting the assessee's position. The Ld. CIT DR, however, supported the lower authorities' orders.

Regarding the disallowance of interest on working capital and term loan, the AR contended that the disallowance was improper as no fresh investments were made during the year, and existing investments were reduced. The AR referenced various judicial precedents in favor of the assessee's argument. Similarly, for the disallowance of interest on the cash credit account for fixed assets, the AR argued that the disallowance was unwarranted as the assessee had substantial own funds, reserves, and surplus, along with internal accruals. The AR highlighted that interest had already been capitalized in previous years.

The Tribunal noted that the issues had been disputed in earlier years and referred to a related order involving a group company. The Tribunal observed that the Finance Act 2003 had amended Section 36(1)(iii) and cited relevant provisions. Referring to past judgments, the Tribunal emphasized that no disallowance of interest was justified when the assessee had sufficient own funds. The Tribunal directed the Assessing Officer to assess the fund position and decide on disallowances accordingly.

In line with previous orders in the assessee's case, the Tribunal set aside the issues to the Assessing Officer for further examination. Consequently, both issues were decided in favor of the assessee for statistical purposes. Ultimately, the appeals were allowed for statistical purposes, and the order was pronounced on 22.08.2022.