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2023 (7) TMI 679 - AT - Income TaxDisallowance of interest expenditure - diversion of funds - nexus between the loan funds and the interest free advances confirmed or not? - HELD THAT - AO has not established the fact that the secured loan availed from State Bank of India was uitilized for advancing interest free loans to the three persons. The revenue could not controvert the fact that the funds advanced by the assessee were only after withdrawing the share capital from M/s KVR Industries. Hence, respectfully following the decision of Rohit Kochar 2018 (12) TMI 208 - ITAT DELHI quash the order passed by the Ld.CIT(A) and direct the AO to delete the addition made towards disallowance of interest - Decided in favour of assessee.
Issues:
The issues involved in this case are the disallowance of interest expenditure u/s 143(3) of the Income Tax Act, 1961 for the Assessment Years 2012-13 and 2013-14. Issue 1: Disallowance of Interest Expenditure The assessee, a Private Limited Company, filed its return of income admitting taxable income. The Assessing Officer (AO) disallowed an interest expenditure of Rs. 27,66,685/- as the company had advanced funds to individuals without charging interest. The AO held that since no interest was charged on these advances, the interest expenditure was disallowed. The CIT(A) upheld the AO's decision. Arguments and Decision The assessee appealed before the Tribunal, arguing that there was no diversion of funds as the advances were not given from interest-bearing funds. The Tribunal observed that the loan funds were not used for interest-free advances, as the loan was sanctioned much earlier than the transaction of giving advances. The Tribunal referred to a similar case where it was held that the revenue failed to establish a nexus between interest-bearing funds and interest-free advances. Since the revenue could not prove that the secured loan was utilized for advancing interest-free loans, the Tribunal ruled in favor of the assessee. Conclusion The Tribunal allowed the appeal of the assessee for both Assessment Years 2012-13 and 2013-14, directing the AO to delete the addition of Rs. 27,66,685/- made towards the disallowance of interest expenditure. The order was pronounced in the open court on 14th July 2023.
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