9911796707
|
Home
Issues: Disallowance under section 36(1)(iii) for interest payable on advances given without interest.
Analysis: 1. The only issue in this appeal pertains to the disallowance of Rs. 18,212 under section 36(1)(iii) concerning interest payable on advances given without interest. The assessee, engaged in construction and sale of flats, claimed an expenditure of Rs. 3,41,130 for interest payable to a bank. The Assessing Officer discovered that the assessee had advanced amounts to sister concerns without interest, sourced from an overdraft account. The assessee argued that these advances were made from interest-free receipts deposited in the same account, not from borrowed funds bearing interest. However, the Assessing Officer rejected this explanation, leading to an unsuccessful appeal by the assessee and the subsequent appeal before the tribunal. 2. The counsel for the assessee contended that all business receipts, including interest-free advances and unsecured loans, were deposited in the overdraft account, and all expenses were met from there. He argued that the advances to sister concerns were made from interest-free business receipts, supported by legal precedents such as the Calcutta High Court's decision in Woolcombers of India Ltd. and the Supreme Court's ruling in East India Pharmaceutical Works Ltd. The Departmental Representative, on the other hand, emphasized that funds were diverted to sister concerns without interest from the overdraft account, which contained earmarked funds not available for interest-free advances. 3. Considering the arguments presented, the tribunal found merit in the assessee's contentions, citing the judgments in Woolcombers of India Ltd. and East India Pharmaceutical Works Ltd. The Calcutta High Court's decision in Woolcombers of India Ltd. involved a similar scenario where advance tax was paid from the overdraft account, leading to a deduction allowance. Similarly, the tribunal's decision in Durametallic (India) Ltd. supported the assessee's position, emphasizing the mixture of funds in the overdraft account to finance interest-free advances. The tribunal upheld the CIT(A)'s decision in favor of the assessee, directing the Assessing Officer to verify if payments to sister concerns were made from business profits and interest-free receipts in the overdraft account. 4. The tribunal also referenced the Supreme Court's decision in East India Pharmaceutical Works Ltd., where the assessee's contention regarding payment of advance tax from profits deposited in the overdraft account was acknowledged, though not entertained due to procedural reasons. The tribunal concluded that the assessee's argument had merit and set aside the CIT(A)'s order, instructing a detailed investigation by the Assessing Officer to validate the claim. The tribunal distinguished the decision in Madhav Prasad Jatia's case, emphasizing the need for specific contentions raised at each level of appeal. 5. Ultimately, the tribunal allowed the assessee's appeal for statistical purposes, highlighting the importance of factual investigations to determine the source of payments to sister concerns from business profits and interest-free receipts. The tribunal's decision was based on legal precedents supporting the assessee's position and the necessity of examining the details of the overdraft account to ascertain the legitimacy of the claim.
|
