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2020 (11) TMI 603 - AT - Income TaxDisallowance of deduction on account of interest paid on borrowed funds u/s. 36(1)(iii) - assessee brought to our notice that own funds available with the assessee were much more than the amounts borrowed - HELD THAT - In light of the law as explained by in Chaitanya Properties Pvt.Ltd. 2018 (6) TMI 1237 - KARNATAKA HIGH COURT and in the light of admitted factual position that own funds were much more than the borrowed funds, we are of the view that disallowance of interest expenditure cannot be sustained and the same is directed to be deleted. The first issue is accordingly decided in favour of the assessee. Unexplained fixed deposit with ICICI Bank - AO was in possession of the Annual Information Report AIR which mentioned that assessee had two Term Deposits in ICICI Bank - HELD THAT - The fact that Term Deposits reflected in the AIR were in the M G Road Br., Bangalore does not mean that the deposits in M G Road Br. Bangalore is in the name of assessee. Perusal of the letter dated 22.12.2012 by ICICI Bank, Alwarthirunagar Branch, Chennai does not show that the Term Deposits is in the name of assessee - issue should be set aside to the AO for a fresh consideration to ascertain the correct facts with regard to Term Deposits in M G Road Br. Bangalore, as to whether the same is in the name of assessee. If so, then the assessee should explain the deposit in the parameters laid down u/s. 69 - we set aside the order of the CIT(Appeals) on this issue and remand it to the AO for fresh consideration in light of the observations made in this order.
Issues:
1. Delay in filing the appeal and condonation of delay. 2. Disallowance of deduction on interest paid on borrowed funds u/s. 36(1)(iii) of the Income-tax Act, 1961. 3. Justification for addition of funds related to a fixed deposit with ICICI Bank. Issue 1: Delay in Filing the Appeal and Condonation of Delay: The appeal was filed with a delay of about 210 days, and the reasons for the delay were attributed to the director's official trip. The Tribunal, considering the principle that substantive rights should not be denied on technicalities, condoned the delay in filing the appeal. Issue 2: Disallowance of Deduction on Interest Paid on Borrowed Funds: The primary issue was whether the revenue authorities were justified in disallowing the deduction claimed by the assessee for interest paid on borrowed funds under section 36(1)(iii) of the Income-tax Act, 1961. The Assessing Officer (AO) disallowed the deduction, stating that the borrowed funds were not used for the business purpose as the assessee had given interest-free advances to a related concern. The CIT(Appeals) upheld the disallowance, emphasizing the absence of commercial expediency in providing interest-free loans. However, the Tribunal, considering the own funds available with the assessee compared to the borrowed funds, ruled in favor of the assessee, citing precedents and the principle that disallowance cannot be sustained when own funds exceed borrowed funds. Issue 3: Justification for Addition of Funds Related to Fixed Deposit: The second issue pertained to the addition of funds related to a fixed deposit with ICICI Bank. The AO made an addition under section 69 of the Act as the source of funds for the deposit was not explained. The CIT(Appeals upheld the addition based on information from the Annual Information Report (AIR) and clarification from the bank. However, the Tribunal found the AIR information inconclusive and remanded the issue to the AO for fresh consideration to ascertain the correct facts regarding the fixed deposit. In conclusion, the Tribunal partly allowed the appeal, ruling in favor of the assessee on the disallowance of interest expenditure issue and remanding the fixed deposit issue for further investigation by the AO.
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