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2023 (6) TMI 1024 - AT - Income TaxDisallowance of expenses u/s 36(1)(iii) - non charging of interest on advanced amount - advance was paid from interest free fund which has related to assessee s sundry creditors where assessee is advancing interest free loan - HELD THAT - Actually, the total interest free funds available with the assessee which comprises of interest free sundry creditors and other payables and which is also apparent from the balance sheet of the assessee and these are interest free funds available with the assessee, as the assessee has not to pay any interest on the amount due to the parties. The assessee utilized the interest free fund to advance/loan, to party. Assessee claimed that the entire amount was utilized from the non-interest-bearing fund. We respectfully relied on the orders which are duly relied by the ld. AR, are ITAT Chandigarh Bench in the case of M/s Gourav Malhotra Co. Supra and the order of Hon ble Apex Court in the case of Reliance Utility and Power Ltd. 2009 (1) TMI 4 - BOMBAY HIGH COURT and Reliance Industries Ltd. 2019 (1) TMI 757 - SUPREME COURT . Accordingly, the assessee s payment for advance from non-interest-bearing fund is not attracted any interest. So, the assessee has not contravened the section 36(1)(iii) for payment of interest free advance. The issue was first time explained before the Bench. The appeal is remanded back to the ld. CIT(A) for further adjudication on basis of the observation of the bench indicated above. Appeal of assessee allowed for statistical purpose.
Issues:
The judgment involves an appeal against the order of the ld. Commissioner of Income Tax (Appeals) for A.Y. 2013-14, concerning the addition made under section 36(1)(iii) of the Income Tax Act 1961. Details of the Judgment: 1. The appeal was filed challenging the addition made by the ld. AO under section 36(1)(iii) of the Act, amounting to Rs 12,69,700, on the grounds that the funds available as sundry creditors were interest-free. The appellant contended that the addition was unjustified and without passing a speaking order. 2. The assessment was framed as per the direction of the order under section 263 of the Act, where the disallowance of expenses under section 36(1)(iii) was made due to non-charging of interest on an advanced amount to M/s Lala Bhan Chand Memorial. The ld. CIT(A) directed the AO to ascertain the availability of interest-free funds with the appellant before making the disallowance. 3. The appellant argued that the advance was paid from interest-free funds related to sundry creditors, totaling Rs. 13,10,99,196, out of which an interest-free loan amounting to Rs. 1,05,80,823 was advanced. The appellant provided evidence of interest-free funds available, including sundry creditors and unsecured loans, totaling Rs. 4,28,05,422, which were sufficient to cover the interest-free advances. 4. The appellant relied on legal precedents, including judgments in the cases of CIT Vs Reliance Utilities & Power Ltd. and CIT Vs Reliance Industries Ltd., to support the contention that if there are sufficient interest-free funds available, no disallowance of interest under section 36(1)(iii) is warranted. 5. After considering the arguments and documents on record, the Tribunal found that the appellant utilized interest-free funds to advance loans, and the entire amount was utilized from non-interest-bearing funds. Relying on legal precedents and the evidence presented, the Tribunal concluded that the appellant did not contravene section 36(1)(iii) for making interest-free advances. The matter was remanded back to the ld. CIT(A) for further adjudication based on the Tribunal's observations. 6. Consequently, the appeal of the assessee was allowed for statistical purposes. Separate Judgment: No separate judgment was delivered by the judges in this case.
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