The Mumbai Bench of the Income Tax Appellate Tribunal ( ITAT ) has held that interest-bearing funds not utilised for advancing funds and upholds the deletion of interest made u/s 36(1)(iii).
The assessee, SKM Fabrics (Amana) Ltd, is engaged in business of trading of locally man-made grey fabrics as well as manufactured/processed finished fabric through outside processor, whenever considered expedient. The assessee filed its return declaring total loss at Rs. 10,92,25,828. The AO during assessment proceedings noticed interest expenses claimed by the assessee. The AO disallowed it by invoking the provisions of section 36(1)(iii) of the Act as interest free loans and advances were given out of interest-bearing funds.
Before the CIT (A), Mr. Yogesh Joijode, counsel for the assessee submitted that it has utilised the increased interest free unsecured loans received during the year under consideration for the purpose of excess grant of Rs. 6.69 crores as loans and advances. Thus, assessee submitted that it had sufficient interest free funds, which were utilised for making the loans and advances and no part of interest-bearing funds were utilised for making interest-free loans and advances. The CIT(A) allowed the appeal. Aggrieved by the order the revenue filed appeal before ITAT.
The Tribunal observed that from the financials of the assessee it is evident that from the loans/credit facility availed from the Banks there was no scope for making any payment of interest free loans and advances. And also, it is evident that assessee had sufficient interest free funds for making any loans and advances. The financial state of affairs of the assessee has not disputed by the Assessing Officer.
The Tribunal further observed that the Assessing Officer has neither denied nor brought anything contrary to the fact that the amount of secured loan with regard to term loan from banks were utilised by the assessee for the purpose of capital work in progress and the interest on the said amountwas capitalised in the capital work in progress and not debited to the profit and loss account, for the year under consideration. The Tribunal find that the Assessing Officer merely on an ad hoc basis made the additions under section 36(1)(iii) of the Act, without bringing anything on record to suggest that interest-bearing funds were actually utilised for the purpose of advancing funds on which no interest was charged by the assessee.
The Coram of Mr. Prashant Maharishi, Accountant Member and Mr. Sandeep Singh Karhail, Judicial Member has observed that “we find no infirmity in the impugned order passed by the learned CIT(A) deleting the disallowance made by the Assessing Officer under section 36(1)(iii) of the Act. Accordingly, the sole ground raised by the Revenue in present appeal is dismissed”.
Mr. Hoshang B. Irani appeared on behalf of the revenue.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan AdFree. Follow us on Telegram for quick updates.
