The Raipur Bench of Income Tax Appellate Tribunal (ITAT) has held that no disallowance could be made under Section 36(1)(iii) of the Income Tax Act, 1961, as the amount was advanced during the normal course of business.
The assessee firm Hotel Ishika had e-filed its return of income declaring an income and the original assessment was thereafter framed by the A.O. vide his order passed under Section 143(3) of the Income Tax Act determining its total income. As was discernible from the record, the A.O. on the basis of further verifications carried out after the culmination of the original assessment, had observed that the assessee firm had diverted its interest-bearing funds for advancing interest-free loans to certain concerns.
The A.O. held that proportionate interest pertaining to the interest-free advances/loans given by the assessee firm out of its interest-bearing funds was liable to be disallowed under Section 36(1)(iii)/14A of the Income Tax Act.
Piyush Tripathi appeared on behalf of the revenue.
Section 36(1)(iii) of the Income Tax Act deals with Interest on borrowed capital: When money is borrowed to buy a capital asset, the interest payable on that debt for the time period up until the asset is used cannot be written off as a tax deduction.
A Single-member Bench of Ravish Sood, (Judicial Member) dismissed the appeal filed by the revenue observing that, “as the assessee had advanced the aforesaid respective amounts in question to the aforementioned parties in the normal course of its business, therefore, no part of interest expenditure corresponding to the said respective amounts was liable to be disallowed u/s.36(1)(iii) of the Income Tax Act.”
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
