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2016 (6) TMI 168 - AT - Income TaxDisallowance of interest expenses - Held that:- Methodology of computing interest expenditure allowable under the Act at the rate of 7% of average outstanding balance on the opening and closing balance outstanding to be payable to GTL Ltd by the assessee company and disallowing the balance interest payable by the assessee company to GTL Limited as per contractual obligations itself is fallacious as no finding of fact is arrived at by the AO that the funds so received by the assessee company from time to time as advance from GTL Limited on which interest is payable as per contractual obligations has been diverted for non-business purposes or are utilized for any other purposes other than business purposes. The assessee company has on the other hand brought on record evidences that own funds/interest free funds to the tune of ₹ 25.41 crores are available with it which is reflected in the audited balance sheet, that the assessee company has deployed inter-corporate deposit to the tune of ₹ 25.79 crores on which interest income of ₹ 1.28 crores has been earned which is duly offered for taxation in the return of income filed by the assessee company with the Revenue and the assessee company has advanced interest free funds to the tune of ₹ 14.22 crores to the suppliers and the ledger extracts and audited balance sheets to this effect are duly placed in the paper book. The advances to the suppliers of ₹ 14.22 crores have been stated by the assessee company to be made for purposes of business keeping in view the commercial expediency and it is not brought on record by the Revenue that these interest free advances to suppliers are not made for the business purposes except making a bald statement that the interest is not incurred for the purposes of business and the interest is excessive. In any case , the assessee company has demonstrated that there are sufficient interest free funds available with the assessee company of ₹ 25.41 crores as per audited Balance Sheet filed in the paper book which is sufficient enough to cover the interest free advances to suppliers to the tune of ₹ 14.22 crores and presumption shall apply unless rebutted that the interest free funds available with the assessee company are utilized for advancing interest free advances to suppliers - Decided in favour of assessee.
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