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2017 (3) TMI 746 - HC - Income TaxClaim of interest expenditure under section 36(1)(iii) - Held that:- Each assessment year being a separate unit, the disallowance of interest expenditure in such circumstances cannot be based on the closing balance of interest free loan in a given year. Rather, the Assessing Officer may examine the amount of interest free loan given in the previous year relevant to the assessment year in question and only if the Assessing Officer is satisfied that the assessee had not available to it, sufficient own funds to give such a loan in that year he may invoke section 36(1)(iii) of the Act and disallow such interest expenditure as may be warranted and not otherwise. An assessee who had available to him sufficient own funds or interest free funds in any previous year and had given the interest free loans in that previous year itself would only be burdened to establish only that much i.e. he advanced the said loan/s from such interest free advances or surplus funds, and no more. Once this is established no disallowance under section 36(1)(iii) of the Act would be warranted against interest paid on business borrowings for reason of having given interest free loans. Thus, while the Tribunal has found ₹ 39,45,705/- were available by way of interest free advance with the assessee and that disallowance under Section 36(1)(iii) of the Act, commensurate to such deposit was not warranted, yet there is a total lack of any finding as to the amount of interest free loan given by the assessee in the previous year relevant to the assessment year 2010-11, both by the Tribunal and also by the CIT (Appeals). We are therefore of the view that the questions of law raised in the memo of appeal deserve to be answered partially in favour of the assessee to the extent that in view of the finding recorded by the Tribunal as to availability of ₹ 39,45,705/- by way of interest free advance, the Tribunal was further required to record a finding as to the amount interest free loan given by the assessee in the previous year relevant to the assessment year 2010-11.
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