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2017 (5) TMI 245 - AT - Income TaxDisallowance on account of interest expenses under Section 36(1)(iii) - Held that - It is an admitted fact that the assessee paid interest amounting to Rs. 48, 92, 072/- which comprises of two parts i.e. Rs. 24, 36, 353/- on the working capital loan from the bank which had been directly used for the business purpose and Rs. 24, 60, 749/- paid in respect of unsecured loans of Rs. 5, 06, 36, 314/- received from M/s Sudha Apparels Ltd. which was utilized in the fixed deposits on which the assessee earned interest amounting to Rs. 39, 73, 387/-. Therefore the expenditure relating to the interest paid was directly linked with the business of the assessee so no disallowance could have been made u/s 37 of the Act as interest expenses incurred during the year had direct nexus with the income of the assessee and was fully allowable as per the provisions of Section 36(1)(iii) of the Act. In the present case the AO disallowed a sum of Rs. 13, 89, 951/- out of the expenses claimed on account of interest which was paid by the assessee for the business exigency. In my opinion the action of the AO was not justified and the ld. CIT(A) without appreciating the fact in right perspective sustained the disallowance made by the AO. As regards to the interest free advances given by the assessee to M/s Aggarwal Industries and M/s Discover Industries Pvt. Ltd. is concerned it is noticed that the assessee was having sufficient own funds available with it during the year under consideration which is evident from page no. 9 of the assessee s paper book which is the copy of the balance sheet as on 31.03.2012 and reveals that share capital and reserves and surplus were to the extent of Rs. 6, 31, 74, 469/- which were more than the interest free advances of Rs. 1, 15, 82, 925/-. Therefore the AO was not justified in presuming that the interest @ 12% was to be disallowed of Rs. 1, 15, 82, 925/- when the loans raised by the assessee were utilized for the business purposes and the advances given to m/s Aggarwal industries and M/s Discover Industries Pvt. Ltd. amounting to Rs. 1, 82, 925/- and Rs. 1, 14, 00, 000/- respectively were out of the own funds available with the assessee. In that view of the matter the disallowance made by the AO and sustained by the ld. CIT(A) is deleted. - Decided in favour of assessee
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