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2021 (8) TMI 634 - ITAT CHENNAIInterest free loan - interest on borrowed funds - the assessee has sufficient own funds being share capital, reserves and balance in profit & loss account, which is sufficient to cover loans given to related parties without any interest and hence, no interest could be disallowed for diversion of funds to related parties - HELD THAT:- In assessee’s own case for assessment year 2004-05 [2019 (5) TMI 1895 - ITAT CHENNAI] where the Tribunal by following mixed funds theory in light of the decision in the case of CIT Vs. Reliance Utilities & Power Ltd. [2009 (1) TMI 4 - BOMBAY HIGH COURT], held that when interest free loan is extended they are firstly sourced out of interest free funds and if it is not sufficient to cover up the entire extent of interest free loan, the balance is met out of interest bearing funds. Tribunal further noted that in the present case, the assessee has sufficient own funds being share capital, reserves and balance in profit & loss account, which is sufficient to cover loans given to related parties without any interest and hence, no interest could be disallowed for diversion of funds to related parties. We are of the considered view that there is no error in the findings recorded by the CIT(A) to delete disallowances made by the Assessing Officer towards proportionate interest and hence, we are inclined to uphold findings of the CIT(A) and dismiss appeal filed by the Revenue.
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