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The Deputy Commissioner of Income-tax, Company Circle-I (1) , Chennai Versus M/s. Alliance Retreat P. Ltd.

2015 (10) TMI 1491 - ITAT CHENNAI

Disallowance of interest expenditure under section 36(1)(iii) - AO made disallowance on account of diversion of interest-bearing borrowed funds to group companies - CIT(A) allowed the claim - Held that:- Assessee has established that interest-bearing term loan was directly utilised for acquisition of land and meeting the cost of construction. Assessing Officer has failed to establish that the loan amount advanced to sister concerns is out of interest-bearing funds only. The assessee has given th .....

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assessee for making payments to M/s. Soorya Developers (Rs.1,48,46,000) and M/s. Meghana Developers (Rs. 1,06,04,000) for development and construction of villas. The assessee has been able to explain utilisation of the entire secured loan of ₹ 20 crores for business purposes. The assessee has also given the details of interest-free funds, amounting to ₹ 82.47 crores. The details of interest-free funds and utilisation of the entire borrowed funds for business of the assessee have not .....

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rty to manage and utilise its resources according to its own prudence and skill. We find no infirmity in the impugned order. The order of the Commissioner of Income-tax (Appeals) is confirmed and the appeal of the Revenue is dismissed being devoid of merit. - Decided in favour of assessee. - ITA No. 557/Mds/2013 - Dated:- 10-4-2015 - SHRI B.R.BASKARAN AND SHRI VIKAS AWASTHY, JJ. For the Appellant : Shri A. V. Sreekanth, JCIT For the Respondent : Shri M. Narayanan (Retd. Addl. CIT) ORDER Vikas Aw .....

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e : The assessee is a private limited company and is engaged in the business of real estate and construction. The assessee filed its return of income for the assessment year 2009-10 admitting loss of ₹ 34,12,997 and offered ₹ 3,77,879 as income under section 115JB of the Act. During the course of scrutiny assessment, the Assessing Officer made certain additions in the income returned by the assessee including disallowance of interest expenditure under section 36(1)(iii) of the Act. A .....

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mitted that the assessee had advanced interest-free loans to its group companies from interest-bearing funds. The assessee has not been able to show business expediency on account of which funds to the tune of ₹ 49 crores have been advanced as interest-free loan to the group companies. The assessee has borrowed funds on which it has paid interest charges of ₹ 2,86,80,198. The assessee instead of reducing its interest burden by repaying loan amount has diverted funds to the group comp .....

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supported the findings of the Commissioner of Income-tax (Appeals). The learned authorised representative for the assessee submitted that the assessee had sufficient own funds. Therefore, there is no question of diversion of interest-bearing funds for advancing to group companies. The learned authorised representative further contended that the advances were given to sister concerns on account of commercial expediency. The Revenue has not been able to establish any nexus between the amount lent .....

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to group companies. The Commissioner of Income-tax (Appeals) after appreciating the facts of the case, placing reliance on the decisions rendered in the case of CIT v. Reliance Utilities and Power Ltd. reported as [2009] 313 ITR 340 (Bom) accepted the claim of the assessee. 6. It is an undisputed fact that the assessee has taken a term loan of ₹ 20,03,78,000 and has paid interest to the tune of ₹ 2,86,80,918 thereon. The Commissioner of Income-tax (Appeals) in the impugned order has .....

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