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of <h1>Tribunal allows appeal, deletes disallowance of interest under Income Tax Act</h1> <h3>M/s Aplab Limited Versus. Addl. Commissioner of Income-tax,</h3> The Tribunal ruled in favor of the appellant, allowing the appeal and deleting the disallowance of interest under section 36(1)(iii) of the Income Tax ... - Issues involved: Assessment of disallowance of interest u/s 36(1)(iii) of the Income Tax Act, 1961 for the assessment year 2007-08.Assessment of Disallowance of Interest:The appellant, engaged in manufacturing and trading, declared total income of Rs. 5,03,99,856/- which was processed u/s 143(1) of the Act. During scrutiny, it was observed that advances were made to subsidiary and related companies, while loans were taken incurring significant interest expenses. The Assessing Officer (A.O.) noted investments in subsidiary companies yielding minimal income, indicating diversion of interest-bearing funds. The A.O. made a disallowance u/s 36(1)(iii) of Rs. 22,50,264/-, being 10% of the total investments and advances. The ld. CIT(A) upheld this disallowance, leading to the appeal.Grounds of Appeal:Grounds No. 1 to 4 challenged the denial of a full opportunity to be heard by the ld. CIT(A), but were withdrawn during the hearing. Ground No. 5 contested the disallowance of interest amounting to Rs. 22,50,264/-.Arguments and Decision:The appellant's counsel argued that the shareholders' funds far exceeded the advances made without interest, citing a previous Tribunal order in the appellant's favor. The Tribunal, in the appellant's previous case, had deleted a similar disallowance based on the substantial shareholders' funds compared to the advances. The Tribunal held that if interest-free funds were available, investments were presumed to be made from those funds. As no distinguishing features were presented by the Revenue, the disallowance of interest was deleted following the precedent set in the appellant's previous case and the decision of the jurisdictional High Court. Consequently, the disallowance of interest of Rs. 22,50,264/- was deleted, and the appeal was allowed.Conclusion:The Tribunal ruled in favor of the appellant, allowing the appeal and deleting the disallowance of interest.
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