Tax Tribunal affirms deletion of addition for interest-free advances, rules in favor of assessee on interest disallowance.

The ITAT upheld the CIT(A) decision in a case involving deletion of an addition of Rs. 13,67,164 on account of interest-free advances given, citing the availability of sufficient interest-free funds. The ITAT also ruled in favor of the assessee regarding the disallowance of interest under section 36(1)(iii) on advances to certain individuals, stating that no disallowance could be made as interest-free funds covered the advances. The ITAT dismissed the revenue's appeal and allowed the assessee's cross-objection, emphasizing that the advances were supported by ample interest-free funds.

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Issues Involved:
1. Deletion of addition of Rs. 13,67,164 on account of interest-free advances given.
2. Disallowance of interest u/s 36(1)(iii) on advances to certain individuals.

Issue 1: Deletion of Addition of Rs. 13,67,164 on Account of Interest-Free Advances Given

Facts:
- During assessment, the A.O. noted an outstanding debt of Rs. 3,99,87,812 to M/s Deepak Buildcon Infrastructure without charging interest, while the assessee paid interest on borrowed funds.
- The A.O. disallowed Rs. 13,67,164 as interest @12% on the debt.
- The assessee argued that sufficient interest-free funds were available and relied on the case of M/s Bhogal Sons vs. ACIT.

CIT(A) Decision:
- CIT(A) allowed the appeal, relying on the judgment in M/s Bhogal Sons vs. ACIT.
- It was noted that Mr. Deepak Kumar, a major partner with 81% share, had a capital balance of Rs. 4,40,33,756 on which no interest was paid.
- The advance to M/s Deepak Buildcon Infrastructure was attributed to Mr. Deepak Kumar's capital, justifying non-charging of interest.

ITAT Decision:
- The ITAT upheld the CIT(A) decision, noting that the assessee had sufficient interest-free funds of Rs. 6,91,77,985, covering the advance.
- The reliance on the decision of M/s Bhogal Sons was found valid.
- The ITAT dismissed the revenue's appeal, stating that the decision in M/s Abhishek Industries was overruled by the Apex Court in Hero Cycles.

Issue 2: Disallowance of Interest u/s 36(1)(iii) on Advances to Certain Individuals

Facts:
- Advances were given without charging interest: Rs. 50,00,000 to Mr. Virender Kumar, Rs. 15,00,000 to Ms. Anjali Dhand, and Rs. 20,24,482 to Mr. Akash Singhal.
- The A.O. disallowed interest of Rs. 15,48,965 @ 12%.
- The assessee argued that the advances were for business purposes and had sufficient interest-free funds.

CIT(A) Decision:
- CIT(A) deleted the disallowance for JV Steel Tubes, citing business purpose.
- For other advances, CIT(A) upheld the disallowance, relying on M/s Abhishek Industries.

ITAT Decision:
- ITAT noted that the assessee had sufficient interest-free funds during the relevant years.
- The presumption was that the advances were made out of interest-free funds.
- The ITAT held that no disallowance u/s 36(1)(iii) could be made as the interest-free funds were sufficient to cover the advances.
- The reliance on M/s Abhishek Industries was found misplaced due to the subsequent overruling by the Apex Court.
- The ITAT allowed the assessee's cross-objection, deleting the disallowance of interest.

Conclusion:
- The appeal of the Revenue was dismissed.
- The cross-objection of the assessee was allowed.
- The ITAT found that the advances were made out of sufficient interest-free funds available with the assessee, justifying the deletion of interest disallowance.

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