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of <h1>Tax Tribunal affirms deletion of addition for interest-free advances, rules in favor of assessee on interest disallowance.</h1> <h3>Deepak Builders Versus The ACIT And Vice-Versa</h3> Deepak Builders Versus The ACIT And Vice-Versa - TMI 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 GivenFacts:- 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 IndividualsFacts:- 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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