ITAT Mumbai allows profit addition under section 115JB, upholds deletion of disallowed interest on advances.

The ITAT Mumbai upheld the deletion of disallowed interest on interest-free advances citing commercial expediency and legal precedents. However, the tribunal allowed the addition of profit on the sale of shares and assets to the book profit under section 115JB based on the judgment of the Hon'ble Kerala High Court, partially favoring the revenue in this aspect.

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Issues:
1. Disallowance of interest on interest-free advances made to a sister concern.
2. Addition of profit on sale of shares and assets to book profit under section 115JB.

Issue 1 - Disallowance of Interest on Interest-Free Advances:
The Assessing Officer challenged the CIT(A)'s decision to delete the interest amount of Rs. 17,59,189 added on interest-free advances made to a sister concern. The assessee contended that the advance was made for commercial expediency, making the corresponding interest an allowable business expenditure. The CIT(A) agreed with the assessee, citing the Supreme Court judgment in the case of M/s. S.A. Builders Ltd., which clarified that interest on funds borrowed for interest-free loans can be allowed if given for commercial expediency. The ITAT Mumbai upheld the CIT(A)'s decision, noting that the Assessing Officer's approach was superficial and did not consider the business expediency aspect. The tribunal found no reason to disturb the CIT(A)'s well-reasoned conclusions, emphasizing the wide import of the term "commercial expediency" and the business purpose behind the advances.

Issue 2 - Addition of Profit on Sale of Shares and Assets:
The second issue involved the addition of Rs. 1,05,78,350 as profit on the sale of shares and assets to the book profit under section 115JB. The Assessing Officer contended that the decision of the Jurisdictional High Court in a specific case was applicable. However, the ITAT Mumbai noted that the issue was now covered against the assessee by a judgment of the Hon'ble Kerala High Court. Despite the assessee's reliance on previous tribunal decisions in their favor, the ITAT Mumbai upheld the Assessing Officer's grievance, following the judgment of the Hon'ble Kerala High Court. Consequently, the tribunal allowed Ground No.2 of the appeal, partially favoring the revenue.

In summary, the ITAT Mumbai upheld the deletion of disallowed interest on interest-free advances due to commercial expediency, citing relevant legal precedents. However, the tribunal allowed the addition of profit on the sale of shares and assets to the book profit under section 115JB based on the judgment of the Hon'ble Kerala High Court, partially favoring the revenue in this aspect.

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