Tribunal partially allows appeal, grants opportunity for evidence on security deposit disallowance.

The tribunal partially allowed the appeal, deleting the disallowance of interest under section 36(1)(iii) while granting the appellant an opportunity to provide evidence regarding the disallowance of the security deposit under section 37.

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Issues:
1. Disallowance of security deposit under section 37 of the Income Tax Act.
2. Disallowance of interest under section 36(1)(iii) of the Income Tax Act.

Issue 1: Disallowance of Security Deposit under Section 37
The appeal challenged the addition of Rs. 2,00,000 under section 37 of the Income Tax Act related to a non-recoverable security deposit given for booking premium space for product display. The Assessing Officer disallowed the amount as the security deposit was not proven to be non-recoverable. The Commissioner of Income Tax (Appeals) upheld the disallowance due to lack of evidence supporting the claim. The appellant argued that the security deposit was irrecoverable due to financial problems and should be considered a business loss under section 37. However, no evidence was presented to support this claim. The tribunal agreed with the Commissioner but allowed the appellant another chance to provide evidence, restoring the issue back to the Assessing Officer for further examination.

Issue 2: Disallowance of Interest under Section 36(1)(iii)
The Assessing Officer disallowed Rs. 1,88,553 under section 36(1)(iii) of the Act concerning an interest rate difference on an advance given to a supplier. The Commissioner upheld the disallowance based on a court decision. The appellant argued that it had enough interest-free funds to make the advances, citing its profits and balance sheet. The tribunal agreed with the appellant, noting that the funds were sufficient to cover the advances, and thus, no disallowance was warranted under section 36(1)(iii). Consequently, the disallowance made under this section was deleted, and the appeal was partly allowed.

In conclusion, the tribunal partially allowed the appeal, deleting the disallowance of interest under section 36(1)(iii) while granting the appellant an opportunity to provide evidence regarding the disallowance of the security deposit under section 37.

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