Appeal successful in challenging interest disallowance, citing interest-free funds.

The appeal was filed against the order of the ld.CIT(A)-8, Ahmedabad for the Assessment Year 2012-13. The appellant contested the disallowance of interest expenses. The AO disallowed the interest expenditure due to the appellant not charging interest on an advance provided to a company. After the appellant's application under section 154 was approved, the disallowed amount was reduced. The Tribunal considered the appellant's interest-free funds and concluded that no interest expenditure needed to be disallowed. Relying on a decision of the Hon'ble Bombay High Court, the disallowance was deleted, partially allowing the appeal.

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Issues: Appeal against order of CIT(A) for Asstt.Year 2012-13. Grounds of appeal, disallowance of interest expenses, application under section 154, interest free funds, disallowance deletion.

The appellant appealed against the order of the ld.CIT(A)-8, Ahmedabad dated 16.6.2017 for the Assessment Year 2012-13. The appellant presented four grounds of appeal, withdrawing ground no.3. Grounds no.1 and 4 were deemed general and were rejected. The only pressed ground was no.2, objecting to the confirmation of an addition of Rs. 3,30,500 by the ld.CIT(A).

Upon careful review of the records, it was noted that the ld.AO observed the appellant did not charge interest on an advance of Rs. 1,44,50,000 provided to Solace Stock P.Ltd. Despite debiting interest expenses of Rs. 7,89,041, the AO calculated notional interest at Rs. 8,67,000, exceeding the claimed interest expenditure. Consequently, the AO disallowed the interest expenditure, which was later revised to Rs. 3,30,500 after the appellant's application under section 154 was approved.

Considering the appellant's interest-free funds of Rs. 3,22,11,819, it was inferred that the appellant might have provided advances without charging interest. Given that the interest-free funds exceeded the interest-free advance, it was deemed unnecessary to disallow any interest expenditure. Citing the decision of the Hon'ble Bombay High Court in Cit Vs. Reliance Utilities and Powers Ltd., 288 ITR 1 (Bom), the disallowance was deleted, and the appeal of the assessee was partially allowed.

The judgment was pronounced in the Open Court on 2nd May 2019 by Shri Rajpal Yadav, Judicial Member of the Appellate Tribunal ITAT Ahmedabad. The representatives present were Shri M.S.Chhajed, AR for the Assessee, and Shri B.L.Meena, Sr.DR for the Revenue.

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