Disallowance of interest on interest-free advances to related concerns upheld; importance of evidence emphasized

Shri Deep Chand Garg Versus The ITO, Ward-2 (1), Ajmer

Shri Deep Chand Garg Versus The ITO, Ward-2 (1), Ajmer - TMI Issues involved:
- Disallowance of interest on interest-free advances to related concerns
- Charging of interest under various sections of the Act
- Withdrawal of interest under section 244A of the Act

Issue 1: Disallowance of interest on interest-free advances to related concerns

The appellant contested the disallowance of interest amounting to Rs. 7,98,401 on interest-free advances given to related concerns. The appellant argued that the advances were made from their own funds and interest-free trade creditors, not borrowed funds. The appellant highlighted their sufficient interest-free capital and trade creditors to support the interest-free advances. The Revenue, however, contended that the advances were not made from interest-free capital as it was invested in fixed assets, and interest-free debtors exceeded interest-free creditors. The Tribunal analyzed the availability of free funds at the time of making advances, emphasizing the need to consider free cash and bank balance. It was noted that the balance sheet figures at year-end did not reflect the availability of free funds at the time of making advances. The Tribunal upheld the disallowance of interest, emphasizing the lack of evidence showing the advances were made from interest-free funds.

Issue 2: Charging of interest under various sections of the Act

The appellant denied the liability of charging interest under sections 234A, 234B, 234C, and 234D of the Act, as well as the withdrawal of interest under section 244A. The Tribunal dismissed this issue as consequential, leading to its dismissal without further adjudication.

Issue 3: Withdrawal of interest under section 244A of the Act

The issue of withdrawal of interest under section 244A was also deemed consequential by the Tribunal and was dismissed without separate adjudication.

In conclusion, the Tribunal upheld the disallowance of interest on interest-free advances to related concerns, emphasizing the need for evidence of utilizing interest-free funds. The issues regarding charging interest under various sections and withdrawal of interest under section 244A were dismissed as consequential. The appeal was disposed of with directions to exclude certain transactions while calculating the disallowance of interest, highlighting the importance of providing adequate evidence to support claims during proceedings.