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Tribunal rules in favor of assessee, directs deletion of interest expenditure addition under Income Tax Act. The Tribunal allowed the appeal of the assessee for Assessment Years 2012-13 and 2013-14, directing the AO to delete the addition of Rs. 27,66,685/- made ...
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Tribunal rules in favor of assessee, directs deletion of interest expenditure addition under Income Tax Act.
The Tribunal allowed the appeal of the assessee for Assessment Years 2012-13 and 2013-14, directing the AO to delete the addition of Rs. 27,66,685/- made towards the disallowance of interest expenditure under section 143(3) of the Income Tax Act, 1961. The Tribunal ruled in favor of the assessee, stating that there was no nexus between interest-bearing funds and interest-free advances, as the loan funds were not used for the advances.
Issues: The issues involved in this case are the disallowance of interest expenditure u/s 143(3) of the Income Tax Act, 1961 for the Assessment Years 2012-13 and 2013-14.
Issue 1: Disallowance of Interest Expenditure
The assessee, a Private Limited Company, filed its return of income admitting taxable income. The Assessing Officer (AO) disallowed an interest expenditure of Rs. 27,66,685/- as the company had advanced funds to individuals without charging interest. The AO held that since no interest was charged on these advances, the interest expenditure was disallowed. The CIT(A) upheld the AO's decision.
Arguments and Decision
The assessee appealed before the Tribunal, arguing that there was no diversion of funds as the advances were not given from interest-bearing funds. The Tribunal observed that the loan funds were not used for interest-free advances, as the loan was sanctioned much earlier than the transaction of giving advances. The Tribunal referred to a similar case where it was held that the revenue failed to establish a nexus between interest-bearing funds and interest-free advances. Since the revenue could not prove that the secured loan was utilized for advancing interest-free loans, the Tribunal ruled in favor of the assessee.
Conclusion
The Tribunal allowed the appeal of the assessee for both Assessment Years 2012-13 and 2013-14, directing the AO to delete the addition of Rs. 27,66,685/- made towards the disallowance of interest expenditure. The order was pronounced in the open court on 14th July 2023.
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