ITAT allows appeal, rejects disallowances under sections 36(1)(iii) and 40(a)(ia)

The ITAT allowed the appeal, setting aside the disallowances made under sections 36(1)(iii) and 40(a)(ia) for notional interest on unsecured loans and short deduction of TDS, respectively. The ITAT directed the AO to delete the additions, ruling in favor of the assessee.

---

---

Issues involved: Appeal against the order of the Ld. Commissioner of Income Tax (Appeals)-3, Kolkata for AY 2011-12.

Issue 1: General issue not requiring specific adjudication.

Issue 2: Disallowance of Rs. 31,51,288/- under section 36(1)(iii) for notional interest on unsecured loans.

The AO added Rs. 31,51,288/- as deemed interest to the income of the assessee, as the assessee had given interest-free loans of Rs. 2,62,60,730/- and paid interest @ 12% on other loans. The Ld. CIT(A) confirmed the disallowance under section 36(1)(iii) by stating that interest-free advances were not given out of commercial expediency. However, the ITAT found that the loans were not given out of borrowed funds, as evidenced by the balance sheet and documents. The ITAT set aside the Ld. CIT(A)'s order and directed the AO to delete the addition, allowing ground no. 2.

Issue 3: Disallowance of Rs. 5,75,875/- under section 40(a)(ia) for short deduction of TDS.

The AO added Rs. 5,75,875/- to the income of the assessee for short deduction of TDS on interest paid. The Ld. CIT(A) confirmed the disallowance, stating that the assessee failed to provide a certificate from the auditor regarding tax payment by the payee. However, the ITAT noted that the assessee had deducted tax at a lesser rate and ruled that disallowance cannot be made in such cases. Citing relevant case law, the ITAT set aside the Ld. CIT(A)'s order and directed the AO to delete the addition, allowing the appeal.

Conclusion: The ITAT allowed the appeal of the assessee, setting aside the disallowances made under sections 36(1)(iii) and 40(a)(ia) for notional interest on unsecured loans and short deduction of TDS, respectively.

---