TaxTMI 
TaxTMI 
2026 (3) TMI 1334
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....erm loan sanctioned for acquiring specific assets cannot be disallowed as the term loans were utilised by the Appellant for the purpose of acquiring specific assets. 3. The learned CIT (A) is not justified in confirming the disallowance of interest on term loans without any specific finding that the term loans were diverted and utilised for giving interest free loans. 4. The learned CIT(A) failed to consider the fact that the Appellant had taken interest free unsecured loans amounting to Rs. 7.67 crores from relatives and friends and therefore, the entire loan advanced to related parties cannot be from interest bearing funds and hence the disallowance of entire interest is unjustified, illegal and arbitrary. 5. The learned CIT(A) did not consider the fact that the loans were advanced to sister concerns in the normal course of business and therefore, disallowance of interest is not justified as per judicial precedence. 3. Brief facts of the case are as follows: The assessee is a company engaged in the business of publishing newspapers, leasing of film projectors, trading of mobile phones and set top boxes. It is also rendering business consultancy servi....
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....he interest bearing loans outstanding as on 31.03.2013 in the Balance Sheet of the appellant were less than interest-free loans that were given to its related parties, and nothing has been brought on record by the appellant to demonstrate that sufficient interest-free funds were available with it so as to enable it to grant interest-free loans to its related parties. It has also not been demonstrated by the appellant that funds made available to its related parties were for any business purpose against which any income has accrued to it during the concerned year. Therefore, in this scenario the entire interest expenses debited by the appellant to its Profit and Loss Account are liable for disallowance. 5.1.5 Further, the claim of the appellant that it has self-disallowed interest on home loans of Rs. 76,575/- and interest on unsecured loan and term loan of Rs. 5,37,011/-, total amounting to Rs. 6,13,586/- in its computation of Total Income, is also found to be partially correct. The computation of Total Income filed by the appellant is reproduced hereunder: ....... ...... From this computation, it can be clearly seen that only interest on home lo....
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....s well as other judicial precedents including the decision of the Chennai Tribunal in TT Holding & Services Pvt. Ltd. vs. ACIT in ITA No.1284/Mds/2012 (order dated 27.11.2015) 6. The Ld.DR relied on the orders of the AO and the FAA. 7. We have heard the rival submissions and perused the materials available on record. The issue involved in the present appeal relates to the disallowance of interest expenditure amounting to Rs. 2,74,49,888/- made by the AO. The FAA confirmed the addition of Rs. 2,73,73,313/-. The contention of the assessee is that the borrowings consist of term loans obtained for acquisition of capital assets and overdraft facilities for working capital requirements and therefore the entire interest expenditure cannot be considered for disallowance on account of advances made to related parties. It is also the claim of the assessee that a portion of the interest expenditure had already been disallowed in the return of income on account of non-deduction of TDS. 8. From the materials placed on record, it is clear that the assessee has given loans and advances to related parties totalling to Rs. 15,55,15,645/-, out of which advances to associate concerns amounti....
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....is not justified in confirming the disallowance of interest on term loans without any specific finding that the term loans were diverted and utilised for giving interest free loans. 4. The learned CIT(A) failed to consider the fact that the Appellant had taken interest free unsecured loans amounting to Rs. 8.53 crores from relatives and friends and therefore, the entire loan advanced to related parties cannot be from interest bearing funds and this disallowance of entire interest is unjustified, illegal and arbitrary. 5. The learned CIT(A) did not consider the fact that the loans were advanced to sister concerns in the normal course of business and therefore, disallowance of interest is not justified as per judicial precedence. 13. Brief facts of the case are as follows: For the assessment year 2014-15, the return of income was filed on 30.03.2016 declaring 'nil' income after setting off the brought forward loss of Rs. 19,75,030/-. The assessment was completed u/s. 143(3) of the Act vide order dated 20.12.2016. The AO made additions aggregating to Rs. 2,15,39,118/- under various heads, including disallowance of interest expenditure amounting to Rs. 1,98,35,123/....
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....y the sister concerns and such advances were periodically adjusted against the cost of such services. 17. The Ld. AR also submitted that the assessee had charged interest amounting to Rs. 46,37,360/- on the advances extended to related parties during the relevant previous year and the same was offered as income in the Profit & Loss account. Therefore, it was contended that when the assessee has charged interest on such advances, the disallowance of interest expenditure claimed by the assessee is not justified. 18. The Ld. AR further placed reliance on the provisions of section 36(1)(iii) of the Act and submitted that interest paid on capital borrowed for the purpose of business is allowable as deduction. Reliance was also placed on various judicial precedents including the decision of the Hon'ble Supreme Court in the case of S.A. Builders Ltd. vs. CIT (288 ITR 1), the decision of the Hon'ble Punjab & Haryana High Court in Bright Enterprises Pvt. Ltd. vs. CIT, the decision of the Chennai Tribunal in TT Holding & Services Pvt. Ltd. vs. ACIT and other decisions of the Hon'ble High Courts wherein it has been held that interest on borrowed funds cannot be disallowed where advances....