TaxTMI 
TaxTMI 
2026 (5) TMI 410
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...., were required to be struck down and quashed as bad in law. 2. The Hon CIT(A) erred in upholding the addition of Rs. 52,52,725/- by disallowing proportionate interest on loans borrowed for the reason that appellant firm had granted interest free loans and advances, not appreciating that no deduction for such interest was claimed by the appellant u/s 36(1)(iii) of the I.T Act 1961 in computing the total income for the year under appeal and therefore the disallowance of interest was not justified and the consequent addition bears to be deleted. 3. The Hon CIT(A) erred in upholding the disallowance of interest of Rs. 52,52,725/- on borrowed funds based on presumptions and surmises without appreciating the fact that appellant had sufficient interest free funds available for advancing such interest free loans and advances and for this reason also, the disallowance of interest to the extent of Rs. 52,52,725/- was not called for and may kindly be deleted. 4. The Hon CIT(A) erred in directing the ld. AO to evaluate and assess the income corresponding to the expenditure incurred on the project till 31.03.2014, which direction of the Hon. CIT(A) is unjustified by ....
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....ire expenses debited also include finance costs, which are relatable to interest-free loans and advances given. Thus, the assessee submitted that the closing work-in-progress consists of two components, namely, the project closing work-in-progress and the interest component related to interest-free loans and advances given by the assessee. 6. The Assessing Officer ("AO"), vide order dated 23.12.2019 passed under section 143(3) read with section 147 of the Act, disagreed with the submissions of the assessee and made an addition of Rs. 52,52,725/- being the proportionate interest in respect of interest-free loans and advances given by the assessee to various persons. 7. In its appeal before the learned CIT(A), the assessee, inter alia, raised the ground challenging the validity of the reassessment proceedings. However, the learned CIT(A), vide impugned order, dismissed the said ground raised by the assessee and upheld the validity of the reassessment proceedings initiated under section 147 of the Act. Being aggrieved, the assessee is in appeal before us. 8. During the hearing, the learned Authorized Representative ("learned AR"), by referring to the reasons recorded by the A....
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....the assessee has taken secured loan at Rs. 14,91,15,885/- and unsecured loan at Rs. 7,21,60,203/- totaling to Rs. 22,12,76,088/- from various parties. It is also seen that the assessee has debited interest expenses of an huge amount of Rs. 2,11,30,085/- as bank interest and an amount of Rs. 84,32,855/- as interest accounts from the profit and loss account totaling to Rs. 2,95,62,940/-. On going through the records, it is seen that assessee has given the interest free loan & advances Rs. 3,93,16,199/- to the parties persons. However, it is noticed that no interest whatsoever is charged from the above parties persons. However, it is noticed that no interest whatsoever is charged from the above parties to whom the assessee had advanced loan. Section 36(1) (ili) is very emphatic that the borrowed funds availed by an assessee should be wholly and exclusively utilized for the purpose of assessee's business and. this section vividly make it clear that the amount of interest paid on the capital borrowed for the purpose of business or profession is allowable as deduction in computation the Income u/s28 of the IT Act, 196. Moreover, in event of the sum being used for the purpose....
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....ing the assessment, it is evident that there was no new or tangible material forming the basis for the "reason to believe" that income chargeable to tax has escaped assessment in the present case. 12. Further, the existence of a valid "reason to believe" is a sine qua non to exercise the jurisdiction under section 147 of the Act. The expression "reason to believe" imports the cumulative presence of following four elements, viz. some new or tangible material or materials to establish that income has escaped assessment; nexus between such material and the belief of escapement of income from assessment as envisaged under section 147; application of mind by the AO to such material; and an inference, based on reason drawn tentatively by the officer that income has escaped assessment. However, in the present case, as noted in the foregoing paragraph, the entire exercise of reassessment was initiated on the basis of material already available on record of the AO, and thus, no new or tangible material came into the possession of the AO to initiate reassessment proceedings. 13. It is further pertinent to note that in the present case, the assessee is engaged in the business of constru....