2026 (9) TMI 117

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....d his return of income for the assessment year 2018-2019 admitting total income of Rs. 70,57,380/- besides agricultural income of Rs. 60,000/-. Consequent to search and seizure action conducted in the group case of M/s. Andru Minerals, a survey operation u/sec.133A of the Income Tax Act [in short "the Act"], 1961 was conducted at the business premises of the assessee on 03.02.2019. During the survey, it was noticed that the assessee has advanced fund of Rs. 1,88,44,788/- to his son from out of loans obtained from Andhra Bank SOD account for business purpose. The assessee has claimed interest expenditure of Rs. 17,97,194/- on the loans obtained from Andhra Bank. Consequent to the survey, the case of the assessee was selected for scrutiny and....

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....f the borrowed funds. Therefore, the Assessing Officer erred in disallowing the interest expenditure u/sec.36(1)(iii) of the Act. The learned CIT(A) after considering the relevant submissions of the assessee and also taking note of decision of ITAT, Visakhapatnam in the case of ACIT vs. Tulasi Seeds Pvt. Ltd., ITA.No.169/Viz./2023 Order dated 08.08.2024 sustained the addition made by the Assessing Officer towards disallowance of interest u/sec.36(1)(iii) of the Act by holding that mere availability of interest free funds in the form of capital and reserve does not sufficient and assessee needs to prove the availability of cash as out of advances given to his son for non-business purposes since there is proximity between the borrowed funds a....

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.... Since there is proximity between the borrowed funds and interest free loan given to his son, the Assessing Officer has rightly disallowed the interest u/sec.36(1)(iii) of the Act. Therefore, he submitted that the addition made by the Assessing Officer should be upheld. 6. We have considered the rival submissions as well as relevant material on record. There is no dispute with regard to the fact that the assessee has borrowed SOD from bank on which interest of Rs. 17,97,194/- has been paid and debited to the P & L A/c. It is also not in dispute that assessee has paid a sum of Rs. 1,88,44,788/- to his son for purchase of property. The Assessing Officer disallowed interest on the ground that interest bearing funds borrowed from bank has be....