JCIT(OSD), CIR-11(1), KOLKATA vs. M/S. SNOWTEX INVESTMENT LTD. , KOLKATA

The sole issue raised by the Revenue through its grounds of appeal is relating to the action of the CIT(A) in deleting the addition of Rs.1,81,13,622/- made by the Assessing Officer on account of proportionate disallowance of interest expenditure in respect of interest free loans given by the assessee.

The Assessing Officer during the assessment proceedings noted that the assessee had debited Rs.5,00,41,978/- towards interest on loan. He noted that the assessee had interest bearing loans of Rs.34.34 crores. He further noted that the assessee had made interest free loans and advances of Rs.12.43 crores. The Assessing Officer further noted that even some of the funds were advanced by the assessee to the sister concern at a lower interest rate of 10% as against the interest paid @13.5%. On being asked to explain, the assessee submitted that the aforesaid loan and advances/investments were made for business purposes. However, the Assessing Officer did not agree with the aforesaid contention of the assessee and held that the said interest free advances were not incidental to the business activity of the assessee. He in this respect has relied upon the decision of this Tribunal dated 06.11.2015 passed in own case of the assessee for earlier assessment year 2008-09 in and observed that in the earlier year, under similar facts and circumstances, the ITAT had confirmed the proportionate disallowance of interest in respect of interest free advances made by the assessee out of interest bearing funds.

Before the ld. CIT(A), the assessee filed written submissions to the effect that the interest free funds available with the assessee were sufficient to meet the interest free advances/investments made by the assessee. It was also pleaded that the aforesaid interest free advances/investments were made for business purposes. The ld. CIT(A) considering the above submissions of the assessee deleted the additions so made by the Assessing Officer. The Revenue thus come in appeal before us. 5. At the outset, the ld. counsel for the assessee has invited our attention to the order of the Tribunal dated 06.11.2015 (supra) to submit