NARAYAN ANAND SHELAR,BORIVALI vs. ASSISTANT COMMUMBAIMISSIONER OF INCOME TAX CC 2(4), PRATISHTHA BHAVAN,MUMBAI

Learned Counsel for the assessee, referring to pages 1 and 2 of the paper book, which contain a table showing unsecured loans on which no interest was paid for the assessment year 2020-21, submitted that during the assessment year, the assessee obtained unsecured loans to the extent of Rs.3,07,58,000/-, out of which Rs.1,41,88,625/- was repaid, leaving a closing balance of Rs.15,68,42,738/-. Learned Counsel submitted that no interest was paid by the assessee on these loans.

Similarly, referring to pages 3 to 5 of the paper book, which contains a table showing unsecured loans on which interest was paid, learned Counsel submitted that the assessee paid interest only on those loans during the assessment year under consideration, wherein the assessee obtained loans of Rs.2,57,60,615/-, out of which Rs.1,87,31,135/- was repaid, leaving a closing balance of Rs.15,22,91,818/-.

Learned Counsel further referring to pages 6 and 7 of the paper book submitted that these pages contain the details of loans and advances given to sister concerns and non-family members. Learned Counsel for the assessee submitted that during the assessment year under consideration, the assessee had its own funds exceeding the amount advanced by it. Therefore, the presumption is that the loans were advanced out of interest-free own funds, and consequently, no disallowance under section 36(1)(iii) of the Act is attracted. Reliance was placed on the decision of the Hon'ble Bombay High Court in the case of CIT v. Reliance Communication Infrastructure Ltd., reported in 21 taxmann.com 118. The assessee also filed the following details in respect of interest-free funds available with it, interest-free advances made and the details of interest paid on such advances for the assessment year 2020-21 as under:

On the other hand, the learned DR supported the orders of the authorities below.

Considered the rival submissions, perused the orders of the authorities below, we find merit in the submissions of the learned Counsel for the assessee. It is noticed that the learned CIT(A) has not given any finding with respect to the assessee having own funds exceeding the advances made during the assessment year under consideration. In such circumstances, the disallowance of interest requires verification.

We agree, in principle, with the submissions of the learned Counsel for the assessee that if the assessee had advanced loans to sister concerns and others out of it’s interest free own funds, there cannot be any disallowance of interest. The assessee has furnished details before us explaining that the loans were made out of its own funds and also furnished certain details to show that no interest was paid on such loans. Therefore, though we are in agreement with the contentions of the assessee, some factual verification is required. Accordingly, subject to verification by the Assessing Officer, this ground of appeal of the assessee is allowed.

Coming to Ground No. 2 of the grounds of appeal, which relates to non-grant of credit for TDS, we direct the Assessing Officer to examine the submissions of the assessee and allow credit for the TDS in the year in which the corresponding income is offered to tax by the assessee.

In the result, the appeal of the assessee is partly allowed for statistical purposes.