What did the Tribunal hold?

The Tribunal held that when an assessee has surplus own funds to engage in business activities, disallowance of interest expenditure is not justified. The order of the CIT(A) was set aside.

The assessee, a civil contractor, advanced money to four entities for labor arrangements. The AO disallowed interest on these advances due to lack of ledger copies, treating it as a disallowance of interest expenditure. The CIT(A) deleted a portion of this disallowance.

What were the issues?

Whether the disallowance of interest expenditure is justified when the assessee has surplus own funds for business advances.

Anbazhagan Ranganathan… vs ACIT | ITAT Chennai 2026

Before: Shri Inturi Rama Rao & Shri S.S. Viswanethra Ravi

Hearing: 10.06.2026Pronounced: 21.07.2026

आयकर अपीलीय अिधकरण, ’ए’ �ायपीठ, चे�ई IN THE INCOME-TAX APPELLATE TRIBUNAL ‘A’ BENCH, CHENNAI �ी इंटूरी रामाराव, लेखा सद� एवं �ी एस.एस. िव�ने� रिव, �ाियक सद� के सम� । Before Shri Inturi Rama Rao, Accountant Member & Shri S.S. Viswanethra Ravi, Judicial Member आयकर अपील सं./I.T.A. No.874/Chny/2026 िनधा�रण वष�/Assessment Year: 2020-21 Anbazhagan Ranganathan, Vs. The ACIT, 195, Vallalar Street, NGGO Nagar, Circle-1, Cuddalore. Tirukkoyilur, Tamil Nadu, 606757. [PAN: AAGPA8100P] (अपीलाथ�/Appellant) (��थ�/Respondent) अपीलाथ� की ओर से / Appellant by : Mr. Y. Sridhar, F.C.A. ��थ� की ओर से/Respondent by : Mr. Kumar Chandan, JCIT सुनवाई की तारीख/ Date of hearing : 10.06.2026 घोषणा की तारीख /Date of Pronouncement : 21.07.2026 आदेश /O R D E R PER S.S. VISWANETHRA RAVI, JUDICIAL MEMBER: This appeal filed by the assessee is directed against the order dated 27.01.2026 passed by the ld. Commissioner of Income Tax (Appeals), NFAC, Delhi for the assessment year 2020-21.

The assessee raised three grounds of appeal, amongst which the only issue emanating for consideration is as to whether the ld. CIT(A) is justified in confirming the order of the AO in making the addition on account of disallowance of interest. At the outset, it is noted that the AO found that the assessee has withdrawn cash of ₹1,22,00,000 and purchased motor vehicles, etc., and received interest of ₹9,11,301 from

2 I.T.A. No.874/Chny/26

the State Bank of India. According to the AO, the assessee had provided advances to four entities and no ledger copies were furnished during the course of the assessment proceedings. Accordingly, he applied OD interest rates on such advances to the said four parties and disallowed the interest. The ld. CIT(A) deleted the interest disallowance to the extent of ₹4,80,920 as unsustainable by holding that the assessee offered an explanation to that effect.

Before us, the ld. AR, Mr. Y. Sridhar, F.C.A., submits that the disallowance made by the AO, which was confirmed by the ld. CIT(A), is not maintainable only for the reason that the assessee has surplus own funds and reserves to give such advances. The ld. AR placed on record the order of this Tribunal in the case of M/s Thiruvalluvar Textiles (P) Ltd. in ITA Nos. 854 to 857/Chny/2025 and argued that the Tribunal, considering the decisions of the Hon'ble Supreme Court and the Hon'ble High Courts, held that the interest disallowance is not maintainable when the assessee has surplus own funds in his accounts.

Ld. DR, Mr. Kumar Chandan, JCIT, vehemently opposed the same and argued that no evidence in support of such contention was ever produced before the authorities.

Having heard both the parties and considering the submissions made before the AO and the ld. CIT(A) as well as before this Tribunal, we hold that the assessee is a civil contractor undertaking civil works for Government undertaking entities. We note that the assessee admitted contract receipts of ₹9,57,59,964, which is more than the information value reported under various heads. Further, the assessee had admitted business income at ₹47,90,730, which is 5% of the contract receipts.

3 I.T.A. No.874/Chny/26

There is no dispute with regard to the business activity of the assessee, wherein the AO observed that the assessee has provided advances to four entities, which are there on page No. 9 of the assessment order, for arrangement of labour. Further, the AO added interest income by taking the OD interest rate only on the ground that there were no ledger copies for the same, which clearly shows that the business of the assessee is not disputed by both the authorities below. We find force in the arguments of the ld. AR that, when there are surplus own funds to engage in the business activity of the assessee, the interest disallowance made by the AO, which was confirmed by the ld. CIT(A), is not justified. Thus, the order of the ld. CIT(A) is set aside and the grounds raised by the assessee are allowed.

In the result, the appeal of the assessee is allowed.

Order pronounced on 21st July, 2026 at Chennai.

Sd/- Sd/- (INTURI RAMA RAO) (S.S. VISWANETHRA RAVI) ACCOUNTANT MEMBER JUDICIAL MEMBER Chennai, Dated, 21.07.2026 MM/- आदेश की �ितिलिप अ�ेिषत/Copy to: 1. अपीलाथ�/Appellant, 2.��थ�/ Respondent, 3. आयकर आयु�/CIT, Chennai/Madurai/Coimbatore/Salem 4. िवभागीय �ितिनिध/DR &

4 I.T.A. No.874/Chny/26 5. गाड� फाईल/GF.

Digitally signed MANISH by MANISH MISHRA MISHRA Date: 2026.07.23 09:51:22 +05'30'

ANBAZHAGAN RANGANATHAN,TIRUKKOYILUR vs. ASSISTANT COMMISSIONER OF INCOME TAX, CUDDALORE

What did the Tribunal hold?

What were the facts?

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