Loading judgment…
Facts
The assessee, engaged in engineering and real estate, claimed interest expenses on borrowed funds but advanced money to its sister concern (M/s Nitesh Industries Pvt. Ltd.) without charging interest. The AO and subsequently the CIT(A) disallowed Rs. 4,02,24,590 of interest expenses, treating the advances as diversion of interest-bearing funds for non-commercial purposes.
Held
The Tribunal ruled that advances carried forward from previous years, where no disallowance was made, cannot be disallowed in the current year due to consistency. For the current year's advances, the Tribunal found that both the assessee and its sister concern had common business objectives (real estate development) and the advances (share application money) were for commercial purposes, invoking the commercial expediency principle. Therefore, the interest expenses claimed by the assessee cannot be disallowed, and the addition made by the lower authorities is deleted.
Key Issues
Whether interest expenses on borrowed funds, when advanced to a sister concern without charging interest for commercial purposes, are disallowable under the Income Tax Act.
Sections Cited
36(1)(iii)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘A’ BENCH, BANGALORE
Before: SHRI WASEEM AHMED & SHRI KESHAV DUBEY
PER WASEEM AHMED, ACCOUNTANT MEMBER:
This is an appeal filed by the assessee against the order passed by the NFAC, Delhi vide order dated 25/09/2024 in DIN No.ITBA/NFAC/S/250/2024-25/1069104091(1) for the assessment year 2010-11.
The only issued raised by the assessee is that the learned CIT(A) erred in confirming the order of the AO by sustaining the addition of interest expenses of Rs. 4,02,24,590.00 only.
. made by him. Thus, the ground of appeal of the assessee is hereby allowed.
In the result, the appeal filed by the assessee is hereby allowed.
Order pronounced in court on 15th day of December, 2025