BHOOMI CONSTRUCTION PROJECT,NAVI MUMBAI vs. ITO, WARD - 22(3)(1), NAVI MUMBAI
In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.
What did the Tribunal hold?
The Tribunal held that no disallowance of interest expenditure can be made if interest-free advances were given out of interest-free funds available with the assessee. Since the assessee demonstrated that the advances were out of its own interest-free funds, the disallowance was deleted.
What were the facts?
The assessee, a builder and developer, debited interest on unsecured loans to its work in progress account. The Assessing Officer disallowed a portion of this interest, holding that borrowed funds were not utilized for business purposes as the assessee had given interest-free advances to certain parties. The CIT(A) granted partial relief.
What were the issues?
Whether interest expenditure is disallowable when interest-free advances are made from interest-free funds available with the assessee.
Which sections of the Income-tax Act were involved?
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, MUMBAI BENCHES “B”, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI M. BALAGANESH
O R D E R
PER SAKTIJIT DEY, JM
The aforesaid cross appeals arise out of order dated 06.02.2019 of learned Commissioner of Income Tax (Appeals)–26, for the assessment year 2010-11. Assessment Year: 2010-11 2. There is a delay of 32 days in assessee’s appeal. Learned counsel for the assessee, drawing our attention to delay condonation petition and the accompanying affidavit, submitted that the delay in filing the appeal was bona fide and due to reasonable cause. Hence, she prayed for condonation of delay. The learned Departmental Representative did not have any serious objection towards condoning the delay. Having considered rival submissions and perused the contents of the affidavit and delay condonation petition, we are satisfied that the delay in filing the appeal was due to reasonable cause. Accordingly, we condone the delay and admit the appeal for adjudication on merits. 3. The only dispute in the present appeal is with regard to disallowance of interest expenditure amounting to Rs. 3,33,722/-. 4. Briefly the facts are, the assessee is a partnership firm and is engaged in the business of builder and developer. For the assessment year under dispute the assessee filed its return of income on 13.09.2011 declaring nil income. In course of assessment proceedings, the Assessing Officer (AO) notice that the assessee has debited interest on unsecured loan amounting to Rs. 56,69,148/- to the work in progress account. After calling upon the assessee to furnish details regarding loans taken and its utilization, the AO found that the assessee has given interest free advances to various parties amounting to Rs. 1,79,65,000/-. Whereas, the assessee is paying interest @ 12% on the borrowed. Holding that borrowed funds were not utilized for the purpose of business, the AO disallowed an amount of Rs. 37,73,700/- out of the interest expenditure by invoking the provisions of section 36(1)(iii) of the Act. The assessee contested the aforesaid disallowance before the first appellate authority. After considering the submissions of the assessee in the context of facts and material on record, learned Commissioner (Appeals) granted partial relief to the assessee by restricting the disallowing to Rs. 3,33,722/-. Assessment Year: 2010-11 Admittedly, against the aforesaid decision of the first appellate authority revenue has not preferred any appeal. 5. Before us, the learned Authorized Representative of the assessee submitted, no disallowance out of the interest expenditure can be made as the assessee has provided the interest free loans and advances out of the interest free funds available with it. To demonstrate that the interest free loans and advances were given out of interest free funds available with the assessee, learned Authorised Representative drew our attention to the ledger account, copy of bank statement and other details placed in the paper book. Thus, she submitted, the disallowance made has to be deleted. Further, she submitted, under identical facts and circumstances, the Tribunal in assessee’s case in assessment years 2008-09 and 2009-10 has deleted disallowance made under section 36 (1) (iii) of the Act. In this context, she drew our attention to the observations of the Tribunal in and others dated 15.05.2015. 6. The learned Departmental Representative relied upon the observations of the AO and learned Commissioner (Appeals). 7. We have considered rival submissions and perused the material on record. As could be seen, the AO has made disallowance under section 36(1)(iii) of the Act alleging that interest free loans and advances were given to 8 parties. However, in course of appellate proceedings, learned Commissioner (Appeals) has deleted the interest disallowance made in respect of alleged interest free loans and advances to all the parties, except, Ellora Realities Pvt. Ltd. and Sarjak, considering the fact that in the remand report the AO has stated that only in respect of aforesaid two parties the assessee could not establish that these advances were for business purposes. Thus, the disallowance to the extent of Rs. 3, 33,722/- was sustained. However, from various documents placed before us including copy of ledger account, bank statements etc., we find that the interest free loans and advances given to Ellora Realities Pvt. Ltd. and Sarjak were out of interest free funds available with the assessee. No contrary evidence has been brought on record by the revenue to demonstrate Assessment Year: 2010-11 that any of part of the borrowed funds was utilized for providing interest free loans and advances to the aforesaid two parties. Therefore, when interest free loans and advances were provided out of interest free funds available with the assessee, no disallowance out of interest expenditure can be made under section 36(1)(iii) of the Act. Accordingly, we delete the disallowance of Rs. 3,33,722/-. Grounds are allowed.
More judgments on Section 36(1)(iii)
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- Shah Brothers, West Singhbhum vs ACIT/DCIT, Cen Cir-1, RanchiITA 239/RAN/2026[2017-2018]Status: Disposed30 Sept 2026AY 2017-2018
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- Ami Industries, Surendranagar vs The ITO Ward 1, SurendranagarITA 148/RJT/2026[2017-18]Status: Disposed29 Sept 2026AY 2017-18
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