BANSAL PATHWAYS DAMOH KATNI P LTD,BHOPAL vs. DCIT 1(1), BHOOPAL

as term loan from the Punjab National Bank at the interest rate of 5 year MCLR (8.65%) +3.55% i.e 12.20% which is chargeable on monthly basis according to the agreement provided by the assessee.

Ltd. consisting long term loan of Rs. 12 crore and short term loan of Rs. 1,63,07,111/-

4. That since it is apparent from the record that the assessee

is paying the interest on the “borrowed capital” and don't have any “interest free fund”. In that case of the matter

Page 3 of 10 advancing an amount of Rs.13,63,07,111/- without charging any interest is not a prudent business action.

road” in accordance with the terms of concessionaire agreement. No interest has been charged on the said loan.

The Ld. A.O in the “impugned assessment order” however has held as follows:-

“8. However, the contention of the assessee cannot accepted in toto because in support of it's claim the assessee has failed to furnish any documentary evidence/copy of the agreement in which the T&C of the so-called "future obligation of major repair are enumerated. Since, the assessee company is a SPV company engaged in development, operation and maintenance of infrastructure road under a concessionaire agreement with M/s M.P. Road Development Corporation, where everything is written and documented in black and white including the T&Cs of the "future obligation of major repair and maintenance”. Again, there is no mention of the interest free advances/deposits in this agreement. Thus, the assessee has failed to satisfy the conditions that the alleged loan/advances to the promoter company were for the purpose of business only. Hence, proportionate part of interest and financial cost paid on such borrowed capital needs to be disallowed to the extent of borrowed interest bearing funds being utilized for interest-free advances. Disallowance can also be made on the ground, that it will not be eligible for deduction as expenditure incurred for the purposes of business. For the aforesaid act of mine, I get reliance from the following decisions:-

1. Patel Filter Ltd. vs. CIT [2003] 264 ITR 21 (Guj.) 2. CIT vs. Vallabh Glass Works Ltd. [1982] 137 ITR 389 (Guj) 3. CIT vs. H. R. Sugar Factory Pvt. Ltd. [1991] 187 ITR 363 (All.) 4. Indian Saving Products Ltd. vs. CIT [2004] 265 ITR 250 (Raj.) 5. Caldern Pharmaceuticals Pvt. Ltd. vs. CIT [2004] 265 ITR 244 (Kal.) 6. CIT vs. Bombay Samachar Ltd. [1969] 74 ITR 723 (Bom.) 7. Somasundram & Bro. [1999] 238 ITR 939 (Madras) 8. Elmer Havell Electrics vs. CIT [2005] 277 ITR 549 (Del.) 9. Since, the assessee had diverted its borrowed fund to its prompter company without charging any interest & Section 36(1)(iii) allows the deduction of the amount of interest paid in respect of capital borrowed for the purpose of business but herein this case, the money given to promoter company has not been given for business purposes. Therefore, proportionate interest relating to the said amount out of the total interest paid to the bank is being disallowed under section 36(1)(iii) of the IT Act. 10. The amount being disallowed is 12.20% of Rs.13,63,07,111/- = Rs.1,66,29,946/-”.

2.2 That the assessee being aggrieved by the aforesaid “impugned assessment order” prefers the first appeal u/s 246A of the Act before the Ld. CIT(A) who by the “impugned order” has dismissed the 1st appeal of the assessee on the grounds and reasons stated therein.

Page 5 of 10 2.3 That the assessee being aggrieved by the “impugned order” has preferred the instant second appeal before this Tribunal and has raised following grounds of appeal in the Form No.36 against the “impugned order” which are as under:-

“1. That the Lid CIT(A) erred in maintaining addition of Rs. 1,66,29,946/- by way of disallowance of interest. 2. That in any case, the CIT(A) ought to have restricted disallowance to Rs. 76,96,522/- 3. That the Ld. CIT(A) erred in not directing AO to recompute claim of deduction under Sec. 80IA(iv) of the Act from 4,20,72,819/- to 5,87,02,765/-as the disallowance of interest of Rs. 1,66,29,946 made by the AO has corresponding effect on increase of eligible profit of infrastructure project”

3. Record of Hearing 3.1 The hearing in the matter took place before this Tribunal on 03.11.2025 when the Ld. AR for and on behalf of the assessee appeared before us and interalia contended that the “impugned order” is illegal, bad in law and not proper. It thus deserves to be set aside. The Ld. AR at the outset stated that the assessee is not pressing Ground No.1 i.e. “that the Ld. CIT(A) erred in maintaining addition of Rs.1,66,29,946/- by way of “disallowance of interest” and the necessary endorsement as “Not Pressed” was made on the Form 36 by the Ld. AR. The Ld.

Page 6 of 10 AR then read out the Ground No.2 and Ground No.3 from the grounds of appeal (Form 36) before us which were pressed by him.

The Ld. AR placed on the record of this tribunal a paper book containing pages from 1 to 27. The Ld. AR argued briefly wherein he has laid the emphasis on the following points:-

2. The average interest rate calculated by the bank comes to 10.77% which fact was informed to the Ld. A.O & so also to the Ld. CIT(A).

3. The lower authorities i.e. Ld. A.O & Ld. CIT(A) have disallowed interest on the closing balance.

4. The bench then queried the Ld. AR the basis of the calculation of interest @10.77% vis-à-vis the sanctioned

rate by bank.

Finally the Ld. AR submitted that the “impugned order” should be set aside and the matter should be remanded back to the file of Ld. CIT(A) as the reworking of calculation of interest is required to be done and thereafter the interest is required to be considered properly and judiciously by the Ld. CIT(A). The bench queried whether the “Debit balance” is correct way of reworking

Page 7 of 10 on the interest calculation?. The Ld. AR however agreed with this suggestion of the bench. With regard to the Ground No.3 the Ld.

AR submitted that the corresponding Ground No.5 was there in the 1st appeal before the Ld. CIT(A) and invited our attention to page-3, Ground No.5 of the Ld. CIT(A) “impugned order”. It was contended that this Ground No.5 before the Ld. CIT(A) was not decided by the Ld. CIT(A) in the "impugned order”. Per contra Ld. DR appearing for and on behalf of the Revenue submitted that the revenue does not have any objection if the “impugned order” is set aside and the matter is remanded back to the Ld. CIT(A). However the Ld. CIT(A) shall be vigilant enough in examining the correct calculation of the interest amount as the credit balance is not to be given any benefit. In brief and in the sum and substance at the conclusion of the hearing both the Ld. AR and the Ld. DR were on the same page/Ad idem that the reworking of the calculation is required to be done by the assessee on the interest and thereafter the Ld. CIT(A) should pass a well reasoned and speaking order on merit dealing with grounds raised before him.

4.1 We now have to decide the legality, validity and the proprietery of the “impugned order” basis records of the case and rival contentions canvassed before us.

4.2 We have carefully perused the records of the case as presented to this Tribunal by both the Ld. AR & the Ld. DR to determine the legality, validity of the “impugned order” basis law and by following the due process.

4.3 We basis records of the case and after hearing and upon examining the contentions are of the considered view that both the Ld. AR & Ld. DR are on the same page/Ad idem that the “impugned order” should be set aside and matter should be remanded back to the file of Ld. CIT(A) so as to enable him to pass a fresh order after the necessary reworking on interest is done by the assessee.

4.4 In view of the aforesaid, we set aside the “impugned order” and remand the case back to the file of Ld. CIT(A).

5. Order 5.1 In the premises drawn up by us the “impugned order” is set aside and the matter is remand back to the file of the Ld. CIT(A) to examine the reworking of interest and then to pass an appropriate order which should be a reasoned one.

5.2 In view of the aforesaid the appeal of the assesse is allowed for statistical purpose.

Order pronounced in open court on 10.11.2025.