“Section 36(2)(ii)”
The decision most relied on for Section 36(2)(ii) is CIT v. Bharat Hotels Ltd. (410 ITR 417), cited in 486 judgments on BharatTax.
Leading authorities on Section 36(2)(ii)
Employee contributions to provident fund and ESI, if paid beyond the due date prescribed by the respective welfare fund statutes, are not allowed as a deduction under the Income Tax Act.
A provision for doubtful debts cannot be added back while computing book profits under Section 115JB of the Income-tax Act for Minimum Alternate Tax (MAT) purposes.
If an assessee possesses sufficient interest-free funds, it is presumed that investments yielding exempt income were made from these funds, therefore disallowance of interest expenditure under Section 14A is not justified.
Where an assessee has mixed funds (borrowed and interest-free) and makes interest-free advances, it is presumed that such advances are made from interest-free funds if sufficient interest-free funds are available. This principle guides the disallowance of interest on borrowed capital under Section 36(1)(iii) if funds are diverted for non-business purposes without business expediency.
A payment of bonus or commission is allowable as a business deduction under Section 36(1)(ii) unless it constitutes a distribution of profits or dividends, thereby distinguishing payments genuinely for services from those merely intended to escape taxation.
The amount transferred to Debenture Redemption Reserve is to be excluded when computing book profit under section 115JB for the purpose of Minimum Alternate Tax.
A commission of 0.50% charged by a parent company for a corporate guarantee is considered to be at Arm's Length Price (ALP). This rate is used for adjustments in transfer pricing.
When funds are mixed, interest expenditure relatable to investments in tax-free income is to be computed under the provisions of Rule 8D(2)(ii), applying the theory of apportionment.
