Shanti Prime Publication Pvt. Ltd.
Sec. 36(1)(iii) of Income Tax Act, 1961—Business Disallowance — The assessee filed appeal against the order of the Commissioner of Income Tax (Appeals) dated 27.03.2019 for the assessment year 2015-16. The assessee,M/s.Rajkham Builders Pvt Ltd.,is engaged in the business of construction and flat promotion. While completing the assessment for the assessment year 2015-16,the Assessing Officer made disallowances under Sections 36(1)(iii),40A(3) and donations under Section 37 of the Income Tax Act,1961 and completed the assessment. Aggrieved,the assessee filed an appeal before the CIT(A). The Ld CIT(A) dismissed the appeal. Against that order,the assessee filed appeal. The assessee has clearly disclosed in its Audited Accounts that M/s.Rajkham Infra P. Ltd.,is a related party. The Assessing Officer has found that the assessee has given Rs. 5,66,75,198/- to its subsidiary,M/s.Rajkham Infra P. Ltd.,during the year without charging any interest. The assessee has claimed interest expenditure which was paid towards project loan obtained from LIC Housing Finance Ltd.,Working Capital and Credit Facility obtained from State Bank of India,Axis Bank and Indian Overseas Bank. The A.O was of the view that when the assessee company itself obtained loan for its projects, diverting its fund to subsidiary without charging any interest is not in order and hence,he disallowed the proportionate interest on the impugned loan under Section.36(1)(iii) of the Act. The A.O has also examined the ledger account of M/s.Rajkham Infra P. Ltd.,standing in the books of the assessee and found that funds received from the assessee company are used for the purpose of project at Madurapakkam Project undertaken by its sister concern and the entire expenses was incurred towards them. The A.O. noticed that the assessee company gave interest free funds to its subsidiary to meet out subsidiary’s expenditure whereas its subsidiary has not done any contract work or supply of goods or materials to the assessee company. Further,the assessee company has not produced any evidence to show that it has benefitted in any way from the funds advanced to its sister concern. On the facts and circumstances of the case that the assessee has borrowed interest bearing funds and claimed the corresponding interest as expenditure. It advanced interest free loan to subsidiary concern but has not established the commercial expediency on the transaction with its sister concern. The assessee has not placed any material even before us to prove that the impugned transaction was undertaken on commercial consideration. Therefore, Tribunal uphold the disallowance made by the A.O. and sustained by the learned CIT(A) subject to verification as directed by the learned CIT(A). Therefore,the corresponding grounds of the assessee on this issue fail.On the basis of material available on record,tribunal find that the assessee has incurred the impugned expenses wholly and exclusively for the purpose of business and hence,the disallowance made by the A.O is not warranted. Therefore, tribunal direct the A.O to allow the expenses claimed by the assessee under Section 37 of the Act. Corresponding grounds of the assessee were allowed. Thus the appeal of assessee was partly allowed. --- RAJKHAM BUILDERS PVT LTD. vs. ITO. 23 ITCD Online 37 (CHENNAI)