Ruchi Jain Vs Assessing Officer (ITAT Delhi)
No Interest Disallowance on Business Receivables from Sister Concern: ITAT Delhi Deletes ₹75.61 Lakh Disallowance under Section 36(1)(iii)
The Delhi Bench of the ITAT allowed the assessee’s appeal for AY 2012-13 and deleted the disallowance of ₹75.61 lakh made under section 36(1)(iii) on account of alleged interest-free advances to a related concern, M/s Jainsons Exports. The reassessment had been initiated on the premise that the assessee did not charge interest on a debit balance standing in the account of the related party, while paying interest on bank borrowings.
The Tribunal noted that the impugned debit balance was not an interest-free loan, but arose out of regular business transactions between the assessee and the sister concern, with a long-standing commercial relationship. The ledger accounts demonstrated continuous business dealings during the year as well as in subsequent years. Importantly, the AO failed to establish that any part of the debit balance represented advances made out of borrowed funds, which is a sine qua non for invoking section 36(1)(iii).
The ITAT further observed that during the original assessment proceedings, a proportionate disallowance of interest of ₹3.63 lakh had already been made in respect of non-business advances, and there was no justification for making a second or further disallowance on the same footing in the reassessment. In the absence of a clear nexus between borrowed funds and non-business advances, no additional disallowance could be sustained.
Accordingly, the Tribunal held that the disallowance of ₹75.61 lakh was unjustified and deleted the same in full. The appeal of the assessee was allowed.
FULL TEXT OF THE ORDER OF ITAT DELHI
