Disallowance u/s 36(1)(iii) unsustainable as advance given during normal course of business

ACIT Vs Hotel Ishika (ITAT Raipur)

ITAT Raipur held that the interest expenditure corresponding to the advances that was given in the normal course of business could not have been disallowed under section 36(1)(iii) of the Income Tax Act.

Facts- Post completion of original assessment, as is discernible from record, the A.O on the basis of further verifications carried out after culmination of the original assessment, had observed, that the assessee firm had diverted its interest bearing funds for advancing interest free loans to certain concerns. The A.O holding a conviction that proportionate interest of Rs. 14,99,670/- pertaining to the interest free advances/loans given by the assessee firm out of its interest bearing funds was liable to be disallowed u/s. 36(1)(iii)/ 14A of the Act, thus, reopened its case u/s. 147 of the Act. The A.O vide his order passed u/s. 143(3)/147 dated 26.03.2015 disallowed the assessee’s claim for deduction of interest of 14,99,670/- u/s.36(1)(iii) of the Act and assessed its income at Rs. 25,37,790 / -.

Aggrieved the assessee carried the matter in appeal before the CIT(Appeals). CIT(A) allowed the appeal.

Accordingly, being aggrieved, revenue has preferred the present appeal.

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