Case Law Details
RNS Infrastructure Limited Vs DCIT (ITAT Bangalore)
ITAT Bangalore held that proviso to Section 36(1)(iii) of the Income Tax Act is not applicable in the present case as sufficient internal cash accruals available during the impugned year are more that interest free funds advanced to the sister concern.
Facts- During the course of assessment proceedings, the AO noted that the assessee has given advances of Rs. 24,13,56,764 to its sister concern, M/s. Naveen Hotels Ltd. for purchase of land and the average interest at Rs. 2,14,35,676 has been paid on the OD facility by the assessee. The advance for land was made from the OD a/c/Current a/c/CC a/c. The AO observed that the advance paid to Naveen Hotels Ltd. (sister concern) was capital in nature, because the loan advanced to Naveen Hotels was for purchase of land and it was not put to use during the impugned assessment year. Therefore the interest expenditure should be capitalized instead of claiming it as revenue expenditure. Accordingly the same was added to the income of the assessee.
The CIT(Appeals) upheld the order of the AO in the second round of set aside proceedings before him also. Aggrieved, the assessee is in appeal before the Tribunal.
Conclusion- Since the internal cash accruals from operations are more than the interest free funds advanced to the sister concern for business purposes, it cannot be said that the interest bearing loan funds had been utilized by the assessee for the purpose of giving interest free advances over the years to its sister concern, Naveen Hotels Ltd.
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