Addition of Notional Interest on Advances to Related Parties Unsustainable due to availability of sufficient interest free funds

DCIT Vs Parinee Housing Private Limited (ITAT Mumbai)

ITAT Mumbai held that addition of notional interest on advances to related parties (i.e. the directors and sister concern/related parties) unsustainable as the assessee has been able to substantiate availability of sufficient interest free funds.

Facts- The solitary issue raised by the Revenue in appeal is against the findings of CIT(A) in deleting the addition of interest on the loans advanced to the directors and sister concern/related parties. The assessee has filed Cross Objection in appeal filed by the Revenue supporting the order of First Appellate Authority.

Conclusion- The availability of interest free funds with the assessee to cover interest free loans advanced to related parties has not been disputed by the Revenue. Once, the assessee has been able to substantiate availability of sufficient interest free funds, there is no valid reason to make addition of notional interest on advances to related parties.

FULL TEXT OF THE ORDER OF ITAT MUMBAI

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