ACIT Vs T Bhimjyani Realty Private Ltd. (ITAT Mumbai)
ITAT Mumbai held that disallowance of interest expenditure attributable to interest-free advances not justified since sufficient interest free funds available and also there existed commercial expediency in giving interest free advances. Accordingly, appeal of revenue dismissed.
Facts- The assessee is a Private Limited Company and engaged in the real estate business of developing residential project. During the course of assessment proceedings, the AO noticed that the assessee has borrowed interest bearing loans and was paying interest thereon. However, the assessee has given interest free advances to various persons. Accordingly, the AO took the view that the interest expenditure attributable to interest free advances are not allowable as deduction. Accordingly, he disallowed a sum of Rs.16,98,85,448/- out of interest expenditure. Besides the above, the AO also disallowed claim of “Provision for expenses” of Rs.3,80,67,574/- and rent expenses of Rs.1,56,00,583/-.
CIT(A) partly allowed the appeal of the assessee. Hence the revenue has filed this appeal challenging the relief granted in respect of interest disallowance and “Provision for Expenses” disallowance.
Conclusion- Held that CIT(A) accepted the submission of the assessee that these advances have been given on commercial expediency during the course of carrying on of its real estate business. He also noticed that the sufficient interest free funds were also available with the assessee. Accordingly, he deleted interest disallowances made on both the advances. We also notice that these advances have been given in the earlier years and no disallowance of interest was made in those years. Since these advances have been given for business purposes, we are of the view that the Ld. CIT(A) has rightly deleted the disallowance of proportionate interest in respect of both these advances.
