ACIT Vs B. K. Sales Corporation (ITAT Delhi)
In a significant ruling, the Income Tax Appellate Tribunal (ITAT) Delhi has dismissed an appeal by the Revenue in the case of ACIT vs. B.K. Sales Corporation for Assessment Year 2015-16. The tribunal upheld the decision of the National Faceless Appeal Centre (NFAC), Delhi, which had deleted an addition of Rs. 3,83,08,176/- made by the Assessing Officer (AO) concerning inadmissible interest under Section 36(1)(iii) of the Income Tax Act, 1961.
The core of the dispute revolved around the AO’s authority to make an addition beyond the specific reasons for which the assessee’s case was selected for limited scrutiny.
Background of the Case
The Assessing Officer had noted that B.K. Sales Corporation debited Rs. 2,02,10,590/- as interest expenses in its profit and loss account. The AO contended that these interest-bearing funds were utilized for investments in short-term deposits (SDR), which were unrelated to the assessee’s primary business. Consequently, the AO concluded that Rs. 3,83,08,176/- represented such interest, making it liable for addition under Section 36(1)(iii) of the Act, which allows interest on borrowed capital only if used for business purposes.
The Revenue argued that the AO’s addition was based on a correct understanding of the facts and that the relief granted by the CIT(A) was erroneous.
