DCIT Vs Pronomz Ventures LLP (ITAT Bangalore)
Relevant Facts
In DCIT v. Pronomz Ventures LLP, the Bangalore ITAT considered the Revenue’s appeal for AY 2020–21 against deletion of an interest disallowance of ₹10,46,22,906. The LLP carried on financial consultancy, investment solutions, fund syndication & capital-market advisory services. Following a search u/s 132 in the Skanray Technologies group, assessment was completed u/s 143(3).
The AO noticed short-term borrowings of ₹319.05 crore, loans & advances of ₹204.84 crore, investments exceeding ₹411.70 crore & finance cost of ₹10.46 crore. According to the AO, borrowed money funded interest-free advances or shares of group entities without a business nexus. The assessee earned business receipts of only ₹4.95 lakh but dividend exceeding ₹21 crore. Investments were recorded as current or non-current investments rather than stock-in-trade. The AO treated them as capital assets & disallowed the interest.
The CIT(A) accepted the assessee’s case that strategic investments formed part of its business, that sufficient interest-free funds were available & that the statutory requirements of section 36(1)(iii) stood satisfied. It accordingly deleted the disallowance, leading to the Revenue’s appeal.
Core Issue
The question was whether interest on capital borrowed for strategic & controlling interests in group companies was deductible u/s 36(1)(iii), though the holdings did not directly produce business receipts & were not stock-in-trade. A connected question concerned sufficient own, non-interest-bearing funds.
