Anbazhagan Ranganathan Vs ACIT (ITAT Chennai)
Chennai ITAT Deletes Interest Disallowance; No Notional Interest Can Be Imputed on Business Advances When Assessee Has Sufficient Own Funds
The Chennai ITAT held that interest cannot be disallowed by imputing notional overdraft interest on business advances where the assessee possesses sufficient own funds to finance such advances. The assessee, a civil contractor executing Government contracts, had advanced amounts to four entities for arranging labour in connection with his business. The Assessing Officer, observing that no ledger copies had been produced during assessment, applied the overdraft (OD) interest rate to the advances and made a disallowance, part of which was sustained by the CIT(A). The Tribunal noted that the assessee had disclosed contract receipts of ₹9.57 crore and business income therefrom, and the Revenue had never disputed the genuineness of the business activity or the business purpose of the advances. Accepting the assessee’s contention that he had adequate surplus own funds, and relying on settled judicial principles that no presumption of borrowed funds arises where sufficient own funds are available, the Tribunal held that the interest disallowance was unjustified. Accordingly, it set aside the order of the CIT(A) and allowed the assessee’s appeal.
Cases Discussed
FULL TEXT OF THE ORDER OF ITAT CHENNAI
