Kamineni Health Services Private Limited Vs ACIT (ITAT Hyderabad)
ITAT Hyderabad held that disallowance by invoking provisions of section 36(1)(iii) of the Income Tax Act not sustained since the sum is not an advance/loan to sister concern, however, it is an investment.
Facts- During the course of proceedings, AO noted that once it is established that the assessee had raised certain loans for business purposes, on which interest liability is being incurred and on the other hand, the funds were advanced to sister concern for non-business purposes on interest free basis, then the interest payable by the assessee to financial institutions to that extent cannot be held to have been used for business purposes and no deduction accordingly can be permitted u/s. 36(1)(iii) of the I.T. Act and accordingly, AO disallowed the interest expenses to the extent of 12% on Rs.7,57,56,451/- i.e., Rs.3,14,56,451/- + Rs.4,43,00,000/-] amounting to Rs.90,90,774/- and added the same to the income of the assessee-company vide order dated 04.12.2018 passed u/sec.143(3) of the Act. CIT(A) sustained order of AO. Being aggrieved, the present appeal is filed.
Conclusion- Held that the investment with M/s. Kamineni Health Care Pvt. Ltd., and allotment of shares is taken place in the same financial year. To support this contention, the appellant-company has filed relevant ledger account an also copies of Board Resolution for allotment of shares to appellant-company. From the details filed by the assessee, it is undisputedly proved that, the impugned sum considered by the Assessing Officer as loan for the purpose of sec.36(1)(iii) of the Act is in fact, an investment in another group company, but, not a loan. Therefore, in our considered view, the Assessing Officer is erred in invoking the provisions of sec.36(1)(iii) of the Act for the amount invested in M/s. Kamineni Health Care Pvt. Ltd. Further, assuming for a moment it is a loan and advance for the purpose of sec.36(1)(iii) of the Act, but, the fact remains that the assessee has given said loan and advance out of it’s own interest free funds available in the form of fresh investment received from two of it’s Directors. Further, no interest bearing funds have been used for the purpose of giving amount to M/s. Kamineni Health Care Pvt. Ltd. and, therefore, on this count also, the addition made by the Assessing Officer towards disallowance of interest u/sec.36(1)(iii) of the Act cannot be sustained. We, therefore, delete the addition made by the Assessing Officer towards interest on amount given to M/s. Kamineni Health Care Pvt. Ltd.
