Deccan Charters Pvt Ltd Vs DCIT (ITAT Bangalore)
ITAT Bangalore held that disallowance under section 36(1)(iii) of the Income Tax Act unwarranted as no new advance extended to sister concern. Accordingly, disallowance u/s. 36(1)(iii) deleted.
Facts- The assessee is a private limited company and is engaged in the business of providing aviation services by operating and maintaining aircrafts at various locations and having base at Bengaluru. The return of the assessee was selected for scrutiny. AO noticed from the audited financial statements that the assessee has made advances to related concerns and no interest has been charged on the said advances. AO after considering the submissions made by the assessee made a disallowance u/s. 36(1)(iii) of the Income Tax Act, 1961 to the tune of Rs. 2,56,98,485/-.
CIT(A) dismissed the appeal. Being aggrieved, the present appeal is filed.
Conclusion- Since the reserves and surplus of the assessee was less than the advance given to related parties, the AO made a disallowance u/s. 36(1)(iii) of the Act. The assessee contended that the advance was not given during the year under consideration and that the balance shown is the outstanding carried forward from earlier years. The assessee is also contending that no advance was given during the year under consideration make a disallowance u/s. 36(1)(iii) in the year under consideration on the ground that the outstanding balance in the advances to related parties is more than the own funds of the assessee is not correct. In this regard we notice that there was an opening outstanding balance of Rs. 10,47,87,979/- as on 01.04.2011 and the assessee had given an advance of RS.28 crores during the financial year relevant to AY 2012-13. We further notice that the balance is the reserve and surplus stood at Rs. 61,60,35,571/- as on 31.03.2012. We also notice that the outstanding balance in the impugned advance account has been decreasing YoY. Therefore there is merit in the contention of the ld AR that no new advance is extended to sister concern.
