Sharad Agarwal Vs ITO (ITAT Indore)
ITAT Indore: No Interest Disallowance Where Own Funds Are Ample & Interest Income Reflected in Form 26AS
The Income Tax Appellate Tribunal allowed the assessee’s appeal for AY 2014-15 and deleted both interest-related disallowances made by the Assessing Officer.
On the first issue, the AO had disallowed proportionate interest of ₹64,048 on the ground that the assessee had advanced interest-free loans to family members while using borrowed funds. The Tribunal found that the assessee possessed substantial interest-free own capital of about ₹1.51 crore, far exceeding the interest-free advances of ₹4.12 lakh. Relying on the presumption laid down by the Supreme Court in Reliance Industries Ltd., the ITAT held that such advances must be presumed to have been made out of own funds, especially when no direct nexus between borrowed funds and advances was established. Accordingly, the disallowance was deleted.
On the second issue, the AO had disallowed interest of ₹63,798 paid to an HUF on the ground that the payee had not declared the income in its return. The Tribunal noted that the interest payment, along with TDS, was clearly reflected in the payee’s Form 26AS. Merely because the payee allegedly failed to offer the income to tax could not justify disallowance in the payer’s hands. This disallowance was also deleted.
