ACIT Vs Brigade Enterprises Limited (ITAT Bangalore)
ITAT Bangalore: No Disallowance U/s 36(1)(iii) When Interest-Free Funds Exceed Advances-Revenue Appeals Dismissed
In the case of Brigade Enterp rises Ltd., the Bangalore ITAT upheld deletion of interest disallowances u/s 36(1)(iii) made by the AO on account of interest-free advances to sister concerns.
The Tribunal noted (as evident from balance sheet figures on record) that:
- The assessee had substantial interest-free funds (share capital + reserves) far exceeding the advances given,
- Therefore, a presumption arises that such advances are made out of interest-free funds, unless contrary evidence is shown—which the Revenue failed to establish.
The ITAT relied on:
- Karnataka High Court ruling in assessee’s own case, and
- Supreme Court decisions including Reliance Industries Ltd. and SA Builders, affirming that no disallowance is warranted when sufficient own funds exist.
Accordingly:
- Disallowances of ₹5.32 crore (AY 2013-14) and ₹2.32 crore (AY 2011-12) were rightly deleted by CIT(A),
- Revenue’s contention of “mixed funds” was rejected due to lack of evidence.
Both appeals of the Revenue were dismissed, reinforcing the settled principle that availability of sufficient interest-free funds protects advances from disallowance u/s 36(1)(iii)
FULL TEXT OF THE ORDER OF ITAT BANGALORE
1. These two appeals have been filed by the revenue challenging the orders of the first appellate authority on a similar issue, which was decided in favour of the assessee based on the Honourable High Court’s decision in the assessee’s own case for previous assessment years. Accordingly, both appeals are disposed of by this common order.
