DCIT Vs Bright Buildtech Pvt. Ltd. (ITAT Delhi)
ITAT Delhi Upholds Deletion of ₹22.38 Crore Interest Disallowance – Advances Found Business-Driven & Not Funded from Interest-Bearing Loans; Commercial Expediency & Ind-AS Adjustments Save Builder from Section 36(1)(iii) Disallowance; No Hypothetical Interest on Business Advances – Tribunal Confirms CIT(A)’s Detailed Findings
Delhi ITAT dismissed the Revenue’s appeal & upheld the order of CIT(A), which had deleted an addition of ₹22.37 crore disallowed by AO u/s36(1)(iii) on the allegation that Assessee, Bright Buildtech Pvt. Ltd., had advanced interest-free loans to related & third-party concerns from interest-bearing funds
Assessee, engaged in real-estate development, filed NIL income for A.Y. 2018-19. AO observed interest debited of ₹25.92 crore in the P&L & held that advances to sister concerns such as Solace Projects Pvt. Ltd., Ace Infracity Developers Pvt. Ltd., Doyen Town Planners Pvt. Ltd., etc., were out of borrowed funds, disallowing ₹22.38 crore by estimating 12% notional interest
Before CIT(A), Assessee explained that it had adopted Ind-AS for the first time, & the interest figures represented notional accounting entries – both debit (expense) & credit (income). It demonstrated that (a) interest had been capitalised to inventory or adjusted in computation, & (b) there was sufficient interest-free capital, unsecured loans & 1% NCDs to cover advances. The actual net effect of Ind-AS entries showed a positive interest income of ₹6.55 crore, not an expense claim. CIT(A) accepted that AO’s presumption of nexus between borrowed funds & advances was baseless & that all advances were for business purposes, either capitalised or given from non-interest-bearing funds.
