Reddy Housing Pvt. Ltd Vs ITO (ITAT Bangalore)
Interest-Free Loans to Group Under Scanner Again — Bangalore ITAT Remands 36(1)(iii) & Deemed Dividend Issues in Reddy Housing Case
The Bangalore ITAT (B Bench) allowed the appeal of M/s Reddy Housing Pvt. Ltd. (AY 2016-17) for statistical purposes and remanded the matter to the AO for fresh adjudication, holding that crucial facts relating to commercial expediency and source of funds were not properly examined at the lower levels.
The AO had disallowed ₹3.65 crore u/s 36(1)(iii) on the ground that the Assessee, despite having negligible reserves, had advanced interest-free loans to related/holding company out of borrowed funds. Further, an addition was also made u/s 2(22)(e) treating advances to the holding company as deemed dividend. The CIT(A), NFAC confirmed both additions ex-parte.
Before the Tribunal, the Assessee contended that advances were given to its holding company M/s Reddy Structures Pvt. Ltd. in the ordinary course of business, supported by journal entries, and that the holding company routinely undertook land procurement and project-related expenditures on behalf of the Assessee. Reliance was placed on S.A. Builders Ltd. vs CIT to argue that advances made on grounds of commercial expediency cannot invite disallowance of interest.
The Tribunal noted that although reliance was placed on S.A. Builders, the factual matrix—particularly whether funds were advanced out of overdraft/borrowed funds and whether commercial expediency was actually established—had not been properly verified by the AO. The journal entries and narrations relied upon by the Assessee also required closer scrutiny.
In the interest of justice, the ITAT set aside the orders of the lower authorities and remitted the entire issue back to the AO for de novo consideration, directing the Assessee to substantiate its claim with cogent evidence and warning against unnecessary adjournments. The appeal was thus allowed for statistical purposes
FULL TEXT OF THE ORDER OF ITAT BANGALORE
This is an appeal filed by the assessee against the ex-parte Order passed by the learned CIT (NFAC), vide DIN ITBA/NFAC/S/250/2023-24/1060239254(1) dated 30.01.2024.
