DCIT Vs Golfgreen Infra Pvt. Ltd. (ITAT Delhi)
The appeals arose from two assessment years involving disallowance of interest under Section 36(1)(iii) and addition under Section 68 of the Income Tax Act, 1961. The Revenue challenged the deletion of disallowances made by the Assessing Officer (AO), while the assessee also filed cross-objections.
For Assessment Year 2015–16, the core issue was disallowance of interest on the ground that the assessee had advanced interest-free loans to its sister concern using borrowed funds. The AO presumed diversion of borrowed funds and computed disallowance accordingly. However, the Commissioner (Appeals) found that the advances were made out of the assessee’s own funds, including share capital, reserves, and customer advances, and were part of a business arrangement supported by an agreement. It was also observed that both entities were taxed at similar rates and had paid taxes, making the transaction revenue neutral. There was no finding that the advances were for non-business purposes or lacked commercial expediency. Relying on judicial principles that emphasize examining commercial expediency from a business perspective, the disallowance was deleted.
The Tribunal upheld this finding, noting that the assessee had demonstrated commercial expediency and that the issue was settled by precedent. It also observed that the Revenue itself acknowledged the transaction as revenue neutral. Accordingly, the Revenue’s appeal on this issue was dismissed.
