Cinflex Infotech Pvt. Ltd. Vs ACIT (ITAT Delhi)
Section 68 Addition Deleted Because Assessee Proved Identity, Creditworthiness and Genuineness of Loans; Interest Disallowance Reduced Because Actual Interest Paid Must Be Considered; ITAT Restricts Section 36(1)(iii) Disallowance Because CIT(A) Applied Notional Interest Rate; Loans Held Genuine Because Documentary Evidence and Subsequent Repayment Supported Transactions.
The cross-appeals before the ITAT Delhi arose from the order of the Commissioner of Income Tax (Appeals) for Assessment Year 2017-18. The assessee challenged the partial disallowance of interest under Section 36(1)(iii) of the Income-tax Act, while the Revenue challenged the deletion of an addition of ₹80 lakh made under Section 68 in respect of unsecured loans.
The Assessing Officer (AO) had disallowed interest expenditure of ₹1.12 crore under Section 36(1)(iii), alleging that interest-bearing funds had been utilised for making interest-free advances and investments. The CIT(A) restricted the disallowance to ₹22.87 lakh after holding that a portion of the investments had been financed through interest-bearing loans. Before the Tribunal, the assessee contended that substantial investments were funded through preferential share capital and interest-free loans from directors, and that the CIT(A) had incorrectly applied an 8% interest rate despite the actual interest paid on the relevant loans being much lower.
