The assessee, engaged in the distribution of alcoholic and non-alcoholic beverages, had borrowed funds from various parties and paid interest ranging from 19.25% to 28% per annum, while advances to certain group concerns were made at lower rates of interest ranging from 0% to 15%. The Assessing Officer, observing that the assessee had charged lesser interest on the advances, made an ad hoc disallowance under S. 36(1)(iii) based on a notional average interest rate of 13.5% and further disallowed interest on borrowings under S. 40A(2)(b). The Tribunal, allowing the appeal, held that the assessee had demonstrated through books of account and bank records that the borrowed funds were used for business purposes across its divisions. The balance sheet reflected own funds (share capital and reserves) far in excess of the interest-free loans given, thereby establishing that such loans were not out of interest-bearing borrowings. Tribunal held that it is a settled principle that when sufficient own funds are available, and interest-bearing funds are not diverted for interest-free advances, no disallowance under S. 36(1)(iii) can be sustained. The disallowance confirmed by the CIT(A) was accordingly deleted. (AY. 2014-15)<\/p>\n","protected":false},"excerpt":{"rendered":"
S. 36(1)(iii): Interest on borrowed capital-Advances to group concerns at lower interest-No disallowance if assessee\u2019s own funds exceed interest-free advances-Nexus established between borrowings and business use-Ad hoc disallowance based on average rate unjustified-Addition is deleted. [S. 40A(2)(b)]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_feature_clip_id":0,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_post_was_ever_published":false},"categories":[21],"tags":[],"class_list":["post-61341","post","type-post","status-publish","format-standard","hentry","category-income-tax-act"],"acf":[],"jetpack_featured_media_url":"","jetpack_shortlink":"https:\/\/wp.me\/p9S2Rw-fXn","jetpack-related-posts":[],"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/posts\/61341","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/comments?post=61341"}],"version-history":[{"count":1,"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/posts\/61341\/revisions"}],"predecessor-version":[{"id":61342,"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/posts\/61341\/revisions\/61342"}],"wp:attachment":[{"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/media?parent=61341"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/categories?post=61341"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/tags?post=61341"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}