2 weeks Ago By Sandra
Sign In Sign Up Top Stories The Ahmedabad Bench of the Income Tax Appellate Tribunal (ITAT) directed the CIT(A) to verify the funds flow statement before allowing relief in a case concerning disallowance of interest on advances made to sister concerns. Oswal Extrusion Ltd. ( assessee), advanced Rs.
30 crores to HCP Enterprise Ltd. and Rs. 50 lakhs to Prasthan Infrastructure Ltd.
, both of which were stated to be its sister concerns. The Assessing Officer (AO) observed that the assessee had incurred interest expenditure of Rs. 933.
52 lakhs but had not charged any interest on the advances. Read More: Kerala HC quashes Demand of Late Fee payment u/s 234 E of Income Tax Act Citing Bereft of Jurisdiction [Read Order] The AO disallowed Rs. 3.
66 crores under Section 36(1)(iii) of the Income Tax Act , alleging that the borrowed funds were used for non-business purposes and that the assessee failed to establish a nexus between the interest-free advances and non-interest-bearing funds. Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here Aggrieved by the order of the AO, the assessee filed an appeal before the Commissioner of Income Tax (appeals) [CIT(A)]. The assessee contended that it had substantial interest-free funds in the form of share capital and reserves amounting to Rs.
64.67 crores in A.Y.
2016–17. The assessee contended that advances were made to sister concerns for commercial purposes in accordance with an MOU dated 09.09.
2014. The CIT(A) accepted the submissions and deleted the disallowance. Aggrieved by the order of the CIT(A), the revenue filed an appeal before the ITAT.
The counsel for the revenue contended that the CIT(A) granted relief without verifying the funds flow at the time of advances and failed to examine whether reserves were already deployed in fixed assets. Understanding Common Mode of Tax Evasion with Practical Scenarios, Click Here Read More: ITAT Allows NDTV’s Business Expense Claims, Quashes Section 14A Disallowance [Read Order] The two-member bench comprising Dr. B.
R.R. Kumar (Vice President) and Siddhartha Nautiyal (Judicial Member) observed that the CIT(A) relied solely on the assessee’s submissions without independently verifying the availability of interest-free funds.
The Tribunal held that a funds flow statement should have been called for to confirm the claim of availability of non-interest-bearing funds at the time of the advances. The Tribunal remanded the matter back to the CIT(A) to verify the funds flow statement and also to verify whether the assessee had sufficient interest-free funds for making the advances. The appeal of the revenue was allowed for statistical purposes.
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