Disallowance of interest of CC account, for capital advances for purchase of assets

Last updated: 07 August 2021

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The Income Tax Appellate Tribunal (ITAT) has allowed an appeal by Monte Carlo Fashions Ltd. concerning the disallowance of interest on funds used for capital advances. The Assessing Officer (AO) had disallowed Rs. 16,79,012, but the assessee provided evidence of surplus funds, suggesting no borrowed funds were used beyond available own funds. The tribunal set aside the disallowance, allowing the appeal for statistical purposes.

Court :
INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH

Brief :
This is an appeal by the assessee against the order dt. 01/06/2019 of the Ld. CIT(A)-3, Ludhiana.

Citation :
ITA NO. 1158/Chd/2019

IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH “B”, CHANDIGARH
(VIRTUAL COURT)

BEFORE: SHRI. N.K.SAINI, VP & SHRI , R.L. NEGI, JM

ITA NO. 1158/Chd/2019

Assessment Year : 2012-13

Monte Carlo Fashions Ltd.
106, G.T. Road, Sherpur, Ludhiana, Punjab

PAN NO: AAFCM7888Q

Appellant

The ACIT
C-7, Ludhiana, Punjab

Respondent

Assessee by : Shri Navdeep Sharma, Advocate

Revenue by : Shri Ashok Khanna, Addl. CIT

Date of Hearing : 26/07/2021

Date of Pronouncement : 26/07/2021

Order

1. This is an appeal by the assessee against the order dt. 01/06/2019 of the
Ld. CIT(A)-3, Ludhiana.

2. Facts of the case in brief are that this case was earlier decided by the ITAT‘B’ Bench, Chandigarh vide order dt. 12/10/2017 in ITA No. 1341/Chd/2016 and the issue under consideration was set aside to the file of the A.O. to be decided after verification from the record as to whether the assessee was having surplus funds and whether any borrowed funds have been utilized more than available own funds and that if sufficient funds were available no disallowance was called for under section 36(1)(iii) of the Income Tax Act, 1961 (for short the ‘Act’).
However, the A.O. again made the disallowance of Rs. 16,79,012/-.

3.The Ld. Counsel for the assessee furnished a chart to substantiate that the assessee was having surplus funds therefore the disallowance made by the A.O. and sustained by the Ld. CIT(A) was not called for. The said chart furnished by the Ld. Counsel for the assessee.

4. In his rival submissions the Ld. Sr. DR strongly supported the orders of the authorities below and further submitted that the disallowance sustained by the Ld. CIT(A) was justified.

5. In the result, appeal of the assessee is allowed for statistical purposes.

FAQ :

The main issue was the disallowance of interest amounting to Rs. 16,79,012, made by the Assessing Officer, on funds used for capital advances for the purchase of assets.

The assessee argued that they had sufficient surplus funds, and therefore, no borrowed funds were utilised beyond their own available funds, making the disallowance unjustified.

The Income Tax Appellate Tribunal (ITAT) allowed the appeal filed by Monte Carlo Fashions Ltd. for statistical purposes.

Section 36(1)(iii) of the Income Tax Act, 1961, was relevant to the disallowance of interest on borrowed funds.