THE PR. COMMISSIONER OF INCOME TAX (CENTRAL), LUDHIANA Vs. SHRI SATISH BALA MALHOTRA, LEGAL HEIR OF SHRI ASHOK KUMAR MALHOTRA

JUDGEMENT

(1.) The revenue has preferred this appeal under Section 260A of the Income Tax Act, 1961 (in short, "the Act") against the order dated 12.8.2016, Annexure A.III, passed by the Income Tax Appellate Tribunal, Amritsar Bench. Amritsar (in short, "the Tribunal") in ITA No. 194(Asr)/2015, for the assessment year 2010-11, claiming following substantial questions of law:-

(2.) A few facts relevant for the decision of the controversy involved as narrated in the appeal may be noticed. During the course of assessment proceedings, it was noticed by the Assessing Officer that the assessee had an amount of Rs. 72,28,15,197/- standing as investments in various related concerns but had received any interest or return on account of such investments. The assessee submitted that the interest free advances to the related parties were made in view of the larger interest of the group. The Assessing Officer observed that after making advances, the assessee had himself applied for interest linked loans and was bearing the interest burden. The assessee failed to provide specific information as to how advances of interest free loans served the business of any of his proprietorship business concerns. The Assessing Officer observed that if the assessee had excess surplus funds, what was the need to take interest bearing loans. Therefore, the interest paid to the Bank was for any funds required for the assessee's own business but for making interest free advances to related parties. With these observations, the interest expenditure of Rs. 2,39,01,531/- claimed by the assessee was disallowed by the Assessing Officer in view of Section 40A(2)(a) and Section 36(1)(iii) of the Act. Aggrieved by the order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)]. Vide order dated 27.02.2015, Annexure A.II, the CIT(A) confirmed the disallowance of interest expenditure made by the Assessing Officer. The CIT(A) observed that the assessee had even attempted to show that the investments in sister concerns served any business purpose. The CIT(A) further observed that the funds of the assessee company comprised of self generated funds as well as interest bearing loans. It had been pointed out by the assessee that the interest bearing funds had been exclusively used for the purpose of business. Thus, the disallowance of interest expenditure made by the Assessing Officer was confirmed by the CIT(A). Not satisfied with the order, the assessee filed an appeal before the Tribunal. Vide order dated 12.8.2016, Annexure A.III, the Tribunal allowed the appeal filed by the assessee, deleting the addition on account of disallowance of interest expenditure. Hence, the instant appeal by the appellant-revenue.

(3.) We have heard learned counsel for the appellant-revenue.