The Income Tax Appellate Tribunal said Business Advances made without interest to Indian and subsidiaries can’t be disallowed under the provisions of the Income Tax Act, 1961.
The Revenue, in the instant case, was aggrieved by the order of the first appellate authority who deleted the disallowance of interest under Section 36 (1) (iii) of the Income Tax Act on the plea that assessee was having sufficient own funds for investment in subsidiary company.
The bench, after considering the rival contentions, observed that the assessee has incurred expenses on behalf of certain foreign subsidiaries and Indian subsidiary and shown them under the head ‘Advances Recoverable’.
The bench comprising Judicial Member Amarjit Singh and Accountant Member R.C.Sharma also observed that the assessee doesn’t follow the system of charging interest on such debits of expenses incurred on their behalf. Such advances did not attract any adjustment in Transfer Pricing order also. However, the Ld. AO considered these debit balances as advances without interest and disallowed Rs. 1,07,54,398/- out of interest u/s 36(1)(iii).
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