Law & Society

Assetz Infrastructure Pvt Ltd vs Dy. CIT

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The assessee company is engaged in the business of construction, development and sale of all types of housing projects, commercial projects and related activities. The first issue contested by the assessee relates to the disallowance of interest expenditure u/s 36(1)(iii). The AO noticed that the assessee has taken interest bearing loans from various persons to the tune of Rs.29.16 crores. It was also noticed that the assessee has given interest free loans to related concerns to the tune of Rs.10.26 crores. Further, he assessee had also claimed interest expenditure of Rs.1,54,10,932/-. Hence the AO proposed to disallow a part of interest expenditure.

The AO held that that loan given to/investment made in subsidiaries cannot be termed as a business activity. The Ld CIT(A) took the view that the interest bearing loans have been diverted to the subsidiary companies in the form of interest free loans. Since the interest free funds available with the assessee is more than the interest free loans given to subsidiaries, it should have to be presumed that the loans have been given out of interest free funds. Accordingly, following the decision rendered by the Hon’ble jurisdictional Karnataka High Court in the case of CIT vs. Micro Labs Ltd, order was set aside. In the result, the appeal filed by the assessee and revenue are partly allowed.

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