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June 2025

Disallowance in respect of interest expenditure, attributable to interest free advances, under section 36(1)(iii), is unsustainable when commercial expediency in transaction is substantiated.

By Jagdish T Punjabi, Chartered Accountant
Devendra Jain & Aditya Bhatt, Advocates
Reading Time 3 mins

13. TS-53-ITAT-2025 (Mum.)

ACIT vs. T Bhimjiyani Realty Pvt. Ltd.

A.Y.: 2018-19 Date of Order: 25 January 2025

Section: 36(1)(iii)

Disallowance in respect of interest expenditure, attributable to interest free advances, under section 36(1)(iii), is unsustainable when commercial expediency in transaction is substantiated.

FACTS

The assessee company, engaged in real estate business was developing a residential project at Thane. During the course of assessment proceedings, the Assessing Officer (AO) noticed that assessee had borrowed funds and was paying interest on such borrowings. It had also given interest free advances to various persons. Accordingly, the AO disallowed ₹16.98 crore being interest expenditure attributable to interest free advances.

Aggrieved, assessee preferred an appeal to CIT(A) who allowed this ground of appeal.

Aggrieved, revenue preferred an appeal to the Tribunal where the assessee, apart from supporting the legal principles followed by CIT(A), relying on the ratio of the following decisions, also argued that the advances were m

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