RITURAJ STEEL PRIVATE LIMITED,BILASPUR V. ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 2(1), BILASPUR

ITA 697/RPR/2025

AI Insights

The case involves Rituraj Steel Private Limited, which appealed against the order of the Additional Commissioner of Income Tax (Appeals), Mysore, concerning the disallowance of Rs.1,87,000 made under section 36(1)(iii) of the Income Tax Act, 1961. The disallowance was related to interest on advances made to sister concerns, which the assessee argued were made from interest-free funds. The Revenue contended that these advances were made from interest-bearing borrowed funds. The Tribunal noted that the issue of whether the advances were made out of non-interest bearing funds and the commercial expediency of such advances were not examined by the lower authorities. Consequently, the Tribunal remitted the matter back for a detailed examination of these aspects.

• Counselvise Citation: [2026] 140 COUNSELVISE.COM (IT) 836002 (ITAT-RAIPUR)
• Duration Of Justice: 2 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-02-2026
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2017-2018
• Appeal Filed On: 15-11-2025
• Other Referred Cases: East India Pharmaceutical Works Ltd. 224 ITR 627 (SC), Munjal Sales Corporation 298 ITR 298 (SC), South Indian Bank Ltd. 438 ITR 1 (SC)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRIYANKA PATEL
• Keywords: Set aside; Business income; Opportunity of being heard; Commercial expediency

Judgement Text

" 1 आयकर अपीलीय अिधकरण, रायपुर Ɋायपीठ, रायपुर IN THE INCOME TAX APPELLATE TRIBUNAL RAIPUR BENCH, RAIPUR ŵी पाथŊ सारथी चौधरी, Ɋाियक सद˟ एवं ŵी अवधेश क ुमार िमŵ, लेखा सद˟ क े समƗ BEFORE SHRI PARTHA SARATHI CHAUDHURY, JM & SHRI AVDHESH KUMAR MISHRA, AM आयकर अपील सं. / ITA No: 697/RPR/2025 (िनधाŊरण वषŊ Assessment Year: 2017-18) Rituraj Steel Private Limited, M/s Rituraj Steel Private Limited, Hotel East Park Agrasen Chowk, Bilaspur, Chhattisgarh, 495001 Vs Assistant Commissioner of Income Tax, Circle 2(1), Bilaspur, Shri Ram Plaza Vapar Vihar, Bilaspur, Chhattisgarh, 495001 PAN: AACCR7589J (अपीलाथŎ/Appellant) : (ŮȑथŎ / Respondent) िनधाŊįरती की ओर से / Assessee by : None (Petition filed) राजˢ की ओर से / Revenue by : Dr. Priyanka Patel, Sr. DR सुनवाई की तारीख / Date of Hearing : 05/02/2026 घोषणा की तारीख / Date of Pronouncement : 09/02/2026 आदेश / O R D E R Per Avdhesh Kumar Mishra, AM: This appeal for Assessment Year (‘AY’) 2017-18 filed by the assessee is directed against the order dated 29.10.2025 of the Additional Commissioner of Income Tax (Appeals), Mysore [‘Addl. CIT(A)’] passed under section 250 of the Income Tax Act, 1961 (‘Act’). 2. The sole effective issue raised by the appellant assessee is in respect of the disallowance of Rs.1,87,000/- made under section 36(1)(iii) of the Act, which reads as “the disallowance being unjustified, unwarranted and uncalled for when Printed from counselvise.com ITA No.697/RPR/2025 Rituraj Steel Pvt Ltd. vs. ACIT(A), Bilaspur 2 the paid-up capital exceeds the advances given to the sister concerned and no borrowing have been taken from bank”. 3. The relevant facts giving rise to this appeal are that the assessee filed its Income Tax Return (‘ITR’) on 29.10.2017 declaring income of Rs.87,42,930/-. The case was picked up for scrutiny and the consequential assessment was completed at income of Rs.1,03,49,897/- wherein the Ld. Assessing Officer (‘AO’) made two disallowances: (i) Service Tax Penalty of Rs.14,19,967/- and; (ii) Interest of Rs.1,87,000/- under section 36(1)(iii) of the Act. We have been tasked to decide the issue of disallowance of interest under section 36(1)(iii) of the Act being sole issue in dispute. 4. Before us, the assessee was not represented by anyone. Therefore, we heard Dr. Priyanka Patel, Ld. Sr. DR as there was no compliance on the part of the assessee. The Ld. Sr. DR argued the case vehemently and prayed for dismissal of the appeal. 5. We have heard the Ld. Sr. DR at length and have perused the material available on the record. As per the assessee, the interest free advances have been made out of the capital and interest free funds; hence, no disallowance on this score is called for. Whereas the stand of Revenue is that the assessee has advanced the said interest free loans to related parties out of the interest bearing borrowed fund. Hence, the Ld. AO made the disallowance of interest under section 36(1)(iii) of the Act. Printed from counselvise.com ITA No.697/RPR/2025 Rituraj Steel Pvt Ltd. vs. ACIT(A), Bilaspur 3 6. The section 36(1)(iii) of the Act states that “the amount of interest paid in respect of capital borrowed for the purpose of the business profession” has to be allowed as deduction in computing the business income. The expression \"for the purpose of business\" mentioned in section 36(1)(iii) of the Act is wider in scope than the expression \"for the purpose of earning income, profits or gains,\" and this has been the consistent view of the Hon’ble Courts. In the present case, the appellant assessee has admitted in the ground of appeal that it has not borrowed the fund from the bank and has advanced the same of its sister/related concerns as interest-free loans & advances. The test, in our opinion, in such a case is really whether this was done as a measure of commercial expediency or otherwise. In the present case, the Ld. Addl. CIT(A) has not examined the fact that whether the sums advanced to the related parties were in the commercial expediency and or the same had been advanced out of non-interest bearing fund available to the assessee. We have taken note of the fact that none of the authorities below us have examined this aspect of the matter. The issue of commercial expediency of advances to related parties and or the sum advanced to related parties are sourced from non-interest bearing fund available to the assessee needs categorical finding by the first appellate authority/Addl. CIT(A). Before parting out, we would like to mention that the issue of surplus fund available with the assessee given to its related parties have been decided by the Hon’ble Supreme Court in number of cases; such as, East India Pharmaceutical Works Ltd. 224 ITR 627 (SC), Munjal Sales Corporation 298 ITR 298 (SC), South Indian Bank Ltd. 438 ITR 1 (SC). The Hon’ble Supreme Court in the case of South Indian Bank Ltd. (supra) Printed from counselvise.com ITA No.697/RPR/2025 Rituraj Steel Pvt Ltd. vs. ACIT(A), Bilaspur 4 has approved the mixed fund theory in as much as it has been also held that no disallowance of the interest could be made when non-interest bearing fund should be more than the investment made in tax free securities. 7. We take note of the fact that the Ld. Addl. CIT(A) has not given any categorical finding on the issue of commercial expediency of advances to related parties and or the sum advanced to related parties are sourced from non-interest bearing fund available to the assessee. Considering the facts in entirety and without offering any categorical finding on the merit of the case, we deem it fit to set aside the finding of impugned order on the issue in dispute before us and remit the matter back to the file of the Ld. Addl. CIT(A) for deciding this issue afresh/denovo, in view of the observations in foregoing paras, after providing adequate opportunity of being heard to the appellant assessee. Ordered accordingly. The appellant assessee, no doubt, shall cooperate in remitted appellate proceedings. 8. In the result, the appeal of assessee is allowed for statistical purposes. Order pronounced in the open court on 09/02/2026. Sd/- (PARTHA SARATHI CHAUDHURY) Sd/- (AVDHESH KUMAR MISHRA) Ɋाियक सद˟ / JUDICIAL MEMBER लेखा सद˟ / ACCOUNTANT MEMBER रायपुर / Raipur; िदनांक Dated 09/02/2026 HKS, PS आदेशकी Ůितिलिप अŤेिषत / Copy of the Order forwarded to : 1. अपीलाथŎ/ The Appellant Printed from counselvise.com ITA No.697/RPR/2025 Rituraj Steel Pvt Ltd. vs. ACIT(A), Bilaspur 5 आदेशानुसार/ BY ORDER, //True copy// (Senior Private Secretary) आयकर अपीलीय अिधकरण, रायपुर / ITAT, Raipur 2. ŮȑथŎ/ The Respondent 3. The Pr. CIT, Raipur (C.G.) 4. िवभागीय Ůितिनिध, आयकर अपीलीय अिधकरण, रायपुर/ DR, ITAT, Raipur 5. गाडŊ फाईल / Guard file. Printed from counselvise.com "