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2016 (12) TMI 1137 - ITAT MUMBAIDisallowance of administrative expenses - Held that:- From the record we found that the AO had wrongly disallowed 7/8th of the administrative expenses considering that the said expenses are incurred for the other 7 group companies mentioned in the order. The 7 group companies have their own business set up and functions independently, are separately assessed under the Income Tax Act and do not have any common business interest with the assessee. We found that expenses incurred for and on behalf of such companies aggregating to ₹ 45,91,976/- have been recovered from the said group companies. A statement showing the said recovery with a brief rational was submitted before the lower authorities. This shows that no part of the group companies expenses are included in the Profit & Loss account of the company which the learned DCIT has wrongly noted. We had also verified the break-up of the expenses included in the Administrative Expenses are fixed overheads in nature and irrespective of the volume / turnover of the company; it has to be incurred and cannot be reduced immediately. The Administrative expense are incurred based on the set up of the business and commercial expediency in the context of type of activity, business profile of the company and the volume of turnover / activity. We also found that during the year under consideration expenses have been reduced by 7% as compared to the expenditure of last year. Moreover, company’s total income for the AY 2009-10 was ₹ 2.89 crores as per Profit and Loss Account which is more or less same as per last year. Disallowance of interest - interest attributable to funds given free of interest or given on interest but no interest on such advances were accounted for in the books of accounts - Held that:- We have considered the rival contention and found that for not providing interest income on advances, no material was brought on record by assessee to substantiate that even principle amount is in doubt. In the interest of justice, we restore this issue back to the file of the AO to find interest free funds available with the assessee which has been used for giving interest free advances. Assessee is also directed to place on record the position of borrower so as to find out if the principle loan itself is in doubt, so as to justify assessee’s claim of not accounting of interest on such advances. We direct accordingly.
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