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2010 (2) TMI 763 - AT - Income TaxThe disallowance made by the AO in respect of lease rentals paid to various financial institutions towards lease of assets". - The stand of the Revenue is that the lease rentals paid by the assessee and debited to P and L account would need to be disallowed in view of the fact that there were no assets with reference to which the lease rental can become an allowable expenditure. - On the other hand, the claim of the assessee that the lease rental in any case an allowable expenditure, if not, as 'lease rentals' but as 'financial charges' commands worth consideration. - Held that:- Unless the Revenue has disputed the assessee's claim with documentary evidence, it cannot be termed as sham or a device. In fact, the Revenue has placed more stress on the survey report rather than making discreet inquiries to pin point where the assessee was at fault. - the transactions made by the assessee during the assessment years under dispute were treated as financial transactions and the claims of Rs.1,38,65,266/-, Rs.1,63,10,230/- and Rs.44,63,063/- for the AYs 97-98, 98-99 and 99-00 respectively are treated as the interests paid for the financial loans availed by the assessee and that the assessee is entitled to claim the same as allowable deduction for the respective assessment years under dispute. Unexplained cash credit - addition u/s 68 - held that:- the assessing officer had not discharged the onus cast upon him "to look into the cash credit and make necessary enquiry and come to a finding on such an enquiry in a proper and fair manner" and, therefore, we are of the firm view that without causing any inquiry, treating 10% of total advances as unexplained cash credits is contrary to the spirit of judicial precedents. AO was not justified in treating Rs.7,16,30,000/- as unexplained cash credits u/s 68 of the Act. Payment of conversion charges - disallowance of Rs.345925/- by invoking the provisions of s.40A(2)(b) - Held that:- this issue is remitted back on the file of the AO for fresh consideration. Interest on borrowed funds - The assessee was in the process of expansion of ISP for which a considerable power was necessitated for smooth running of the said plant. Since SNPL - a sister concern - had inclined to generate the required power for the assessee for which the assessee had advanced funds for implementation of the said project and accordingly a Memorandum of the Understanding was drawn between them. - Held that:- there was no question of diversion of business funds on the part of the assessee and as such, the authorities below were not justified in disallowing a sum of Rs.4,91,65,609/-.
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