2015 (6) TMI 1269 - AT - Income Tax

Deferment of sales tax liability u/s. 43B - sales tax liability in respect of which the assessee was availing the benefit of Sales Tax Deferment Scheme - HELD THAT - We find that similar issue was considered by the ITAT in assessee s own case for Assessment Years 2005-06 and 2006-07 2010 (6) TMI 839 - ITAT AHMEDABAD and also for AY 2008-09 012 (9) TMI 1248 - ITAT AHMEDABAD and the ITAT held that the disallowance u/s 43B in respect of such sales tax liability on which the assessee is entitled to Sales Tax Deferment Scheme is not justified. Decided against revenue. Disallowance of interest under proviso to Section 36(1)(iii) - AO was of the opinion that the part of the interest payment was attributable to the funds utilized for creation of capital work-in-progress therefore made proportionate disallowance of interest - AO also found that during the year under consideration the assessee gave advance without charging of interest - CIT(A) deleted addition - HELD THAT - As against this interest free fund the investment in capital work-in-progress is only Rs. 26.01 crores and advance to others is Rs. 12 lacs. Thus the interest free fund available with the assessee is more than 10 times of the capital work-in-progress and advance to others. Admittedly the AO has not pointed out that any borrowed money has been utilized for the purpose of investment in capital work-in-progress or for advance to others. He made proportionate disallowance merely on the presumption that the proportionate borrowed money must have been utilized for investment in capital work-in-progress etc. We find that under the similar circumstances in the case of Raghuvir Synthetics Ltd. 2013 (7) TMI 806 - GUJARAT HIGH COURT upheld the decision of ITAT. In that case also the interest free fund available with the assessee was much more than the interest free loan given by the assessee. AO has not proved that the borrowed money has been utilized for giving of interest free advances. AO disallowed the interest on proportionate basis. The CIT(A) deleted the addition which was upheld by the ITAT. Decided against revenue.

Summary

Issues involved: Appeal against order of Commissioner of Income-tax (Appeals) regarding Assessment Year 2009-10.

Issue 1 - Disallowance u/s. 43B - Sales Tax Liability:
The appeal concerned the disallowance u/s. 43B on account of sales tax liability under the Sales Tax Deferment Scheme. The ITAT considered past decisions and held that disallowance u/s. 43B for sales tax liability under the deferment scheme is not justified. Citing relevant case law, the ITAT upheld the CIT(A)'s decision to delete the addition made by the Revenue.

Issue 2 - Disallowance of Interest under Section 36(1)(iii):
The Assessing Officer disallowed interest amounting to Rs. 32,82,282, attributing it to funds used for capital work-in-progress. The CIT(A) overturned this disallowance. The ITAT, after considering arguments from both sides, upheld the CIT(A)'s decision based on the substantial interest-free funds available with the assessee compared to the investments in capital work-in-progress and interest-free advances, in line with relevant case law.

Issue 3 - Disallowance of Proportionate Interest:
The Assessing Officer disallowed interest of Rs. 1,44,000 on an advance given without charging interest. The CIT(A) reversed this disallowance. The ITAT, after joint consideration of related grounds, upheld the CIT(A)'s decision due to the significant interest-free funds available with the assessee, as compared to the amounts invested in capital work-in-progress and interest-free advances, in accordance with applicable legal precedents.

In conclusion, the ITAT dismissed the Revenue's appeal based on the above considerations and upheld the CIT(A)'s orders for the Assessment Year 2009-10.