2011 (2) TMI 1385 - AT - Income Tax

Summary

Issues involved: Appeal against order deleting addition for interest-free advance to subsidiary company u/s 40A(2)(b) and u/s 37(1) for bank charges.

Issue 1 - Interest-free advance to subsidiary company:
- AO proposed disallowing interest on advances to subsidiary companies.
- Assessee explained business purpose for advances, but AO disallowed interest.
- CIT(A) decided in favor of assessee citing S.A.Builders case.
- Tribunal upheld CIT(A)'s decision as AO did not rebut business purpose explanation.
- Ground No.1 dismissed.

Issue 2 - Excess price paid for purchase of comber cotton waste u/s 40A(2)(b):
- AO disallowed 10% of purchases from sister concern under section 40A(2)(b).
- CIT(A) found purchases comparable to those from outside parties, deleted disallowance.
- Tribunal confirmed CIT(A)'s decision as Department failed to rebut findings.
- Ground No.2 dismissed.

Issue 3 - Expenditure of capital nature shown as bank charges u/s 37(1):
- AO disallowed bank charges as capital expenditure.
- Assessee claimed charges for working capital, similar expenses incurred yearly.
- CIT(A) deleted disallowance based on recurring nature of expenses.
- Tribunal confirmed CIT(A)'s decision as Department did not rebut findings.
- Ground No.3 dismissed.

General: Ground Nos.4 and 5 are general in nature and not independently adjudicated.

The appeal filed by the Department against the order deleting additions for interest-free advance to subsidiary company, excess price paid for purchase of comber cotton waste, and bank charges was dismissed by the Tribunal on 28 February 2011.