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2015 (4) TMI 674 - ITAT AHMEDABAD

2015 (4) TMI 674 - ITAT AHMEDABAD - TMI - Dis-allowance of Interest expenses u/s.36(i)(iii)of the Income Tax Act,1961 - Direct nexus between borrowings and business purpose - Interest free advances given prior to taking such loans - Dis-allowance of reimbursement of expenses u/s 40(a)(ia), TDS not deducted - Held that:- Nothing contrary was brought to our knowledge on behalf of Revenue. Facts being similar so following same reasoning, we are not inclined to interfere in the order of CIT(A) becau .....

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expenses incurred by Agent on behalf of assessee. The fact that separate bills wee issued for services and for reimbursement was not disputed in assessment order. As discussed above, in M/s. Om Satya Exim Private Ltd. [2011 (5) TMI 894 - ITAT AHMEDABAD]held that assessee was not liable to deduct TDS on reimbursement of expenses incurred by Agent on behalf of assessee. Disallowance in respect of these items has not been made u/s. 40(a)(ia). Nothing contrary was brought to our knowledge on behalf .....

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y the Revenue against the order of Commissioner of Income Tax (Appeals)-VI, Ahmedabad, dated June 17.06.2011 for A.Y. 2008-09 on the following grounds: 1. The Ld. CIT(A) erred in law and on facts in deleting the addition of ₹ 8,33,252/- made on account of disallowance of interest u/s.36(i)(iii) of the Act. 2. The Ld. CIT(A) erred in law and on facts in deleting the addition of ₹ 55,94,825/- made on account of disallowance of interest u/s.40(a)(ia) of the Act. 2. First issue is with r .....

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ard to advance given to other two parties. The assessee has not explained the availability of interest free funds on the date of transactions. The assessee has only given total of interest free funds of ₹ 199 lacs. However, the assessee has not explained whether these funds were available as bank balance on the date of advancing these loans. Hence, the assessee has not proved that no borrowed funds were utilized for advancing interest free loans. Interest on borrowed capital is allowed as .....

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was borrowed for purposes of business, but advanced at a concessional rate to its directors, so that the High Court upheld the inference of the Revenue to disallow the amount to the extent of difference in interest rates, though the Revenue was not able to establish the identity of the funds allegedly diverted. The High Court pointed out that no business purpose was served by such lending and that the amounts were substantial and cannot be glossed over and that the fact that the assessee borrows .....

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part of interest paid on such borrowed capital, if any, to the extent that the borrowed funds are utilized for interest-free advances. Disallowance is on the ground, that it will not be eligible for deduction as expenditure incurred for purposes of business. Further, reliance is placed on the following decisions:- 1. Patel Filter Ltd. vs. CIT [2003] 264 ITR 21 (Guj.) 2. CIT vs. Vallabh Glass Works Ltd. [1982] 137 ITR 389 (Guj.) 3. CIT vs. H. R. Sugar Factory Pvt. Ltd. [1991] 187 ITR 363 (All.) .....

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epted, therefore, 12% at an average rate of interest is to be disavowed from interest expenses. At this rate, the interest disallowance comes to Rs, 9,73,692/-. But, the assessee has made expenditure on account of interest paid on borrowed funds of ₹ 8,33,252/-. Hence, the disallowance of interest is limited to ₹ 8,33,252 /-. " 2.1 Matter was carried before the First Appellate Authority, wherein various contentions were raised on behalf of assessee and having considered the same .....

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owed funds were diverted for non-business purpose. This issue was decided in appeal order dated 03-03-2011 in the appellant's own case for assessment year 2007-08. The relevant extract of this order is quoted below- "Assessing officer disallowed the interest on the ground that the same was paid on the capital borrowed which was utilized in giving interest free advances. However offer going through the details submitted by the appellant it is clear that the interest was paid for the loan .....

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were given prior to taking these loans and therefore these loans could not have been used for giving interest free advances. Since there is direct nexus between borrowings and business purpose, interest cannot be disallowed under section 36 (1) (iii) of IT act. In view of this, the disallowance made by the assessing officer is deleted. " Since facts are identical this year also, it is held that interest-bearing borrowed funds were not diverted for nonbusiness use and accordingly the disall .....

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ards to disallowance u/s. 40(a)(ia) on account of reimbursement of expenses. Assessing Officer has stated in assessment order as under: Reply of the assessee is carefully considered. As per details furnished by the assessee, clearing and forwarding agents are rendering services of clearing and forwarding to the assessee. The contention of the assessee that the amount involved is below the prescribed limit is far from the facts as the payments made are in lakhs to the agents. The contention of th .....

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(ia) is reproduced hereunder for ready reference. "40. Amounts not deductible Notwithstanding anything to the contrary in section 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head "Profits and gains of business or profession".- (a) in the case of any assessee.. ...(ia) any interest, commission or brokerage, rent, royalty fees for professional services or fees for technical services payable to a resident, or amounts payable to .....

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ucted in the previous year but paid in any subsequent year after the expiry of the time prescribed under subsection (1) of section 200, such sum shall be allowed as a deduct/on in computing the income of the previous year in which such tax has been paid.........." The assessee has further stated that the payment made to C&F Agent includes reimbursement of the expenses. Reimbursement do not constitute trading receipts of the C&F Agent, therefore no TDS is required to be made. This ex .....

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on behalf of organization. In the above decision, Hon'ble SC further held that payment to contractor is not confined to a work contract. Any sum payable by an organization for carrying out any work is liable to deduct tax. The assessee has not explained that on the facts of the case, judgement relied upon by the assessee is applicable. In the case relied upon by the assessee the payment was made to sister concern outside India, which is not the case with the assessee. On the facts of the ca .....

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77; 55,94,825/- by the assessee company. These amounts are disallowed and added back to total income as per provisions of sec. 40(a)(ia) of the Act." 3.1 Matter was carried before the First Appellate Authority, wherein various contentions were raised on behalf of assessee and having considered the same, CIT(A) has granted relief to the assessee. Same has been opposed on behalf of Revenue inter alia submitted that CIT(A) erred in law and in deleting addition of ₹ 55,94,825/- made on ac .....

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s. Om Satya Exim Private Ltd. in ITA No. 1335/Ahd/2010 dated 13.05.2011 has held as under: We have considered rival submissions and perused the material on record and going through the orders of the authorities below and the judgement cited by the ld counsel of the assessee. We have also considered board circular dated 8-8-1995, copy of which has been submitted by D R of the revenue. In the present case, it has been submitted before us by A R that the commission agent has raised separate bills f .....

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has also considered the board circular number 715 dated 8-8-1995 in the case of Dr Willmar Schwabe India private Ltd and it was held that when the bill for reimbursement of expenses has been separately raised by the consultant, section 194J is not applicable. Hence my respectfully following this tribunal decision, we hold that in the present case also, since bills for reimbursement of expenditure have been raised by the commission agent separately, TDS was not required to be deducted from such .....

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