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2015 (8) TMI 362 - ITAT DELHI

2015 (8) TMI 362 - ITAT DELHI - TMI - Disallowance of interest - Held that:- The interest was paid by the assessee on the amount borrowed for the purposes of business so it was to be allowed u/s 36(1)(iii) of the Act and once it is established that the interest paid was for the business consideration than the deduction has to be allowed to the assessee while computing the income u/s 28 of the Act and no disallowance can be made merely on this basis that interest free advance had been given by th .....

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ssessee for various expenses and the explanation given by the assessee was not found to be plausible, therefore, the assessee itself agreed for addition of ₹ 1,00,000/- out of various expenses. In the present case since the assessee agreed for the addition, we, therefore, do not see any valid ground to interfere with the findings given by the ld. CIT(A) on this issue. Accordingly we do not see any merit in this ground of the assessee’s appeal. - Decided against assessee.

- ITA No .....

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er, so, these are being disposed off by this consolidated order for the sake of convenience and brevity. 3. First, we will deal with the appeal in ITA No. 1194/Del/2012 for the assessment year 2008-09. Following grounds have been raised in this appeal: 1. On the facts and circumstances of the case, the order passed by the ld. Commissioner of Income Tax (Appeals) [(CIT(A)] is bad both in the eye of law and on facts. 2. On the facts and circumstances of the case, the ld. CIT(A) has erred both on f .....

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, amend or alter any of the grounds of appeal. 4. From the above grounds it would be clear that only grievance of the assessee in this appeal relates to the confirmation of addition amounting to ₹ 14,04,000/- made by the AO on account of disallowance of interest. The facts related to this issue in brief are that assessee e-filed the return of income on 28th September, 2008 declaring an income of Rs. nil which was processed u/s 143(1) of the Income Tax Act, 1961(hereinafter referred to as t .....

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e not disallowed in view of specific judgement of the Hon ble Jurisdictional Punjab and Haryana High Court in the case of CIT vs. Abhishek Industries Ltd. In response the assessee submitted that it had entered into an agreement with M/s North West Paper Craft P. Ltd. for the sale of their plant and machinery and for this purpose the assessee firm submitted a copy of agreement entered into between the assessee and M/s North West Paper Craft Pvt. Ltd. Kaithal Road, Karnal. The AO observed that the .....

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ocated, in whose name it stands alongwith copy of relevant revenue papers/registration deed etc. ii) If the land has been purchased in the name of the assessee firm, then sources thereof and where reflected in the books of accounts. Also, fate of agreement i.e. if all the plant and machinery stand purchased or not? If not, then reason thereof? If yes, then complete details thereof? iii) Complete details of proposed loacation/location selected and infrastructure erected thereupon and where the ex .....

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; 1404000/- was reduced from the interest liability which resulted in an addition of ₹ 1404000/- . 6. Being aggrieved the assessee carried the matter to the ld. CIT(A) and reiterated the submissions made before the AO, it was further submitted that advance was given for the purchase of plant and machinery since the assessee was interested to set up a paper manufacturing plant. It was stated that no interest was charged by the partners on their capital which was ₹ 92.34 lakhs as on 31 .....

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was not called for. The assessee furnished copy of account of M/s Northwest Paper Crafts P. Ltd. for the financial year 2006-07 relevant to the preceding assessment year 2007-08. From the above said account the Ld. CIT(A) found that there were inflow and outflow of funds through out the financial year 2006-07 and that the assessee paid ₹ 1,97,49,114/- and received ₹ 59,81,076/- , as such there was closing Debit balance of ₹ 1,37,68,038/- as on 31.03.2007 which was carried forwa .....

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done in more than 4 years time which itself raised doubt about the genuineness of this agreement since in such a long span of time even the technology becomes absolete. He also pointed out that normally in an agreement, in case of non execution of the agreement, some penal clause is used to be there, whereas in this case there was no such penal clause and as per this agreement in case of non execution of the terms of agreement by the company, the amount of advance was to be returned and that to .....

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ecured loans of ₹ 8.30 crores on which interest liability of ₹ 1.24 crores was claimed and had those interest free advances been not made to M/s North West Paper Craft (P) Ltd, the same would be available with the assessee for use of business which in turn would reduce the interest liability of the assessee substantially. The Ld. CIT(A) did not accept this contention of the assessee that no interest was paid on the capital of the partners by observing that the same was not available .....

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mp; Machinery. It was further stated that the assessee furnished all the details to the AO as well as the Ld. CIT(A) and explained that there was no nexus in the interest free advance and the interest bearing loans. Therefore, the disallowance made by the AO and confirmed by the Ld. CIT(A) was not justified. The reliance was placed on the following case laws :- • CIT vs. Rockman Cycle Industries Ltd. (2009) 176 Taxmann 21 (P&H) • CIT vs. Amrit Soap Co. (2009) 308 ITR 287 (P&H) .....

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r Crafts Pvt. Ltd. for purchase of the Plant & Machinery for a sum of ₹ 3 crore, copy of the said agreement is placed at page no. 25 and 26 of the assessee s paper book. So the amount paid by the assessee was an advance to purchase the Plant & Machinery and it was not an interest free loans given by the assessee to M/s North West Paper Crafts Pvt. Ltd. which was paid through cheque. The AO considered this amount as interest free advance and made the impugned disallowance on account .....

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y other transactions and some times, there was credit balance in the account of said party. In the present case, it is not the case of the department that the borrowed funds were not used for the business purpose and in the absence of nexus between the interest bearing borrowed funds and the advance given by the assessee for purchase of Plant & Machinery, the disallowance made by the AO, was not justified. In the present case, it is also noticed that the partners of the assessee firm were ha .....

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n Cycle Industries Ltd. 176 Taxman 21 (Supra) has observed in para 5 as under : 5. After hearing the counsel for the parties, we do not find any substance in the arguments raised by the Counsel for the revenue. As per section 36(1)(iii) of the Act, the amount of interest paid in respect of capital borrowed for the purposes of the business or profession has to be allowed as a deduction in computing the income under section 28 of the Act. Once a finding of fact has been recorded that the interest .....

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est-free loan, then the real test to allow the interest as deduction under section 36(1)(iii) of the Act is whether this was done for commercial expediency or not. Similar view has been taken by the Supreme Court in Munjal Sales Corpn. s case (Supra). 11. In the present case also the interest was paid by the assessee on the amount borrowed for the purposes of business so it was to be allowed u/s 36(1)(iii) of the Act and once it is established that the interest paid was for the business consider .....

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stained by the Ld. CIT(A) was not justified. Accordingly the same is deleted. Now we will deal with the appeal in ITA No. 4463.Del.2012 : 12. Following grounds have been raised in this appeal :- 1. On the facts and circumstances of the case, the order passed by the ld. Commissioner of Income Tax (Appeals) [(CIT(A)] is bad both in the eye of law and on facts. 2(i) On the facts and circumstances of the case, the ld. CIT(A) has erred both on the facts and in law in confirming the action of the AO i .....

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and in law in confirming the action of the AO in disallowing an amount of ₹ 4,39,764/- on account of interest expenditure incurred during the year by invoking the provisions of section 40(a)(ia) of the Act. 4(i) On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the disallowance of an amount of ₹ 1,45,570/- on account of challans and penalty. (ii) That the above disallowance has been confirmed despite the fact that the expe .....

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ade by AO on account of various expenses. 7. The appellant craves leave to add, amend or alter any of the grounds of appeal. 13. Ground no. 1 and 7 are journal in nature while ground no. 4 was not pressed, so these grounds do not require and any comments our parts. Ground no. 2 relates to the disallowance made by the AO on account of notional interest on the advance given to M/s North West Paper Crafts (P) Ltd. for the purchase of Plant & Machinery. 14. The facts related to this issue are id .....

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ns of Sec. 40(a)(ia) of the Act. The facts related to this issue in brief are that the AO during the course of assessment proceedings noticed that the assessee had paid interest to the tune of ₹ 4,39,764/- to M/s TML Financial Services Ltd. on account of secured loan of ₹ 24,84,090/-. The AO further observed that the detail of interest as well as copy of account of M/s TML Financial Services Ltd. revealed that the assessee had not deducted tax at source while making the payment of in .....

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vide ground no. 3 deserves to be dismissed. We order accordingly. 17. Vide ground no. 5 the grievance of the assessee relates to the confirmation of addition of ₹ 55,000/- made by the AO on account of disallowance of interest. The facts related to this issue in brief are that the AO during the course of assessment proceedings noticed that the assessee had advanced a loan of ₹ 5,00,000/- to Sh. Rakesh Khanna but no interest had been charged on the said amount of advance. The AO observ .....

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. Rakesh Khanna on 03.05.2008 as advance for purchase of suitable land for paper mill. The advance was given for giving token money to the prospective seller of the land. Since the partners of the assessee firm has wide experience of running paper mills, therefore, they were keen to develop the business of the firm, hence advance was made for purchase of second hand machinery from another company. The suitable land near a drain could not be located during the year, hence the advance remains outs .....

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o Mr. Rakesh Khanna was advanced against purchase of their assets and was made for the business expediency. In view of above, it is submitted that the assessee has not made any advances which is not linked with business activity, therefore, no disallowance of interest be made. That the reliance of the Ld. AO on the above judgement of Abhishek Industries Limited is also misplaced. The facts of the case of the assessee is clearly distinguishable as specified in the judgement of Hon ble Punjab and .....

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Tax vs. Amrit Soap Co. (2009) 308 ITR 287 (P&H) and Commissioner of Income Tax vs. Rockman Cycle Industries Limited (2009) 176 Taxmann 21 (P&H). Wherein the hon ble Supreme Court and Punjab and Haryana High Court has held that advances made for commercial expediency does not cover under the ambit of section 36(1)(iii). Hence no disallowance can be made. It is therefore, prayed that the disallowance made by the AO of ₹ 0.55 lacs may kindly be deleted. 19. The ld. CIT(A) after consi .....

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to one Sh. Rakesh Khanna on 03.05.2008, i.e. during the year under consideration. The appellant claimed that the advance was made for purchase of land for paper mill and hence claimed that the advance was made for business referred to in para 2.2 of the written submissions reproduced above. The appellant, however, could not bring on record any evidence in support of its claim that the said advance was made for business purposes. Hence case laws relied upon by the appellant is of no help rather .....

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ill and the advance was given as a token money to the prospective seller of the land. It was further stated that since the suitable land could not be obtained during the year, the advance remained outstanding but there was no diversion of any fund for personal gain . It was also stated that the advance was given to Sh. Rakesh Khanna against the purchase of asset for business expediency. Therefore, disallowance made by the AO and sustained by the Ld. CIT(A) was not justified. In his rival submiss .....

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377; 55,000/- made by the AO and sustained by the ld. CIT(A) is deleted. 22. The last issue vide ground no. 6 relates to the confirmation of adhoc disallowance of ₹ 1,00,000/-, made by the A.O. out of the various expenses. The facts related to this issue in brief are that the AO during the course of assessment proceedings noticed that the assessee had claimed various expenses as per following details :- Expenses Amount Miscellaneous Exp. 97,543/- Printing & Stationery 1,91,518/- Salary .....

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regard. The AO specifically mentioned that the assessee agreed for a disallowance of ₹ 1,00,000/- out of above expenditure. Accordingly the AO made the addition of ₹ 1,00,000/-. 23. Being aggrieved the assessee carried the matter to the Ld. CIT(A) and submitted that the AO made the above addition on adhoc basis without giving any reason thereto. It was also stated that the addition made by the AO was erroneous and excessive. 24. The ld. CIT(A) after considering the submissions of the .....

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