TMI Blog2015 (11) TMI 414X X X X Extracts X X X X X X X X Extracts X X X X ..... d out any suppression of sales or inflation of expenses. For these reasons, we are of the view that the Assessing Officer was not justified in not accepting the results of the MDF Division. - Decided against revenue. Addition on account of interest on interest free loans - Held that:- The facts and circumstances relating to the disallownace of the interest of the year under appeal are identical with the earlier years. Therefore, in line with our decision for those years, the disallowance of the interest referable to the advance made to Novika Investment is deleted, while the disallowance of the interest referable to the advances made to other four sister concerns is sustained. The deletion of the disallownace of the interest referable to the advances made to Southern Synthetics Limited is sustained as in the earlier years. - Decided partly in favour of assessee. Disallowance of inauguration expenses - ITAT allowed the claim - Held that:- The findings recorded by the CIT(A) as well as the Tribunal are pure findings of fact where they have recorded that the said expenditure was incurred exclusively for the purpose of assessee's business. The said findings have not been shown to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) deleting the addition on account of Inauguration Expenses by keeping silent on merits of the present case in respect of disallowance of ₹ 4,78,845/- made by the Assessing Officer, when the expenses were not properly explained and duly vouched? In ITA No.130 of 2009, the following question of law has been claimed:- Whether on the facts and in the circumstances of the case, the Hon'ble ITAT is right in law in reversing the order of the learned CIT(A) sustaining the addition made by the Assessing Officer on account of interest on interest free loans given to sister concern or persons covered under section 40A(2) of the Income Tax Act in contradiction with the judgment of jurisdictional High Court in CIT, Ludhiana vs. Abhishek Industries Limited, 286 ITR 1 (P H) 3. A few facts relevant for the decision of the controversy involved as narrated in ITA No.892 of 2008 may be noticed. The assessee company filed its return on 31.12.1993 declaring loss of ₹ 18,29,95,260/- which was revised to ₹ 18,45,95,550/- vide revised return filed on 2.5.1994. Again the return was revised to ₹ 18,23,70,250/- vide revised return filed on 12.12.1994. Assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to sister concerns, the further relief of ₹ 80,000/- was given to the assessee by holding that the interest of ₹ 80,000/- on interest free loan to M/s Novika Investments was for business expediency. ITA No.130 of 2009 challenges such relief accorded to the assessee. Hence the instant appeals by the revenue. 4. We have heard learned counsel for the parties. 5. We proceed to discuss the relevant findings of the authorities below on the issues involved. i) Trading addition of ₹ 74,96,376/- 6. The assessee declared gross profit of ₹ 10,65,51,163/- on the total sales which came to 27.43% as against 25.03% and 24.38% in the assessment years 1992-93 and 1991-92 respectively. The assessee's MDF Division at Tohana declared gross profit of 46.88%. The Assessing Officer found that there was discrepancy in the value of stock of eucalyptus wood and the stock of cotton stalk. The value of the stock as per the books was less than the value of the stock shown to the bank. The Assessing Officer did not accept the explanation of the assessee that the difference was due to theoretical calculation. The Assessing Officer invoked the provisions of Section 145(2) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... logs of eucalyptus tree was not correct and that the assessee ought to have put in place a system by which the moisture content can be measured not only when the logs arrive in stock but also when they are fed into the plant for being sown, we can only say that the manner in which the manufacturing activity should be carried out must be left to the assessee who is the best judge in such matters; in fact the assessee pointed out that how impractical it would be to stop the production process merely to verify the moisture content of the logs at the point of time when they are fed into the plant to satisfy the curiosity of the Assessing Officer or to comply with his unreasonable direction. It seems to us that the assessee has a valid point here. As regards the use of cotton stalks, the assessee had a technical problem when they got entangled in the machinery and for a temporary period, the assessee switched over to the use of eucalyptus wood but it could not be continued for long because it is costlier than the cotton stalks. Had the assessee continued to use eucalyptus wood in the place of cotton stalks, perhaps the gross profit rate would have been lower. It is also true that the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Explosive Limited, (1991) 192 ITR 144. The disallowance of interest on the advanced amount to Southern Synthetic Limited was dealt with by my predecessor in assessment year 1991-92 and assessment year 1992-93 in appeal No.185/94-95 dated 23.8.95 and 98/95-96 dated 31.3.1996 respectively, wherein the disallownace of interest has been deleted on the ground that the financial conditions of the said company deteriorated and recovery of principal amount of debts had become improbable and doubtful. The southern synthetic Limited subsidiary company which alter on became BIFR case, has merged with M/s Kothari Plantations Industries Limited (KPIL) w.e.f 31.3.1993 and stood dissolved without winding up on and from 23.4.1994. Since there was no change of recovering principal amount,hence the charge of interest is unreaslistic and hypothetical. The appellant has relied upon the case of CIT vs. Motor Credit Co. (Pvt) Limited, (19881) 127 ITR 572 (Mad.) and CIT vs. Birla Gwalior (P) Limited, (1973) 89 ITR 266 (SC). Therefore, the disallowance in respect of interest on advance to Southern synthetics Limited is deleted following the order of my predecessor in assessment year 1991-92 and Assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent has also come in appeal for this year vide ground No.(iv) in its appeal challenging the decision of the CIT(Appeals) to delete the interest of ₹ 4,43,730/-. This has also been considered by us in the appeals filed by the department in the earlier two years. In the earlier year's appeals, we have deleted the interest referable to advances made to Novika Investment following the order of the Tribunal for an earlier year. However, the interest referable to other four sister concerns was confirmed by us. In the appeals of the department, we had confirmed the decision of the CIT(Appeals) deleting the disallowance of interest referable to the advances made to Southern Synthetics Limited. It is common ground that the facts and circumstances relating to the disallownace of the interest of the year under appeal are identical with the earlier years. Therefore, in line with our decision for those years, the disallowance of the interest referable to the advance made to Novika Investment is deleted, while the disallowance of the interest referable to the advances made to other four sister concerns is sustained. The deletion of the disallownace of the interest referable to the adva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anch. The expenditure includes travellign expenses, expenses incurred on hoardings, wall painting etc. It is further stated that the expenditure had been incurred wholly and exclusively for the purpose of business. The appellant has relied upon the case of Nirlon Synthetics Fibers Chemicals Limited, (1982) 137 ITR 1 (Bom.) and CIT vs. Hindustan Aluminium Corp. Limited, (1989) 176 ITR 206 (Cal.) in which the inauguration expenses are held allowable. In view of the decision of various High Courts, the inauguration expanses of ₹ 4,78,845/- are allowed and the disallowance in this respect is deleted. 13. The Tribunal while concurring with the findings recorded by the CIT(A) recorded as under:- 92. Ground No.9 is that the CIT(Appeals) erred in deleting the disallowance of the inauguration expenses of ₹ 4,78,845/-. The total amount claimed by the assessee as deduction under this head was ₹ 8,33,593/-. The Assessing Officer disallowed ₹ 1,90,729/- representing payment to hotel as entertainment expenses, ₹ 1,34,063/- being travelling expenses incurred in connection with the inauguration function of the MDF Division at Tohana and ₹ 1,54,051/- be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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