TMI Blog2021 (2) TMI 227X X X X Extracts X X X X X X X X Extracts X X X X ..... : Shri Sunil Kumar Pandey , DR For the Assessee : Shri P. Murali Mohana Rao , AR ORDER PER BENCH : This Revenue s appeal for AY.2011-12 arises from the CIT(A)-1, Hyderabad s order dated 25-11-2016 passed in appeal No.0049/ CIT(A)-1/ Hyd/ 2014-15/ 2016-17 in proceedings u/s. 143(3) of the Income Tax Act, 1961 [in short, the Act ]. 2. At the outset, we notice that this Revenue s appeal suffers from delay of 142 days stated to be attributable to the PCIT, Visakhapatnam holding the additional charge of PCIT-1, Hyderabad the matter having escaped his attention inadvertently due to work pressure. The assessee is equally fair in not disputing all these averments. The delay of 142 days is condoned in larger interest of justice and on account of circumstances beyond the Revenue s control therefore. 3. The Revenue has raised the following substantive grounds in the instant appeal: 1. The Learned CIT (Appeals) erred in deleting the addition made by the Assessing Officer on account of disallowance of financial charges of ₹ 5,05,73,510/- claimed by the assessee. 2. The Learned CIT (Appeals) ought to have considered that said financial charges were in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uently transfer the funds either to the group concerns or as per their instructions. Thereby it was clear that the financial charges so incurred and claimed by the assessee company were not for the business purpose but for providing finance for the group companies. As this activity of bill discounting was not done with the intention of improving its own business but was carried out only to make good to the financials of the group companies, the Assessing Officer treated the same as not expended for the business purposes and disallowed the income of ₹ 5,05,73,510/-. 5.2 Before me, the appellant submitted that it had debited an amount of ₹ 5,05,73,510/- towards bank discounting charges during the course of business activity and were incurred exclusively for the purpose of trading activity and not for any unrelated activity. Applicant submitted annual report, tax audit report, details of finance charges for ₹ 5,05,73,510/-, copies of letter of credits, details of receipts and utilization of LC proceedings, party wise breakup of purchases for ₹ 713,25,25,959/- and party wise breakup of sales of ₹ 720,49,69,995/-. Applicant stated that proper le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r concerns without interest, AO disallowed 50% of the charges as not pertaining to assessee s business. Similarly, in AY. 2007-08, assessee has claimed an amount of ₹ 88,55,691/- towards financial charges ; out of which for the same reasons, 50% of the amount was disallowed. Even though assessee submitted that the entire funds obtained from the banks by way of LC discounting was used for paying creditors and no part of the amount was diverted towards advances to other concerns, Ld. CIT(A) did not accept as similar disallowance was considered by the CIT u/s. 263 in AY. 2008-09 and further he relied on the orders for AY. 2008-09. His order in AY. 2006-07 is as under: 5. I have carefully considered the submissions of the appellant, remand report of the AO and comments of Addl.CIT and the assessment order. The appellant s submissions that since identical issue was dealt in the A.Y.2008-09 and the amount of expenditure incurred towards the financial charges was allowed as business expenditure cannot be accepted since the assessment proceedings for each year are independent. The asst. order or the decision taken with respect to AY 2006-07 or AY 2007-08 should not have any i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. 8. The Assessee may add, alter, and substitute any other grounds to the Grounds of Appeal at any time before or at the time of hearing of Appeal . 3.1. Ld. Counsel referring to the Paper Books filed, submitted that assessee was contending that LC discounting charges are paid to the banks and was part of the business expenditure and no part of the amount was diverted as advance to sister concerns, the fact of which was not contradicted by the Revenue. It was further submitted that AO in the post search assessments u/s. 153A has allowed similar claims in AYs. 2004-05 2005-06. It was submitted that the claim in AY. 2005-06 was to an extent of ₹ 1,30,69,614/- and the same amount was allowed in the post search scrutiny assessments. Further, it is also submitted that in AY. 2008-09, AO has allowed the amount and even though 263 proceedings were initiated in that year also, the Ld. CIT did not take up any issue on disallowance of financial charges. Ld. Counsel referred to the orders in the AY. 2008- 09, wherein AO after detailed examination of the claim has disallowed only an amount of ₹ 3,07,808/- pertaining to discounting charges paid to M/s. DPJ Viniyog Pvt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee was neither examined by the AO nor by the CIT(A), even though assessee is insisting on this. As seen from the orders in earlier years and also in AY. 2008-09 and 2009-10, the financial charges are allowed as such in scrutiny proceedings, that too in post search proceedings in AYs. 2004-05 and 2005-06. This means that the financial charges are utilised for the purpose of business only. We are prima-facie satisfied that the financial charges cannot be disallowed. However, AO has not given any finding whether the funds are really diverted to sister concerns, out of the funds availed due to discounting of bills. Therefore, for the limited purpose of verification, the issue is restored to the file of the AO. In case assessee has not diverted any of the funds so obtained for advancing interest free to its sister concerns, no amount of financial charges should be disallowed. AO is directed to examine this aspect and if funds are not diverted as stated by assessee, allow the full claim of financial charges. Accordingly, the grounds on this issue are considered allowed for statistical purposes . 6. Learned departmental representative fails to dispute that the Assessing Officer s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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