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2014 (1) TMI 1686 - AT - Income TaxDisallowance of interest paid by the assessee to sister concern Intersil Semiconductors Pvt. Ltd. - Held that - It is pertinent to mention that the disallowance/addition has been made/confirmed on the ground that the assessee has borrowed funds on which interest has been paid whereas the assessee has advanced interest free loan and made investments. In this context, the perusal of the balance sheet available at page 1 of the paper book indicates that the assessee has sufficient own funds to make loans and investments. When the fact being so, the ratio laid down by the Hon ble Bombay High Court in the case of Reliance Utilities and Power Ltd (2009 (1) TMI 4 - BOMBAY HIGH COURT) is applicable in the case of the assessee to support the proposition that the assessee has made the loans and investments out of the surplus funds. Also, it is not disputed that the borrowed funds on which the interest paid to the sister concern is utilized for the purpose of business. Therefore, there need not be any doubt about the allowability of the interest expenditure claimed by the assessee u/s 36(1) (iii) of the Act. In view of that matter, the disallowance/addition made on account of interest on this count is deleted - Decided in favour of assessee. Disallowance of being 50% of the repairs & maintenance expenditure - Held that - The AO disallowed the impugned claim of the assessee as the nature of repair in respect are not clear and the assessee has not provided any break up of expenditure despite the fact that the details have been produced before him whereas the Ld.CIT(A) confirmed the disallowance of 50% on a different reasoning that the said expenditure is capital in nature. Considering the totality of facts and after observing that similar claims of the assessee has been allowed by the Tribunal in the assessee s own case for the assessment year 2004-05, wherein it has been held that the expenditure incurred on this account has to be allowed as normal revenue expenditure, we, following the said order, delete the addition made/confirmed by the AO/CIT(A). - Decided in favour of assessee. Disallowance of reduction/writing off of stock in trade - Held that - It is pertinent to mention that the assessee has claimed the impugned written off in respect of the stock as the business has become obsolete and the said stocks have been destroyed. The perusal of the orders of the authorities below indicates that the said claim of the assessee has not been properly verified while making/confirming the said disallowance. Considering the facts in toto, we are of the view that it is just and proper to set aside the issue to the file of the AO to verify the claim of the assessee whether the stock has become obsolete/destroyed. On confirming the same, the AO may accordingly decide the issue in accordance with law after providing due opportunity of being heard to the assessee. - Decided in favour of assessee for statistical purpose.
Issues:
1. Disallowance of interest paid to sister concern. 2. Disallowance of repairs & maintenance expenditure. 3. Disallowance of reduction/writing off of stock in trade. Issue 1: Disallowance of Interest Paid to Sister Concern: The appellant contested the disallowance of interest paid to a sister concern by the AO. The AO invoked section 36(1)(iii) as the appellant borrowed funds on which interest was paid but advanced interest-free loans. The Ld.CIT(A) confirmed the disallowance except for a specific amount. The appellant argued that it had sufficient own funds to support the loans and investments, citing a relevant High Court case. The tribunal agreed that the appellant had surplus funds to justify the loans and investments made, allowing the interest expenditure claimed under section 36(1)(iii) and deleting the disallowance. Issue 2: Disallowance of Repairs & Maintenance Expenditure: The AO disallowed 50% of the repairs and maintenance expenditure, considering it capital in nature due to lack of clarity on the nature of repairs. The Ld.CIT(A) upheld the disallowance. The appellant provided details of the expenditure and relevant bills, arguing against the disallowance. The tribunal noted the confusion in reasoning between the AO and Ld.CIT(A) and referred to a previous order where similar claims were allowed. Following precedent, the tribunal deleted the addition made by the AO/CIT(A) regarding the repairs and maintenance expenditure. Issue 3: Disallowance of Reduction/Writing Off of Stock in Trade: The AO disallowed the reduction/writing off of stock in trade claimed by the appellant, rejecting the contention that the stock became obsolete due to changes in technology. The Ld.CIT(A) confirmed the disallowance, stating that the loss on stock would only arise upon actual sale. The appellant argued that the stock had become obsolete and destroyed. The tribunal found that the claim was not properly verified and decided to set aside the issue for the AO to reexamine and make a decision after proper verification. The tribunal allowed the appeal for statistical purposes. In conclusion, the tribunal allowed the appeal filed by the appellant, addressing the issues of interest disallowance, repairs & maintenance expenditure, and reduction/writing off of stock in trade comprehensively in favor of the appellant.
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