2013 (8) TMI 988 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of addition on account of excess payment of interest to sister concern.
2. Deletion of addition u/s 40A(2)(b) on excess discount allowed to sister concern.
3. Deletion of addition u/s 40A(2)(b) on account of suppression of charges received for job work.
4. Deletion of addition on account of dividend stripping.
5. Confirmation of addition for the value of work-in-progress.
6. Charging of interest u/s 234A, 234B, 234C, and 234D.

Summary:

1. Excess Payment of Interest to Sister Concern:
The CIT(A) deleted the disallowance of Rs. 17,30,267/- made by the AO on account of excess interest paid to Vareli Fabrics Pvt. Ltd., following the Tribunal's decision for AY 2003-04. The Tribunal noted that the AO found the interest rate of 18% excessive compared to the market rate. The Tribunal remanded the matter back to CIT(A) for fresh decision, directing examination of the prevailing market rate during AY 2005-06 and applicability of Section 40A(2)(b).

2. Excess Discount Allowed to Sister Concern:
The AO disallowed Rs. 1,76,93,464/- u/s 40A(2)(b) for rate difference allowed to Kamla Associates, a sister concern. The CIT(A) deleted the addition, noting that Kamla Associates was the biggest customer, justifying the discount. The Tribunal remanded the matter back to CIT(A) for fresh decision, emphasizing the need to examine any agreement between the parties and consistency of such discounts in earlier or later years.

3. Suppression of Charges for Job Work:
The AO added Rs. 91,75,606/- for suppressed receipts from Kamla Associates compared to other parties. The CIT(A) deleted the addition, stating that job work for Kamla Associates involved larger lots, justifying lower rates. The Tribunal remanded the issue back to CIT(A) for fresh decision, requiring examination of the quality difference in job work between Kamla Associates, Garden Silk Mills, and outside parties.

4. Dividend Stripping:
The AO added income on account of dividend stripping, disputing the record date. The CIT(A) found the record date to be 24-02-2005, not 01-02-2005 as claimed by the AO. The Tribunal upheld CIT(A)'s finding, rejecting the Revenue's ground.

5. Value of Work-in-Progress:
The AO added Rs. 10,11,910/- for work-in-progress not shown in closing stock. The CIT(A) confirmed the addition. The Tribunal deleted the addition, following its decision in a similar case, noting no difference in facts.

6. Charging of Interest u/s 234A, 234B, 234C, and 234D:
The Tribunal noted that charging of interest is consequential and ordered accordingly.

Conclusion:
The appeal of Revenue is partly allowed for statistical purposes, and the CO of the assessee is partly allowed.