2013 (11) TMI 1661 - HC - Income Tax

Area under construction, a valid ground for disallowance of the claim of electricity expenses? - Not informing the other Government agencies about actual user of the premises required or not? - HELD THAT -If the premises are being used by the assessee and the assessee is the actual user of the premises and for actual user is paying electricity expenses, then certainly the claim is to be allowed. The premises was being used only for storage purpose, whether it is partly constructed or fully constructed or under construction is insignificant. Merely because the assessee did not inform the other Government agencies about actual user of the premises owned by M/s N.K. Industries is insignificant when one is able to prove that the premises were actually used by the assessee. Decision in favor of assessee. The assessee had trade transactions with persons to whom advances are made looking to the commercial and business expediency and decide whether to charge interest or not -Int erest-free loan to its sister-concern - Interest-free loans have been diverted for giving advantage to related persons/concerns to reduce the income of the assessee - It is an admitted fact that the assessee had received more than ₹ 60 lacs as advance from the customers on which no interest was paid. When to this magnitude on which no interest was payable, the AO was not justified in disallowing interest. HELD THAT - The interest was rightly allowable on the basis of the facts found in the case. Referring the case 2008 (2) TMI 19 - SUPREME COURT , the Tribunal held that the loans given to the sister-concerns were out of the firm's funds and that they were advanced for business purposes. Decision in favor of assessee.

Summary

Issues Involved:
1. Disallowance of electricity expenses.
2. Disallowance of interest amounting to Rs. 19,60,313.

Disallowance of Electricity Expenses:

The assessee, engaged in the business of manufacturing and trading pulses, claimed electricity expenses for using the premises of M/s N.K. Industries. The AO disallowed the claim, arguing that the premises were under construction and not used for storage, and the assessee did not inform relevant authorities about using the premises. The CIT(A) upheld the disallowance despite the assessee's history of similar claims being allowed from asst. yr. 2003-04 onwards. The Tribunal, however, found the claim justified based on past allowances and actual usage evidence, and deleted the disallowance of Rs. 8,16,115. The High Court upheld the Tribunal's decision, noting the consistent allowance in previous years and the actual usage of the premises, dismissing the Revenue's appeal.

Disallowance of Interest Amounting to Rs. 19,60,313:

The AO disallowed interest expenses, asserting that the assessee advanced interest-free loans to related parties, reducing taxable income. The CIT(A) reversed this, finding the advances were for business expediency and covered by the assessee's own surplus funds and interest-free credits. The Tribunal upheld the CIT(A)'s decision, referencing the Supreme Court's judgment in S.A. Builders Ltd. v. CIT, which emphasized commercial expediency. The High Court agreed, noting the assessee's sufficient capital and business transactions with related parties, and found no substantial question of law, dismissing the Revenue's appeal.

Conclusion:

The High Court dismissed the appeal, affirming the Tribunal's findings on both issues, emphasizing the factual basis and commercial expediency in the assessee's claims.