2016 (7) TMI 1317 - AT - Income Tax

Disallowance of rent on gold - Held that - Hon ble Supreme Court in the case of CIT vs. Excel Industries Limited (2013 (10) TMI 324 - SUPREME COURT) held that in case of consistent view taken in favour of the assessee on questions, the Court will not take a different view without very convincing reasons. Therefore, following the rule of consistency as in earlier assessment years, the rent of gold ornaments had been allowed as deduction to the assessee and there being no difference in facts pointed out during the year under consideration, set aside the orders of the lower authorities and vacate the disallowance under the head Rent of gold ornaments and allow this ground of the assessee. Disallowance on account of interest payment in excess of 12 % - Held that - Even the Income Tax Authorities as per Income-tax Act, 1961, charges interest from the assessee @ 15%. In the given circumstances, the assessee paying interest on unsecured loans at rates varying from 12 % to 18 % cannot be said to be higher side and does not call for any disallowance. Hence, set-aside the orders of the lower authorities and delete the addition. Disallowing the interest paid to two HUFs - Held that - Not convinced with the arguments of the ld. Authorized Representative of the assessee. The assessee has given a gift of ₹ 1 lakh each to its two HUFs and immediately taken the same money back as loan and paid interest thereon to the HUFs. In my considered view, this is a device adopted by the assessee to reduce tax liability and hence, the deduction for interest expenditure claimed by the assessee has rightly been disallowed. Disallowance of telephone and car expenses - Held that - Since no log books were maintained, the AO estimated the personal use at 20% of the expenditure and made addition of ₹ 22,608/- to the income of the assessee, which was confirmed in appeal by the ld. CIT(A).At the time of hearing, no arguments were advanced by the ld. Authorized Representative of the assessee on this ground of appeal. Therefore, the same is dismissed for want of prosecution.

Summary

Issues:
1. Disallowance of rent on gold ornaments
2. Disallowance of interest payment in excess of 12%
3. Disallowance of interest paid to two HUFs
4. Disallowance of telephone and car expenses

Issue 1: Disallowance of rent on gold ornaments
The assessee appealed against the disallowance of rent on gold ornaments by the CIT(A). The AO disallowed the deduction of rent paid for gold ornaments, stating that the gold ornaments were used as raw materials for manufacturing new gold ornaments. The CIT(A) upheld the AO's decision, reasoning that lending gold for rent was akin to a sale rather than a rental agreement. The Authorized Representative of the assessee argued for consistency in allowing the deduction, citing previous assessment years where similar deductions were accepted. The ITAT, following the principle of consistency, allowed the deduction for rent on gold ornaments, setting aside the lower authorities' orders.

Issue 2: Disallowance of interest payment in excess of 12%
The assessee contested the disallowance of interest payment in excess of 12% by the CIT(A). The AO restricted the deduction for interest payment to 12% per annum, leading to an addition of a specific amount. The CIT(A) supported this decision, highlighting that the assessee paid interest to relatives at varying rates, with most payments at 12%. The Authorized Representative argued that the interest paid was at a normal market rate and should be allowed in full. The ITAT found that the interest rates of 12% to 18% on unsecured loans were reasonable, especially considering the prevailing market rates, and thus deleted the addition made by the lower authorities.

Issue 3: Disallowance of interest paid to two HUFs
The assessee challenged the disallowance of interest paid to two HUFs by the CIT(A). The AO disallowed the deduction, considering the gift and loan transactions between the assessee and the HUFs as a means to reduce tax liability. The CIT(A) upheld this decision. The Authorized Representative argued that the transactions were genuine and accepted by the Department. However, the ITAT viewed the transactions as a tax-saving device and confirmed the disallowance of the interest expenditure claimed by the assessee.

Issue 4: Disallowance of telephone and car expenses
The assessee disputed the disallowance of a specific amount related to telephone and car expenses by the CIT(A). The AO estimated personal use at 20% due to the lack of log books and added this amount to the assessee's income. The CIT(A confirmed this decision. During the hearing, the Authorized Representative did not present arguments on this ground, leading to its dismissal for want of prosecution.

In conclusion, the ITAT partly allowed the assessee's appeal, overturning some disallowances while upholding others based on the arguments and evidence presented during the proceedings.