2017 (10) TMI 1299 - AT - Income Tax

Addition on account of borrowed capital - entitled to make the said claim in the return of income filed in response to notice under section 153A - Held that - AO held that as per provisions of section 153A of the Act total income of the assessee for earlier six years was to be re-assessed wherein the correct income was to computed; but the contention of assessee that it could make fresh claim and expenditure or deduction which was not made in earlier return was not accepted being not the position of law. AO held that what the assessee could not claim in original return or revised return the same could not be claimed under the shelter of search assessment. Accordingly the claim of assessee in this regard was rejected. In assessment year 2005-06 the assessee had made claim of interest expenditure which was added back to the income of assessee. Disallowance under section 36(1)(iii) - Held that - The assessee is not entitled to claim any deduction on account of fresh claim i.e. on account of interest and depreciation in the respective years. Applying the ratio laid down by the Hon ble Bombay High Court in (1) Continental Warehousing Corporation (Nhava Sheva) Ltd. All Cargo Global Logistics Ltd. (2015 (5) TMI 656 - BOMBAY HIGH COURT) and in CIT Vs. Shri Deepak Kumar Agarwal 2017 (9) TMI 850 - BOMBAY HIGH COURT we hold that in the years under appeal where the assessment has not abated then no deduction is to be allowed in respect of fresh claim made in the return of income filed in response to notice under section 153A of the Act. Disallowance of interest against interest free advances made by the assessee - Held that - The perusal of Balance Sheet in respect of all the years reflect the availability of interest free funds with the assessee out of which the said interest free advances have been made by the assessee. Relying on the ratio laid down by the Hon ble Bombay High Court in CIT Vs. Reliance Utilities & Power Ltd. (2009 (1) TMI 4 - BOMBAY HIGH COURT) we hold that availability of funds as on the date of Balance Sheet has to be seen and there is no merit in the orders of authorities below in looking at the day-to-day position of availability of funds.

Issues Involved:
1. Addition of Rs. 1,16,816/- on account of interest on borrowed capital.
2. Disallowance of Rs. 78,000/- on account of interest on borrowed capital.
3. Fresh claims of expenditure/deductions not made in original returns.
4. Disallowance of interest against interest-free advances made by the assessee.

Issue-wise Detailed Analysis:

1. Addition of Rs. 1,16,816/- on Account of Interest on Borrowed Capital:
The first issue pertains to the addition of Rs. 1,16,816/- on account of borrowed capital. The Assessing Officer (AO) noted that the assessee had made fresh claims for interest expenses, membership fees, and depreciation in the return of income filed in response to the notice under section 153A of the Income Tax Act. The AO rejected these claims, stating that they were not made in the original or revised returns, and thus could not be claimed under the shelter of search assessment. The CIT(A) confirmed this addition. The Tribunal upheld this decision, referencing the Hon’ble Bombay High Court's ruling in CIT Vs. Continental Warehousing Corporation (Nhava Sheva) Ltd. and All Cargo Global Logistics Ltd., which stated that only undisclosed income and assets detected during the search could be brought to tax in non-abated assessments.

2. Disallowance of Rs. 78,000/- on Account of Interest on Borrowed Capital:
The second issue involves the disallowance of Rs. 78,000/- under section 36(1)(iii) of the Act. The AO found that the assessee had given interest-free advances of Rs. 20.56 lakhs while having taken loans of ?0.92 crores at an interest rate of 13%. The AO concluded that there was no surplus fund available to give interest-free advances and disallowed the interest relatable to the advance of Rs. 6 lakhs not given for business purposes. The CIT(A) upheld this disallowance. The Tribunal, however, noted that no incriminating documents were found during the search and that the assessments had not abated. Consequently, following the Bombay High Court's ruling in CIT Vs. Shri Deepak Kumar Agarwal, the Tribunal held that no addition could be made in non-abated assessments without incriminating material. The Tribunal also noted that the assessee had sufficient interest-free funds to cover the advances, referencing the Bombay High Court's decision in CIT Vs. Reliance Utilities & Power Ltd. and the Pune Tribunal's ruling in M/s. Kolte Patil Developers Ltd. Vs. DCIT.

3. Fresh Claims of Expenditure/Deductions Not Made in Original Returns:
The third issue concerns the assessee's fresh claims for expenditures and deductions in the returns filed in response to the notice under section 153A. The AO rejected these claims, stating that they were not made in the original or revised returns. The CIT(A) upheld this decision. The Tribunal confirmed this stance, citing the Bombay High Court's ruling in CIT Vs. Continental Warehousing Corporation (Nhava Sheva) Ltd. and All Cargo Global Logistics Ltd., which held that in non-abated assessments, only undisclosed income and assets detected during the search could be brought to tax, and no fresh claims for deductions could be made.

4. Disallowance of Interest Against Interest-Free Advances Made by the Assessee:
The fourth issue involves the disallowance of interest against interest-free advances made by the assessee. The AO disallowed the interest expenditure, stating that interest-bearing advances were used for making interest-free advances. The CIT(A) upheld this disallowance. The Tribunal, however, noted that no incriminating documents were found during the search and that the assessments had not abated. The Tribunal held that no addition could be made in non-abated assessments without incriminating material, following the Bombay High Court's ruling in CIT Vs. Shri Deepak Kumar Agarwal. The Tribunal also noted that the assessee had sufficient interest-free funds to cover the advances, referencing the Bombay High Court's decision in CIT Vs. Reliance Utilities & Power Ltd. and the Pune Tribunal's ruling in M/s. Kolte Patil Developers Ltd. Vs. DCIT. Consequently, the Tribunal allowed the assessee's claim for deduction on this ground.

Conclusion:
The Tribunal dismissed the first issue regarding the addition of Rs. 1,16,816/- and the third issue concerning fresh claims of expenditure/deductions. However, the Tribunal allowed the second issue concerning the disallowance of Rs. 78,000/- and the fourth issue regarding the disallowance of interest against interest-free advances, based on the absence of incriminating material and the availability of sufficient interest-free funds. Therefore, the appeals of the assessee were partly allowed.

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