2012 (5) TMI 342 - AT - Income Tax

Disallowance of sales consultancy charges - to three persons are HUFs - payments were made through account payee cheques. - held that - The only grievance of the revenue is that details of nature of services rendered by the HUFs and how those services were utilized for the business of the assessee, were not filed by the asesssee. We are of the view that since the said required details are necessary to decide the issue, we restore the issue to the file of the AO to decide the issue after examining the details. Addition on account of depreciation on fixed assets - held that - assessee had produced copy of electricity and water bills paid and it is true that these bills are raised in the name of the previous owner but the said payments are effected by the assessee as the bank account show as the payment made by cheque. - Decided in favor of assessee. Payment of relatives - market rate of interest on loans - interest paid by the assessee to the individuals @ 18% per annum on borrowed capital - held that - AO has not disputed the loan, its usage or quantum of interest paid, therefore, the interest cannot be disallowed. - Decided in favor of assessee.

Summary

Issues Involved:
1. Disallowance of sales consultancy charges.
2. Disallowance of depreciation on fixed assets.
3. Disallowance of interest on borrowed capital.

Issue-wise Detailed Analysis:

1. Disallowance of Sales Consultancy Charges:
The assessee claimed consultancy charges of Rs. 7,50,000/- paid to three HUFs, which the AO disallowed due to lack of evidence on the services rendered. The CIT(A) upheld this disallowance, stating that the appellant failed to provide documentary proof of the services. The Tribunal noted that the payments to the HUFs were not disputed but the nature of services was not detailed. The Tribunal restored the issue to the AO to re-examine the details provided by the assessee and decide accordingly.

2. Disallowance of Depreciation on Fixed Assets:
The AO disallowed depreciation on two counts: lack of evidence of asset usage and the nature of the property being land with AC sheet roofing. The CIT(A) restricted the disallowance to Rs. 84,000/-, noting that the assessee provided sufficient evidence of usage, including electricity and water bills, and proof of stock movement. The Tribunal upheld the CIT(A)'s decision, agreeing that the asset was used for business purposes and qualified for depreciation.

3. Disallowance of Interest on Borrowed Capital:
The AO disallowed interest paid on borrowed capital, arguing it was excessive and used for purchasing assets not put to use. The CIT(A) allowed the interest, except for Rs. 73,015/- related to pre-capitalization period, as the assets were used in the business. The Tribunal upheld the CIT(A)'s decision, referencing the Supreme Court's ruling in DCIT Vs. Core Health Care Ltd., which allows interest on borrowed capital used for business purposes, regardless of the asset's nature.

Conclusion:
The Tribunal allowed the assessee's appeal for statistical purposes by remanding the issue of consultancy charges back to the AO. The revenue's appeal was dismissed, upholding the CIT(A)'s decisions on depreciation and interest on borrowed capital.