2013 (3) TMI 531 - AT - Income Tax

Disallowance Warranty provisions - The assessee, prior to the receipt of the order of the Settlement Commission, in its original return had reversed the excess provision made for the earlier years against the provision for the impugned assessment year - Not filed a revised return - Deletion of disallowance paid to one Shri Pawar - Deletion of disallowance of interest - Held that - We find much substance in the claim of the assessee that Settlement Commission s order dated 24.3.2008 might not have been readily available to the assessee by 31.3.2008, being the last date available for filing a revised return. It was therefore left with no other go other than to file a revised computation. Assessing Officer has not disputed that the above amount could not be considered as income of the assessee for impugned assessment year, but, disallowed claim for withdrawal only for a reason that revised return was not filed. Regarding deletion of dissallowance set aside the orders of ld. - CIT(Appeals) and A.O. in this regard and remit the issue back to A.O. for verifying the claim with evidence produced by the assessee in support of the claim. If the assessee is able to prove that the claim was based on invoices raised by Shri Pawar and if the transactions are genuine, it will have to be allowed irrespective of the treatment given by Shri Pawar in his books. The A.O. shall give an opportunity to the assessee for proving its case. Regarding disallowance of Interest, the loans were given to subsidiary companies. Also, without doubt, such subsidiary companies were all in Karnataka and had acquired lands for the purpose of erection of wind farms and the assessee s business was to erect, commission and sell windmills. In our opinion, commercial interest of the assessee in its subsidiaries stood well demonstrated. - ld. CIT(Appeals) was well justified in relying on the decision of Hon ble Apex Court in the case of S.A. Builders 2006 (12) TMI 82 - SUPREME COURT for deleting the disallowance. - Decided against the revenue. Regarding deletion of disallowance of advance written off by the assessee - the claim of advance itself cannot be accepted when by assessee s own version, its transactions of purchase from M/s Sambhav Steel Distributors were all bogus. - assessee cannot be allowed to approbate and re-approbate. It cannot say that the purchases were all bogus but, advances were genuine. - It cannot say purchases were bogus only for Settlement Commission but, these were true when the matter comes before the Tribunal. - Decided in favor of revenue.

Issues Involved:
1. Deletion of disallowance of warranty provisions.
2. Deletion of disallowance of expenses paid to an individual.
3. Deletion of disallowance of interest on loans to subsidiaries.
4. Deletion of disallowance of irrecoverable advances written off.

Detailed Analysis:

Issue 1: Deletion of Disallowance of Warranty Provisions
The Revenue's grievance was that the Commissioner of Income Tax (Appeals) [CIT(A)] deleted the disallowance of warranty provisions amounting to Rs. 3,16,38,858/-. The assessee had initially offered this amount as income but later sought to withdraw it through a revised computation, following an order from the Income Tax Settlement Commission. The Assessing Officer (A.O.) disallowed this withdrawal, citing the decision in Goetze (India) Ltd. v. CIT, which mandates that fresh claims must be made through a revised return. However, the CIT(A) accepted the revised computation, noting that the claim was consequential to the Settlement Commission's order and not a fresh claim. The Tribunal upheld the CIT(A)'s decision, stating that the CIT(A) had co-terminus power with the A.O. and could allow such claims.

Issue 2: Deletion of Disallowance of Expenses Paid to an Individual
The Revenue challenged the deletion of a disallowance amounting to Rs. 3,93,48,570/- paid to an individual, Shri Pawar. The A.O. had disallowed this amount on a protective basis, as Shri Pawar had shown it as an advance in his books. The CIT(A) deleted the disallowance, accepting the assessee's contention that the expenses were genuine and supported by invoices. The Tribunal found that the A.O. had not fully verified the genuineness of the transactions and remitted the issue back to the A.O. for a fresh examination, instructing the A.O. to allow the claim if the transactions were found to be genuine.

Issue 3: Deletion of Disallowance of Interest on Loans to Subsidiaries
The Revenue's grievance was against the deletion of a disallowance of Rs. 1,62,14,635/- on interest payments. The A.O. had made a prorata disallowance, arguing that the assessee had given interest-free loans to its subsidiaries out of borrowed funds. The CIT(A) deleted the disallowance, accepting the assessee's argument that the loans were given out of commercial expediency and from its own funds. The Tribunal upheld the CIT(A)'s decision, noting that the assessee had sufficient own funds and that the loans were given for business purposes, aligning with the principles laid out in S.A. Builders v. CIT.

Issue 4: Deletion of Disallowance of Irrecoverable Advances Written Off
The Revenue contested the deletion of a disallowance of Rs. 1,00,92,400/- written off by the assessee as irrecoverable advances. The A.O. had disallowed the claim, stating that the assessee was not a money lender and could not prove that the debts were considered in computing its income for earlier years. The CIT(A) allowed the write-off, accepting the assessee's argument that the amount was part of an advance already offered as income in an earlier year before the Settlement Commission. The Tribunal, however, reinstated the disallowance, noting that the assessee had admitted the transactions with Sambhav Steel Distributors as bogus and could not selectively claim the advances as genuine.

Conclusion:
The appeals for assessment years 2005-06 and 2006-07 were partly allowed. The Tribunal upheld the CIT(A)'s decisions on the deletion of disallowance of warranty provisions and interest on loans to subsidiaries. However, it remitted the issue of disallowance of expenses paid to an individual back to the A.O. for fresh examination and reinstated the disallowance of irrecoverable advances written off.

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