2013 (12) TMI 657 - AT - Income Tax

Disallowance of interest on borrowed funds Loans and advances were given to sister concerns of the assessee company without charging interest Held that - Both the assessee and the Revenue have mingled up the facts and circumstances of the case It is not possible to draw the clear conclusions The matter restored to the files of AO for fresh decision.

Summary

Issues Involved:
Cross appeals involving assessment year 2006-07, addressing disallowance of interest claimed by the assessee firm, disallowance of interest on interest-free advances, and confirmation of additions by the learned CIT(A).

Analysis:

Issue 1: Disallowance of Interest Claimed by the Assessee:
- The Revenue raised one issue concerning the deduction of interest claimed by the assessee firm. The Assessing Officer disallowed the interest deduction of Rs. 22,41,839/- as the assessee failed to provide details of the interest written off or the relevant assessment years. Additionally, the AO observed discrepancies in the interest claimed under section 43B of the Act. The AO disallowed interest on advances/loans given without charging interest, amounting to Rs. 21,24,747/-.
- The assessee contended that advances to a sister concern were in the interest of the business, citing a Supreme Court decision. They argued that other advances were made from profits, not borrowed funds. The learned CIT(A) directed the AO to allow interest on advances to the sister concern.
- The Tribunal found the facts and issues intermingled in the orders, making it challenging to discern a clear case. Due to the lack of clear findings by the CIT(A), the Tribunal remanded the issue back to the AO for fresh consideration, directing a detailed decision on each issue without mixing amounts and issues.

Issue 2: Disallowance of Interest on Interest-free Advances:
- Disallowance of interest on interest-free advances to employees was also contested. The learned CIT(A) found no benefit to the business in certain cases and disallowed interest accordingly. The Tribunal directed the AO to rework the disallowable interest on these advances.

Issue 3: Confirmation of Additions by the CIT(A):
- The assessee's appeal raised concerns about the confirmation of additions by the CIT(A), including the disallowance of interest reversed in the books and the levy of notional interest on business advances. These issues were intertwined with those raised by the Revenue and were also remanded to the AO for fresh consideration.

Conclusion:
- Both the Revenue's and the assessee's appeals were allowed for statistical purposes, remanding the issues back to the AO for detailed reconsideration and separate decisions on each issue. The Tribunal emphasized the need for clear findings and directed the AO to pass speaking orders on the matters at hand.

This comprehensive analysis covers the key issues and the Tribunal's decision regarding the cross appeals involving various aspects of interest disallowances and additions in the assessment year 2006-07.