2014 (7) TMI 861 - AT - Income Tax

Proportionate interest disallowed Interest free loans and advances given to sister concern - Held that - The assessee has taken a plea that the total interest free funds available to the assessee company are sufficient to make the interest free advances and the disallowance of notional interest is un-warranted - the facts have not been taken cognizance by the authorities - the assessee company has sufficient funds to make interest free advances and hence the disallowance made/confirmed by the AO/CIT(A) on the basis of notional interest is not justified the order of the CIT(A) is set aside Decided in favour of Assessee. Contractual receipt on AIR information Held that - Addition has been made by the AO and the same confirmed by the CIT(A) solely on the basis of the AIR information to which the assessee has contradicted the statement earlier made - When the assessee has contradicted the AIR information, it is a duty of the authorities below to prove that the payment has been made to the assessee - thus, the matter is to be remitted back to the AO for fresh assessment Decided in favour of Assessee.

Summary

Issues:
1. Disallowance of proportionate interest amount.
2. Addition of contractual receipt based on AIR information.

Analysis:

Issue 1: Disallowance of Proportionate Interest Amount
The appeal was against the order confirming the disallowance made by the AO on account of proportionate interest of Rs. 4,35,000. The AO disallowed interest claim of Rs. 5,22,000 due to interest-free loans given by the assessee company to sister concerns and claimed interest paid as expenses. The AO calculated interest @ 12% on these advances, adding Rs. 5,22,000 to the total income. The Ld. CIT(A) confirmed the disallowance but calculated notional interest @ 10%. The ITAT noted the funds available with the assessee from the Balance Sheet, stating that the disallowance was unwarranted as there were sufficient interest-free funds to make advances. Consequently, the disallowance was deleted, and Ground No. 1 was allowed.

Issue 2: Addition of Contractual Receipt Based on AIR Information
The AO added Rs. 70,000 based on AIR information showing payments received from Mr. Praveen Desai, not accounted for in the books. The assessee denied any business deal with Mr. Praveen Desai. The Ld. CIT(A) confirmed the addition due to lack of response from Mr. Praveen Desai to the notice u/s 133(6). The ITAT observed that the authorities had not proven the payments were made to the assessee, and in the absence of evidence, the matter was remanded to the AO for fresh assessment after providing a hearing to the assessee. The addition could not be sustained solely on AIR information. Hence, Ground No. 2 was allowed for statistical purposes.

In conclusion, the appeal by the Assessee was treated as allowed, with the ITAT pronouncing the order on June 17, 2014.