2015 (2) TMI 8 - AT - Income Tax

Addition on account of outstanding liability of M/s Evershed - CIT(A)deleted the addition - Held that - It is not disputed that the impugned amount has been adjusted towards professional fees on 12-1-2012 as per the regular method of accounting employed by assessee. The nature of assessee s profession is such where the fees can be accounted for in the year in which the actual services are rendered and till then the amount received is to be treated as advance towards professional fees in the hands of assessee. We, therefore, do not find any infirmity in the order of CIT(A) on the issue in question. - Decided in favour of assessee. Disallowance of interest paid to the bank - CIT(A) deleted the addition made by the AO amounting to ₹ 1,08,67,588/- on account of proportionate interest disallowed out of total interest expenses of ₹ 2,10,35,698/- -AO pointed out that assessee had invested heavily in the Little & Co. which was a related party - Held that - CIT(A) has not taken into consideration any additional evidence and has only considered the assesse s plea regarding investment in the partnership firm M/s Little & Co., Mumbai, which was not made in the year under consideration but had been continuing since 19-5- 2006. Admittedly, the investment made by assessee in M/s Little & Co., Mumbai was on account of professional considerations inasmuch as the assessee had acquired 45% share in profit & loss account of the firm M/s Little & Co., Mumbai. Therefore, the amount outstanding against the said firm could not be treated as interest free loan calling for any disallowance of interest on proportionate basis. It was pure and simple professional arrangement between two firms and, therefore, the amount outstanding against M/s. Little & Co. was only on account of commercial expediency particularly when a dispute had cropped up between the two firms, which got finally settled by Hon ble Supreme Court with the award of a sum of ₹ 8.5 crores in installments as noted earlier. The decision of Hon ble Supreme Court in the case of SA Builders 2006 (12) TMI 82 - SUPREME COURT is squarely applicable to the present set of facts, We, therefore, do not find any reason to interfere with the order of ld. CIT(A). - Decided in favour of assessee. Disallowance under the head London Rates & Taxes - CIT(A)deleted the addition - Held that - The assessee had not submitted the necessary vouchers before the AO. Therefore, ld. CIT(A) should have called for a remand report before considering the assessee s claim. We, therefore, restore this issue to the file of AO for deciding the issue de novo after taking into consideration the vouchers filed by assessee. - Decided in favour of assessee for statistical purposes.

Issues Involved:
1. Addition on account of outstanding liability of Rs. 93,819/- of M/s Evershed.
2. Disallowance of interest paid to the bank amounting to Rs. 1,08,67,588/-.
3. Disallowance of Rs. 15,03,129/- under the head London Rates & Taxes.
4. Admittance of additional evidence by CIT(A) without calling for a remand report.

Issue-wise Detailed Analysis:

1. Addition on Account of Outstanding Liability of Rs. 93,819/- of M/s Evershed:

The AO added Rs. 93,819/- to the income of the assessee, an Advocates firm, arguing that under the cash system of accounting, advances from clients and other liabilities should be added to the income. The assessee explained that these amounts were adjusted as professional fees in subsequent years. The CIT(A) allowed the assessee's appeal, and the Tribunal upheld this decision, noting that the amount had been adjusted towards professional fees as per the regular method of accounting. The Tribunal emphasized that the nature of the assessee's profession required fees to be accounted for in the year services were rendered, preventing double taxation.

2. Disallowance of Interest Paid to the Bank Amounting to Rs. 1,08,67,588/-:

The AO disallowed a proportionate interest expenditure of Rs. 1,08,67,588/- out of a total interest expense of Rs. 2,10,35,698/- on the grounds that loans were utilized for giving interest-free loans and advances to related parties, particularly M/s Little & Co. The CIT(A) deleted the addition, noting that the investment in M/s Little & Co. was for acquiring a 45% share in the partnership, which was a professional arrangement. The Tribunal upheld the CIT(A)'s decision, referencing the Supreme Court's decision in SA Builders, which supports the view that such investments are made on account of commercial expediency.

3. Disallowance of Rs. 15,03,129/- Under the Head London Rates & Taxes:

The AO disallowed Rs. 15,03,129/- claimed by the assessee for London Rates & Taxes, citing a lack of documentary evidence. The CIT(A) sustained only 1/10th of the total disallowance, amounting to Rs. 1,50,312/-, acknowledging that the expenses were incurred through a bank account. The Tribunal found that the necessary vouchers were not submitted before the AO and thus restored the issue to the AO for re-examination, directing the AO to consider the vouchers provided by the assessee.

4. Admittance of Additional Evidence by CIT(A) Without Calling for a Remand Report:

The AO argued that the CIT(A) admitted additional evidence without calling for a remand report, contrary to the principles laid down by the Delhi High Court in CIT Vs. M/s Manish Buildwell Pvt. Ltd. The Tribunal found that the CIT(A) did not consider any additional evidence but only assessed the existing facts and documents, such as the partnership deed and the Supreme Court's order, which were already part of the record. Thus, the Tribunal found no reason to interfere with the CIT(A)'s decision.

Conclusion:

The Tribunal dismissed the revenue's appeal on the grounds of the addition of outstanding liability and disallowance of interest but restored the issue of London Rates & Taxes disallowance to the AO for re-examination. The appeal was partly allowed for statistical purposes.

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