2015 (2) TMI 767 - HC - Income Tax

Addition on account of closing stock of stores, spares, tools etc. - Tribunal deleted addition - Held that - Question of law has been answered in favour of the Revenue as relying on Commissioner of Income Tax (Central), Ludhiana Vs. M/s Highway Cycle Industries Ltd. 2015 (2) TMI 119 - PUNJAB & HARYANA HIGH COURT . - Decided against assessee Advances of interest free loans to the associated concerns - Tribunal setting aside the disallowance - Held that - Issue to find out the nexus between the borrowed funds and the diversion thereof in the form of interest free loans requires to be examined in the light of the judgment of the Hon ble Supreme Court in S.A.Builders Ltd. Vs. Commissioner of Income Tax (Appeals) 2006 (12) TMI 82 - SUPREME COURT . The order of the Tribunal setting aside the disallowance is set aside and that of the Commissioner of Income Tax (Appeals) is restored. The Assessing Officer is directed to consider the disallowance in terms of the order of the CIT (Appeals), after examining the nexus between the borrowed funds and the diversion thereof in the form of interest free loans. - Decided against assessee

Summary

Issues:
1. Deletion of addition of closing stock of stores, spares, tools, etc.
2. Deletion of addition of advances of interest-free loans to associated concerns.

Analysis:

Issue 1: Deletion of addition of closing stock of stores, spares, tools, etc.
The Revenue appealed against the order of the Income Tax Appellate Tribunal regarding the deletion of an addition of Rs. 10,02,350 on account of closing stock. The High Court ruled in favor of the Revenue, citing a separate order in a related case. The Tribunal's decision was overturned based on the reasons provided in the related case.

Issue 2: Deletion of addition of advances of interest-free loans to associated concerns
Regarding the deletion of an addition of Rs. 1,13,35,469 made on account of interest-free loans to associated concerns, the Commissioner of Income Tax (Appeals) had set aside the disallowance and directed a re-examination by the Assessing Officer to establish a nexus between the borrowed funds and the diversion as interest-free loans. The Tribunal, despite the assessee not appealing the order, set aside the disallowance. The High Court emphasized the need to determine the nexus between borrowed funds and the diversion as interest-free loans, referencing relevant judgments. The High Court set aside the Tribunal's decision and restored the Commissioner of Income Tax (Appeals) order, directing the Assessing Officer to reconsider the disallowance after examining the nexus.

In conclusion, the High Court allowed the appeal in favor of the Revenue, reinstating the Commissioner of Income Tax (Appeals) order regarding the deletion of additions related to interest-free loans.