2015 (7) TMI 761 - AT - Income Tax

Disallowance of proportionate interest on the funds diverted for non-business purpose - CIT(Appeals) restricted part disallowance - Held that - What is to be disallowed is in respect of the expenditure which was not incurred for the purpose of business. If the assessee made advance from the funds available with him, then there is no question of disallowance. The availability of funds to the extent of ₹ 15,27,009/- including the current year s profit of ₹ 3,85,910/- is not in dispute. The opening balance as on 1.4.2006 was ₹ 11,40,100/-. Therefore, the CIT(Appeals) found that to the extent of ₹ 11,40,100/-, there is no question of making any disallowance. In respect of the remaining portion, the CIT(Appeals) found that the interest has to be charged only at 11.5% when the assessee is paying interest at 11.5% on the borrowed funds. This Tribunal is of the considered opinion that the interest has to be considered only at 11.5% and not at 16%. Therefore, the CIT(Appeals) has rightly restricted at ₹ 62,315/-. This Tribunal do not find any infirmity in the order of the CIT(Appeals) and accordingly, the is confirmed. - Decided against revenue. Unexplained cash credit - CIT(A) deleted addition - Held that - Assessing Officer added ₹ 50,000/- which was claimed to have been received from M/s Khanna Brothers and M/s Khanna & Co. The assessee claims that the advances were made to him. However, the cheque was issued in the name of M/s Spectrum Maruthi Spares. The fact remains that there was a transfer of funds from M/s Khanna Brothers and M/s Khanna & Co. to M/s Spectrum Maruthi Spares where the assessee is a partner. Therefore, this Tribunal is of the considered opinion that the CIT(Appeals) has rightly deleted the addition. This Tribunal do not find any infirmity in the order of the lower authority and accordingly, the same is confirmed. - Decided against revenue. Now coming to the addition of ₹ 2,00,000/- said to have been received from Smt. T. Rajalakshmi, it is not in dispute that the assessee has received the funds through account payee demand draft. The only contention of the Ld. D.R. is that the details were produced before the CIT(Appeals). However, he has not taken any specific ground with regard to violation of Rule 46A. The fact remains that the Assessing Officer made an addition of ₹ 2,00,000/- and the CIT(Appeals) found that the payment was made through DD and therefore, there is no question of any addition. In those circumstances, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly, the same is confirmed. - Decided against revenue. Disallowance of incurred for renovation of hotel - CIT(A) deleted addition - Held that - It is not in dispute that the Tribunal has fixed unaccounted sales at ₹ 28,00,369/- in the case of M/s Spectrum Maruthi Spares. If that is true, the assessee is entitled for ₹ 14,00,185/-. Therefore, the CIT(Appeals) has rightly allowed the claim of the assessee. This Tribunal do not find any reason to interfere with the order of the lower authority and accordingly, the same is confirmed. - Decided against revenue.

Summary

Issues:
1. Disallowance of proportionate interest on diverted funds for non-business purpose.
2. Unexplained cash credit of Rs. 2,50,000.
3. Addition of Rs. 8,50,000 for renovation of hotel.

Issue 1 - Disallowance of Proportionate Interest on Diverted Funds:
The appeal involved a dispute regarding the disallowance of proportionate interest on funds diverted for non-business purposes. The Departmental Representative argued for charging interest at 16% on the entire diverted amount, while the assessee's representative contended that the disallowance should be limited to the interest portion at 11.5%. The Tribunal held that the disallowance should only be for the interest portion at 11.5% on the diverted borrowed funds, confirming the CIT(Appeals) decision to restrict the disallowance to Rs. 62,315 instead of Rs. 7,56,800. The Tribunal found no infirmity in the CIT(Appeals) order and upheld the decision.

Issue 2 - Unexplained Cash Credit of Rs. 2,50,000:
The issue revolved around unexplained cash credits totaling Rs. 2,50,000. The Assessing Officer raised concerns regarding funds received from certain entities, which the assessee explained as legitimate transactions. The CIT(Appeals) deleted the addition after finding the transactions verifiable. The Tribunal concurred with the CIT(Appeals) decision, noting that the funds were transferred to a partnership firm where the assessee was a partner, thus confirming the deletion of the addition.

Issue 3 - Addition of Rs. 8,50,000 for Renovation of Hotel:
Regarding the addition of Rs. 8,50,000 for hotel renovation expenses, the Departmental Representative argued that the expenditure was not admitted in the income return and should be added. The assessee contended that the amount was part of additional income offered by the partnership firm. The Tribunal analyzed the income offered by the firm and previous tribunal decisions, ultimately upholding the CIT(Appeals) decision to delete the addition based on the calculated share of the unexplained sales. The Tribunal found no reason to interfere with the lower authority's order and confirmed the decision.

In conclusion, the Tribunal dismissed the appeal of the Revenue and found no merit in the cross-objection filed by the assessee, thus confirming the decisions made by the CIT(Appeals) in the respective issues.