2015 (10) TMI 1 - AT - Income Tax

Addition on account of interest free advances made by the assessee to its subsidiary company - CIT(A) deleted the addition u/s 36(1)(iii) - Held that - The Assessing Officer during the year under consideration had computed the disallowance under section 36 (1) (iii) of the Act on account of interest free advances made by the assessee to its subsidiary whereas it had claimed interest expenditure in its Profit & Loss Account. The plea of the assessee before us was that the said advances were made to its subsidiary company which had been acquired in furtherance of his business need. The plea of the assessee is that the said advance having been made during the course of carrying on of his business does not merit any disallowance of interest because of business exigency. We further find that similar issue arose before the Tribunal in assessee s own case relating to assessment year 2005-06 and 2006-07 wherein the Tribunal vide separate orders dated 29.07.2009 and 28.02.2011 had allowed the claim of the assessee upholding the order of Commissioner of Income Tax (Appeals). In view thereof, as the facts and circumstances are identical to the facts and circumstances in preceding years, we uphold the order of Commissioner of Income Tax (Appeals). However, the issue decided vide present ground of appeal shall not be a precedent used by any other assessee - Decided against revenue. Addition made under section 40A(2)(a) - CIT(A) deleted the addition - Held that - The ld. DR for the revenue has failed to controvert the findings of the Commissioner of Income Tax (Appeals) and in view thereof, we find no merit in the addition made by the Assessing Officer especially where the assessee had compared the purchase rates in respect of the items purchased from sister concern with the purchase rates of items purchased from independent parties and the tabulated details reflect the same to be on the lower side. Upholding the order of Commissioner of Income Tax (Appeals), we reject ground of appeal raised by the revenue.- Decided against revenue. Addition paid on account of bank charges - CIT(A) deleted the addition - Held that - The facts and circumstances and the issue raised vide present ground of appeal is identical to the issue before the Tribunal in assessee s own case and following the same parity of reasoning, we uphold the order of Commissioner of Income Tax (Appeals) in allowing the relief of ₹ 22,41,628/- being bank charges paid for renewal of the working capital facilities availed by the assessee - Decided against revenue. Disallowance of building repair and maintenance - CIT(A) deleted the addition - Held that - The Commissioner of Income Tax (Appeals) allowed the claim of the assessee holding the said expenditure to be revenue in nature. We find that the Assessing Officer has not doubted the genuineness of the said expenditure and the only issue raised by the Assessing Officer was whether the said expenditure was capital or revenue in nature. The nature of the expenditure incurred by the assessee towards maintenance of an existing asset is an expenditure towards repair and maintenance and is revenue in nature. Upholding the order of Commissioner of Income Tax (Appeals), we dismiss ground of appeal raised by the revenue.- Decided against revenue.

Summary

Issues Involved:
1. Deletion of addition on account of interest-free advances under section 36(1)(iii) of the Income-tax Act, 1961.
2. Deletion of addition under section 40A(2)(b) of the Income-tax Act, 1961 for purchases at higher rates from a sister concern.
3. Deletion of addition of bank charges as capital expenditure under section 37(1) of the Income-tax Act, 1961.
4. Deletion of addition of capital nature expenditure debited as revenue expenditure.

Issue-wise Detailed Analysis:

1. Interest-free Advances [Section 36(1)(iii)]
The revenue challenged the deletion of Rs. 2,90,652/- added by the Assessing Officer (AO) for interest-free advances made by the assessee to its subsidiary. The AO argued that interest-bearing funds were diverted for interest-free advances. The assessee contended that the advances were business-related and funded from internal cash accruals and surplus funds. The Commissioner of Income Tax (Appeals) [CIT(A)] and the Tribunal had previously upheld similar claims in the assessee's favor for earlier years. The Tribunal found the facts identical to previous years and upheld the CIT(A)'s order, dismissing the revenue's ground.

2. Purchases at Higher Rates [Section 40A(2)(b)]
The revenue contested the deletion of Rs. 2,77,318/- added by the AO for purchases from a sister concern at higher rates compared to independent parties. The AO noted price differences and disallowed the excess payment. The assessee argued that price fluctuations were normal and provided detailed comparisons showing no excess payment. The CIT(A) agreed with the assessee, noting that the correct method was to compare prices on the same dates. The Tribunal found no merit in the AO's addition and upheld the CIT(A)'s order, rejecting the revenue's ground.

3. Bank Charges as Capital Expenditure [Section 37(1)]
The revenue appealed against the deletion of Rs. 22,41,628/- added by the AO, who treated bank charges for term loan sanction as capital expenditure. The assessee explained that the charges were for recurring working capital limits, not capital in nature. The CIT(A) and the Tribunal had previously allowed similar claims for earlier years. The Tribunal upheld the CIT(A)'s order, finding the charges to be revenue in nature and dismissing the revenue's ground.

4. Capital Nature Expenditure Debited as Revenue Expenditure
The revenue disputed the deletion of Rs. 3,06,251/- added by the AO, who treated building repair and maintenance expenses as capital expenditure. The assessee argued that the expenses were for repair of the factory building and road, hence revenue in nature. The CIT(A) accepted the assessee's claim, and the Tribunal upheld the CIT(A)'s order, noting the expenses were for maintenance of existing assets. The revenue's ground was dismissed.

Conclusion:
The Tribunal dismissed the revenue's appeal on all grounds, upholding the CIT(A)'s deletions of additions for interest-free advances, higher purchase rates, bank charges, and capital nature expenditures treated as revenue expenditures. The Tribunal's decision was consistent with previous rulings in the assessee's favor for similar issues in earlier assessment years.