2015 (11) TMI 124 - HC - Income Tax

Disallowance of interest under section 36(1)((iii) - CIT(A) deleted the addition confirmed by ITAT - Held that - The term loan, on which deduction of interest was sought, had entirely been used for the purpose of purchasing the assets which were hypothecated to the bank. The assessee had also produced sufficient evidence before the Assessing Officer to indicate that it had sufficient interest free funds to take care of the advances even if the same were accepted to be the advances. The Commissioner (Appeals) has recorded a categorical finding of fact to the effect that the Assessing Officer has failed to establish any nexus between the borrowings and the utilization of funds. It is in these circumstances, that the Tribunal has recorded a concurrent finding of fact to the effect that it could not be said that interest bearing funds were diverted for non-business purpose. Having regard to the fact that the conclusion arrived at by the Tribunal is based upon concurrent findings of fact recorded by it after appreciation of the evidence on record, in the absence of any perversity being pointed out in the findings of fact recorded by the Tribunal, the same does not give rise to any question of law. - Decided against revenue. Disallowance under section 40(a)(ia) - non deduction of TDS on the payment made to the C & F agent - CIT(A) deleted the addition confirmed by ITAT - Held that - The assessee had deducted the TDS in respect of the payment made to the C & F agent and separate bills had been raised in respect of reimbursement expenses incurred by the agent. Since the reimbursement bills were separately raised, there was no requirement to deduct TDS in respect thereof. Under the circumstances, it cannot be said that there is any legal infirmity in the impugned order passed by the Tribunal in holding that disallowance under section 40(a)(ia) of the Act could not be made in respect of reimbursement bills which were separately raised as no TDS was required to be deducted in respect thereof. Under the circumstances, the impugned order passed by the Tribunal does not give rise to any question of law, much less a substantial question of law, as proposed or otherwise.- Decided against revenue.

Summary

Issues:
1. Disallowance of interest under section 36(1)(iii) of the Income Tax Act, 1961.
2. Disallowance under section 40(a)(ia) of the Income Tax Act.

Issue 1: Disallowance of interest under section 36(1)(iii) of the Income Tax Act:
In this case, the appellant-revenue challenged the order of the Income Tax Appellate Tribunal regarding the disallowance of interest under section 36(1)(iii) of the Act. The appellant had given interest-free loans, which the Assessing Officer treated as advances and computed disallowance of interest. However, the Commissioner of Income Tax (Appeals) deleted the additions, stating that there was a direct nexus between the borrowings and the utilization of funds. The Tribunal upheld this decision, emphasizing that interest-bearing funds were not diverted for non-business purposes. The Tribunal's conclusion was based on concurrent findings of fact and evidence produced by the assessee, indicating no diversion of funds for non-business use. The High Court found no legal infirmity in the Tribunal's decision and dismissed the appeal.

Issue 2: Disallowance under section 40(a)(ia) of the Income Tax Act:
Regarding the disallowance under section 40(a)(ia) of the Act, the appellant debited certain expenses without deducting TDS on the full amount. The Assessing Officer disallowed a significant sum, relying on a Supreme Court decision. However, the Commissioner (Appeals) and the Tribunal both ruled in favor of the assessee. They noted that TDS was deducted on bills separately raised for reimbursement of expenses, and since separate bills were issued for services and reimbursements, no TDS was required on the latter. The Commissioner (Appeals) and the Tribunal found that no TDS was necessary for reimbursement bills separately raised, aligning with previous decisions. The High Court upheld this decision, stating that there was no legal basis for disallowance under section 40(a)(ia) for separately raised reimbursement bills. The appeal was dismissed based on the concurrent findings and evidence presented.

In conclusion, the High Court dismissed the appeal, upholding the decisions of the Commissioner (Appeals) and the Tribunal in both issues of disallowance of interest under section 36(1)(iii) and disallowance under section 40(a)(ia) of the Income Tax Act. The Court found no legal infirmity in the Tribunal's conclusions, based on the evidence and concurrent findings of fact.