2021 (8) TMI 1287 - AT - Income Tax

Addition u/s 40(a)(ia) - assessee contended that during appellate proceedings, assessee failed to get the certificate u/s 201 - HELD THAT - We are of the considered view that when the assessee has obtained the certificate from M/s. Bajaj Auto Finance Ltd. u/s 201 of the Act after first appellate proceedings, the AO is to allow the same after due verification. So far as interest disallowed in case of Barclays Investment Loan is concerned, assessee s contention is that it has closed its operation in India. AO is directed to conduct the proper enquiry from the available sources if certificate issued by Barclays Investment Loan finds corroboration from some other record and the issue may be decided accordingly after providing an opportunity of being heard to the assessee. Consequently, ground no.1 is determined in favour of the assessee for statistical purposes. Disallowance of interest @ 12% per annum on the advance made as the plant and machinery was not put to use - CIT(A) confirmed the addition - HELD THAT - We are of the considered view that when expenditure/advances paid in question for purchase of plant and machinery by the assessee during the year under assessment was not for extension of any existing business, the same is allowable u/s 36(1)(iii) of the Act. So, the addition made by the AO and confirmed by the ld. CIT (A) is ordered to be deleted. Consequently, ground no.2 is determined in favour of the assessee. Addition on account of excessive bill discounting charges paid - assessee has failed to bring on record any documentary evidence regarding existence of any such agreement between the parties to substantiate its claim without interest - HELD THAT - When the facts have come on record that in case of Sandhar Automotives (Dhumspur), the assessee is paying bill discounting charges from 15% to 16% but, at the same time, it is paying bill discounting charges @ 19% to Sandhar Enterprises which is reconcilable and as such, excess interest paid by the assessee to Sandhar Enterprises to the tune of ₹ 1,40,946/- has been rightly disallowed by the ld. CIT(A). So, we find no ground to interfere in the findings returned by the ld. CIT (A). Consequently, ground no.3 is determined against the assessee. Proportionate disallowance of interest - addition made by the AO by calculating the interest @ 12% per annum - HELD THAT - When assessee is having huge interest free funds at its disposal, the presumption lies in favour of assessee that interest free funds were utilized for giving interest free advances - Following the cases S.A. Builders Ltd. 2006 (12) TMI 82 - SUPREME COURT and Reliance Utilities Power Ltd. 2009 (1) TMI 4 - BOMBAY HIGH COURT we are of the considered view that addition made by the AO and confirmed by the ld.CIT(A) is not sustainable, hence ordered to be deleted. So, ground no.4 is determined in favour of the assessee.

Summary

Issues Involved:
1. Addition under section 40(a)(ia) of the Income Tax Act, 1961.
2. Disallowance of interest under section 36(1)(iii) of the Income Tax Act, 1961.
3. Addition due to difference in the rate of interest.
4. Addition of proportionate interest under section 36(1)(iii) of the Income Tax Act, 1961.

Detailed Analysis:

GROUND NO.1: Addition under section 40(a)(ia) of the Income Tax Act, 1961

The Assessing Officer (AO) disallowed an amount of ?21,20,492 under section 40(a)(ia) for not deducting TDS on payments made to six companies. The Commissioner of Income Tax (Appeals) [CIT(A)] restricted this addition to ?9,80,782 after the assessee provided certificates under section 201 from four companies. The Tribunal directed the AO to correct a factual error in the total amount and provide relief of ?15,602. The Tribunal also instructed the AO to verify the certificate from Bajaj Auto Finance Ltd. and conduct an enquiry regarding Barclays Investment & Loan, which had closed its operations in India. Consequently, this ground was determined in favor of the assessee for statistical purposes.

GROUND NO.2: Disallowance of interest under section 36(1)(iii) of the Income Tax Act, 1961

The AO disallowed interest of ?2,68,529 on advances made for the purchase of plant and machinery, as the machinery was not put to use. The CIT(A) confirmed this addition. The Tribunal, following a previous order in the assessee's own case for AY 2011-12, held that the advances were for replacement machinery in the regular course of business, not for business extension. Therefore, the addition was deleted, and this ground was determined in favor of the assessee.

GROUND NO.3: Addition due to difference in the rate of interest

The AO added ?7,24,761 for excessive bill discounting charges paid to Sandhar Enterprises and Sandhar Automotives (Dhumspur) due to lack of documentary evidence. The CIT(A) restricted this addition to ?1,40,946, noting a differential rate of interest of approximately 3%. The Tribunal upheld the CIT(A)'s findings, as the assessee could not justify the excess interest paid to Sandhar Enterprises. Consequently, this ground was determined against the assessee.

GROUND NO.4: Addition of proportionate interest under section 36(1)(iii) of the Income Tax Act, 1961

The AO made an addition of ?1,51,500 for proportionate disallowance of interest to M/s. Anant Raj Industries Ltd. and M/s. Jawahar Chits Pvt. Ltd. The CIT(A) deleted the addition for M/s. Jawahar Chits Pvt. Ltd. but confirmed ?1,42,500 for M/s. Anant Raj Industries Ltd. The Tribunal, following a previous order in the assessee's own case for AY 2011-12, held that the assessee had sufficient interest-free funds, and the presumption is that these funds were used for interest-free advances. Therefore, the addition was deleted, and this ground was determined in favor of the assessee.

Conclusion:

The appeal was partly allowed for statistical purposes, with the Tribunal providing specific directions for verification and correction of errors by the AO. The Tribunal upheld the CIT(A)'s findings on the differential interest rate but sided with the assessee on other grounds, following precedents and statutory provisions. The order was pronounced in open court on August 13, 2021.