2011 (11) TMI 868 - AT - Income Tax

Summary

Issues involved:
The issues involved in the judgment are:
1. Deduction of impact fee paid to Surat Municipal Corporation under Section 37 of the Act.
2. Disallowance of interest on utilization of interest-bearing funds for interest-free loans under Sec. 40A(2)(b) of the Act.

Issue 1: Deduction of impact fee:
The Revenue appealed against the deletion of the addition of Rs. 13,02,923/- for impact fee paid to Surat Municipal Corporation. The assessee argued that the payment was for contravening the plan sanctioned for its construction projects and was a compensatory payment under the Gujarat Regulation of Unauthorised Development Act, 2001. The CIT (A) deleted the addition, citing precedents where similar payments were allowed as deductions. The Tribunal upheld the CIT (A)'s decision, emphasizing that the payment was compensatory and not a penalty for infraction of law.

Issue 2: Disallowance of interest on unsecured loans:
The Revenue challenged the deletion of the disallowance of interest on unsecured loans. The assessee contended that the interest was paid only on opening balances of loans, and there was no diversion of interest-bearing funds for non-business purposes. The CIT (A) found that the AO did not consider all relevant facts and failed to establish a direct nexus between interest-bearing loans and interest-free advances. As the Revenue did not contest this finding, the Tribunal confirmed the CIT (A)'s decision to delete the addition of Rs. 3,50,960/-.

In conclusion, the Tribunal dismissed the Revenue's appeal, upholding the CIT (A)'s decisions on both issues.