2017 (1) TMI 1152 - AT - Income Tax

Disallowance of interest u/s 36 - addition made on the plea that borrowed fund was utilised for non business purpose - Held that - We find that the assessee has started real estate development business and treated the Jaipur property as current asset in the Balance Sheet. The Board of Directors of the company have also passed a resolution to that effect in the meeting of the company and accordingly, it was shown as current assets in the Balance Sheet w.e.r. 1st April 2009. We also find that in subsequent assessment year, this property was sold and profit earned on the same was offered by the assessee as business income. Once the income from the said property has been offered as business income, there is no reason to disallow the interest paid for acquiring the said property which was held by the assessee as current asset in its Balance Sheet and income from which has been offered as business income. Accordingly, we do not find any merit in disallowance of interest so made.- Decided in favour of assessee Addition of sundry debtors - addition on advance payment received from National Laminates Corporation - Held that - Ledger account of this party reveals a fact that throughout the year there is a purchase and sale of goods and receipt of advance and at the end of the financial year there was a closing balance of ₹ 34,15,666. We also find that the Balance Sheet of National Laminates Corporation reveals the fact of credit in the name of the assessee. Accordingly, there is no justification for adding this amount as unexplained credit.National Laminates Corporation is a regular assessee and filing return of income regularly. Under these facts and circumstances, we do not find any reason to interfere with the order of the learned Commissioner (Appeals) deleting the addition - Decided in favour of assessee

Summary

Issues: Appeal against the impugned order dated 14th July 2014 under section 143(3) of the Income Tax Act, 1961 for the assessment year 2010-11 regarding disallowance of interest expenditure and addition under section 68 for sundry debtors.

Analysis:
1. Disallowance of Interest Expenditure:
- The Assessing Officer disallowed interest expenditure under section 36(1)(iii) on the grounds of non-business purpose usage of borrowed funds.
- The company paid interest on cash credit facilities for working capital and on a loan for property purchase in Jaipur, treated as a current asset in the Balance Sheet.
- The property was later sold, and the profit was offered as business income in subsequent years.
- The Tribunal found no merit in the disallowance, as the interest was related to a property held as a current asset and income from which was treated as business income.

2. Addition under Section 68 for Sundry Debtors:
- The Assessing Officer made an addition under section 68 for sundry debtors without specific details or evidence, totaling ?34,15,666.
- The Commissioner (Appeals) deleted this addition after considering evidence provided by the appellant, demonstrating the advance received from National Laminates Corporation.
- The ledger account of the party showed regular transactions throughout the year, with a closing balance matching the amount in question.
- The Balance Sheet of National Laminates Corporation confirmed the credit in the appellant's name, indicating a genuine business transaction.
- The Tribunal upheld the deletion of the addition, noting the regular filing of income tax returns by the corporation and the lack of substantiation by the Assessing Officer.

In conclusion, the Tribunal allowed the assessee's appeal regarding the addition of sundry debtors and dismissed the Revenue's appeal. The disallowance of interest expenditure was also overturned, emphasizing the business nature of the transactions and the subsequent treatment of income from the property.