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2017 (3) TMI 1046 - AT - Income TaxDisallowance of interest - Held that - Advances were made for the purpose of import of rough diamonds, and simply because imports could not be effected the nature of advances would not change, has remained uncontroverted by the revenue. In any case, as held by Hon ble Supreme Court in the case of S.A. Builders (2006 (12) TMI 82 - SUPREME COURT) the expression commercial expediency is of wide import and even advances for the purpose of business of the sister concern are required to be treated as for business purposes. The Assessing officer was thus clearly in error in resorting to the disallowance on the short ground that while the assessee has borrowed the money on interest, it has given an interest free advance to the sister concern. CIT(A) was justified in reversing the disallowance so made by the Assessing Officer. - Decided in favour of assessee Addition u/s 41 - cessation of liability - assessee has shown an amount due to M/s Planet Star Trading Pvt. Ltd. for more than three years - Held that - Unilateral entries in the accounts will not amount to cessation of liability, section 41(1) contemplate the obtaining by the assessee an amount either in cash or in any other way whatsoever benefit by way of remission of cessation. It should not be particular amount obtained by him. For the obtaining benefit to the assessee by virtue of remission of cessation is sine-qua-non for the application of this section. The mere fact that assessee has made an entry or transfer in its account unilaterally will not unable the department to say that section 41(1) of the Act would apply and amount be included in the total income of the assessee. - Decided in favour of assessee
Issues Involved:
1. Disallowance of interest based on conflicting judgments. 2. Disallowance of interest for advances to sister concern. 3. Disallowance under section 41(1) of the Income Tax Act. Analysis: Issue 1: Disallowance of interest based on conflicting judgments The appeal by Revenue challenged the order of the Ld. Commissioner of Income-Tax (Appeals) regarding the disallowance of interest. The Revenue contended that the Ld. CIT(A) erred in deleting the disallowance of interest based on the judgment in the case of M/s S.A. Builders, ignoring the subsequent judgment of the Supreme Court in the case of Tulip Star Hotels Ltd. The Tribunal noted that similar grounds of appeal were raised for earlier assessment years, and the Coordinate Bench had decided in favor of the assessee. The Tribunal upheld the decision based on business expediency and the wide import of the expression 'commercial expediency.' Consequently, the Tribunal dismissed the appeal by Revenue based on precedent. Issue 2: Disallowance of interest for advances to sister concern The Revenue also challenged the deletion of disallowance of interest for advances made to a sister concern. The Tribunal considered the arguments of both parties, where the Revenue supported the AO's order, and the assessee's representative supported the order of the Ld. CIT(A). The Tribunal analyzed the facts and legal precedents cited by both parties. Ultimately, the Tribunal upheld the decision of the Ld. CIT(A) based on the specific circumstances of the case and the application of relevant legal principles. The Tribunal dismissed the appeal by Revenue on this issue as well. Issue 3: Disallowance under section 41(1) of the Income Tax Act Regarding the disallowance under section 41(1) of the Income Tax Act, the Tribunal examined the contentions of both parties. The AO had disallowed an amount due to a trading company, treating it as a cessation of liability under section 41(1). The assessee argued against this treatment, citing legal precedents and the specific facts of the case. The Ld. CIT(A) analyzed the decisions of the Hon'ble Supreme Court and the Hon'ble Gujarat High Court and concluded that the disallowance made by the AO was not justified. The Tribunal agreed with the Ld. CIT(A)'s reasoning and dismissed the appeal by Revenue on this ground. Additionally, the Tribunal noted that the general grounds raised by Revenue did not require adjudication. In conclusion, the Tribunal upheld the orders of the Ld. CIT(A) on all grounds, dismissing the appeal by Revenue in its entirety.
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