2017 (12) TMI 655 - AT - Income Tax

Allowability of claim of interest expenses u/s 36(1)(iii) - Held that - The case of the assessee further supported by the decision of the Hon ble Bombay High Court in case of CIT Vs. Reliance Utilities and Power Ltd 2009 (1) TMI 4 - BOMBAY HIGH COURT wherein it has been held that if the assessee has higher non-interest bearing funds available then the non interest bearing advances then the presumption lies in favour of the assessee that such advances are out of such interest free funds available. In the present case the total interest free shareholders fund available with the assessee is 6.16 crores whereas the total interest free loans to the companies is 61.06. lacs loan to suppliers is 93.83 lacs and to other is 1.18 lacks. Therefore we direct the ld AO to delete the disallowance of 1428923/-. Therefore ground Nos. 1 to 3 of the appeal are allowed. Non granting of TDS credit - Held that - Admittedly the assessee did not make the claim for TDS in the return of income though offered the income of interest from which tax is deducted for taxation. Hon ble Delhi High Court in CIT Vs. Jai Parabolic Springs Ltd 2008 (4) TMI 3 - DELHI HIGH COURT has held that there is no prohibition on the powers of the appellate authorities to entertain the additional claim for the just decision of the case. Therefore accordingly we reverse the finding of the lower authorities and direct the ld AO to verify the claim of the assessee of TDS of credit and if found in accordance with the law same may be granted. In the result appeal of the assessee is allowed with above direction. Addition on account of closing stock - Held that - In the present case the difference is of 8346 bags. On principle we agree with the findings of the lower authorities that if a different stock in quantity is shown to the banker then in the books before the revenue authorities the balance difference is required to be added in the hands of the assessee as income. However as the lower authorities has not given proper opportunity of reconciliation of the stock to the assessee the issue is set aside to the file of the ld Assessing Officer with a direction to the assessee to produce the quantitative register maintained before the excise authorities as stated in the reply before the ld AO before the expiry of three months from the date of the receipt of this order and reconcile the difference. The ld Assessing Officer is directed to verify the claim of the assessee and if the stock register balance with the Excise authorities and the bank are not reconciled to that extent the addition may be made. - Decided in favour of assessee. Addition of miscellaneous expenses - Held that - We direct the AO to delete the disallowance of 52000/- out of telephone expenditure as the above expenditure was incurred by the company for the director for official use. Accrued interest on post office saving certificate and national savings certificate - Held that - We set aside this issue back to the file of the ld AO to compute the interest income accrued during the year and tax the same as only that much income can be said to have accrued to the assessee during the year. Accordingly ground No. 3 and 4 of the appeal of the assessee are allowed with above direction.

Summary

Issues Involved:

1. Disallowance of interest expenses.
2. Treatment of interest income as income from other sources.
3. Addition on account of receipt from the sale of old machinery.
4. Addition on account of valuation of closing stock.
5. Disallowance of interest on advance given to M/s. SK Engineering.
6. Non-granting of TDS credit.
7. Ad hoc disallowance of telephone expenses.
8. Addition of interest on NSC.
9. Penalty under section 271(1)(c).

Detailed Analysis:

1. Disallowance of Interest Expenses:
The assessee challenged the disallowance of ?14,28,923/- as interest expenses, arguing that the borrowed funds were used for business purposes, and thus should be allowable under section 36(1)(iii). The tribunal noted that the assessee's own funds exceeded the non-interest-bearing advances given and referred to a precedent in the assessee's favor from AY 1999-2000. The tribunal directed the AO to delete the disallowance, allowing grounds 1 to 3.

2. Treatment of Interest Income:
The CIT(A) treated the interest income of ?1,01,13,216/- as income from other sources, which the assessee contested. The tribunal found that the CIT(A) wrongly noted the ground as not pressed. The tribunal remanded the issue back to the CIT(A) for a decision on the merits, thus addressing grounds 4, 5, 7, and 8.

3. Addition on Sale of Old Machinery:
The assessee did not press ground 6 regarding the addition of ?5,98,613/- from the sale of old machinery, leading to its dismissal.

4. Valuation of Closing Stock:
The AO added ?6,91,64,080/- due to discrepancies between the stock declared to the bank and the books. The tribunal noted the need for proper reconciliation and remanded the issue back to the AO for verification against the excise authorities' records, thus allowing ground 2 of ITA No. 4871/Del/2009 with directions.

5. Disallowance of Interest on Advance:
The tribunal allowed ground 9, directing the AO to delete the disallowance of ?2,37,600/- for advances to M/s. SK Engineering, as it was covered under the same reasoning as grounds 1 to 3.

6. Non-granting of TDS Credit:
The assessee's claim for TDS credit of ?18,40,862/- was initially rejected due to non-claim in the original return. The tribunal, citing the Delhi High Court's decision in Jai Parabolic Springs Ltd, directed the AO to verify and allow the TDS credit if found in order, thus allowing the appeal in ITA No. 3969/Del/2009.

7. Ad hoc Disallowance of Telephone Expenses:
The tribunal directed the AO to delete the ad hoc disallowance of ?52,000/- for telephone expenses, recognizing it as an official expense incurred by the director.

8. Addition of Interest on NSC:
The tribunal remanded the issue back to the AO to compute and tax the actual accrued interest on NSC, which was incorrectly estimated at ?3,00,000/-. The tribunal allowed grounds 3 and 4 of ITA No. 4871/Del/2009 with directions.

9. Penalty under Section 271(1)(c):
The penalty of ?43,72,630/- under section 271(1)(c) was linked to the addition for closing stock discrepancies. Since the quantum addition was remanded, the tribunal also set aside the penalty order, directing the AO to reconsider post-quantum determination, thus allowing ITA No. 2143/Del/2012 for statistical purposes.

Conclusion:
The tribunal provided relief on several grounds, remanding key issues for further verification and proper adjudication. The appeals were disposed of with directions for reassessment and verification by the AO and CIT(A) as applicable.