2018 (9) TMI 1306 - AT - Income Tax

Disallowance of financial charges - genuineness of claim - Held that - On perusal of the documents filed by the assessee, we are of the view that the assessee established the fact that it incurred the financial charges during the course of its business, which are genuine. Moreover, in its own case (formerly known as M/s Global Forgings Ltd. similar issue came up for consideration before the Tribunal and the Tribunal dismissed the appeal of the revenue wherein held only reason for the disallowance made by the Assessing Officer was that the assessee has incurred the expenditure, while discounting the bills from outside parties and providing goods to its sister concerns on credit basis. In our view, the conclusion. drawn by the Assessing Officer is based on mere presumptions and surmises, rather than evidence - decided in favour of assessee

Summary

Issues:
Disallowance of financial charges incurred by the assessee company.

Analysis:
The appeal was filed against the order of CIT(A) for the assessment year 2011-12. The assessee, engaged in trading steel, filed its return of income admitting total income under the Income Tax Act, 1961. During scrutiny, the Assessing Officer (AO) noted discrepancies in the financial statements, particularly the low profit margins. The AO found that the assessee did not incur any expenses related to the actual delivery of goods, raising suspicions about the trading activity claimed by the company. Consequently, the financial charges claimed were disallowed by the AO.

Upon appeal, the CIT(A) upheld the AO's decision, stating that the assessee failed to provide sufficient evidence to refute the AO's conclusions. The CIT(A) agreed with the disallowance of the financial charges. The assessee then appealed to the ITAT, raising multiple grounds challenging the disallowance of the financial charges.

Before the ITAT, the assessee argued that the financial charges were legitimate expenses incurred in the normal course of business, supported by proper documentation and evidence. The assessee also pointed out a similar case where the ITAT had ruled in favor of the assessee regarding the disallowance of financial charges.

After considering the submissions and evidence presented by the assessee, the ITAT found that the financial charges were genuine business expenses incurred by the assessee. Citing a previous ruling in a similar case, the ITAT concluded that there was no reason to doubt the genuineness of the expenditure. Therefore, the ITAT directed the AO to delete the disallowance of the financial charges amounting to ?7,66,83,299. Consequently, the ITAT allowed the appeal of the assessee.

In conclusion, the ITAT overturned the decision of the CIT(A) and directed the AO to delete the disallowance of the financial charges incurred by the assessee company. The ITAT's decision was based on the genuineness of the expenses and the precedent set by a similar case where the disallowance was rejected.