2019 (4) TMI 1507 - AT - Income Tax

Disallowance of interest expenditure - CIT-A deleted the addition following a direct decision in assessee s own case for the assessment years 1998-99 to 2002-03 - HELD THAT - Revenue authorities cannot even challenge the relief granted by an appellate authority in one assessment year, when, on the same issue, it has accepted the relief granted by the appellate authority in another assessment year. Be that as it may, the issue in appeal is covered, in favour of the assessee, by an decision of the coordinate bench. In this view of the matter, respectfully following the coordinate bench decision and having regard to the fact that the learned Departmental Representative has not pointed out any reasons whatsoever as to why the coordinate bench decision will not apply on this assessment year as well, we approve the conclusions arrived at by the CIT(A) and decline to interfere in the matter. No interference is called for. Addition on account of interest free loans and advances to sister concerns - assessee did not discharge the onus of showing the nexus of interest free advances and loan with interest free funds - CIT-A deleted the addition following a direct decision in assessee s own case for the assessment years 1998-99 to 2002-03 - HELD THAT - The relief on this issue was given by the coordinate bench was challenged by the Assessing Officer before Hon ble High Court. We further find that earlier decision for the assessment years 1998-99 to 2002-03 passed by the coordinate bench was carried in appeal before Hon ble jurisdictional High Court on this issue, and, Their Lordships, vide judgment 2016 (8) TMI 154 - GUJARAT HIGH COURT , were pleased to confirm the decision of the Tribunal on the same. In this view of the matter, respectfully following the Hon ble jurisdictional High Court s judgment on the issue and having regard to the fact that the learned Departmental Representative has not pointed out any reasons whatsoever as to why the coordinate bench decision will not apply on this assessment year as well, we approve the conclusions arrived at by the CIT(A) and decline to interfere in the matter. No interference is called for. Addition u/s 37 - fees paid to a Delhi based agent for registration of products in Iraq - payments were made for the kickbacks and not incurred for business purposes - payment for After Sales Service Fees to Iraqi entities - HELD THAT - The fees paid to a Delhi based agent for registration of products in Iraq, by no stretch of imagination, can be said to be a payment of kickbacks to Iraqi regime. The erudite discussion in the assessment order, about the Volker Committee report and the kickbacks to Iraqi regime by those doing business with Iraq in the sanction days, has nothing to do with this disallowance. We find that the payment is made for a legitimate purposes and there is no bar under section 37 on its deductibility. We, therefore, approve the conclusions arrived at by the CIT(A) and decline to interfere in the matter on this aspect as well.

Summary

Issues:
1. Disallowance of interest expenditure claimed as a provision
2. Disallowance of interest free loans and advances to sister concerns
3. Disallowance of payments made for registration of products in Iraq

Analysis:

Issue 1: Disallowance of interest expenditure claimed as a provision
The Assessing Officer challenged the deletion of a provision for interest expenditure amounting to ?21,98,50,000 by the CIT(A). The AO argued that the provision was not covered by a Supreme Court decision and should not have been claimed as a deduction. The CIT(A) granted relief based on a previous Tribunal decision in the assessee's favor for other assessment years. The Tribunal noted that the facts for the current assessment year were similar to previous years where relief was granted. The Tribunal upheld the CIT(A)'s decision, citing legal principles that revenue authorities cannot challenge relief granted in one assessment year if accepted in another. The appeal by the Assessing Officer was dismissed.

Issue 2: Disallowance of interest free loans and advances to sister concerns
The Assessing Officer contested the deletion of an addition of ?4,84,19,370 related to interest free loans to a subsidiary. The AO disallowed 3% of total interest paid by the assessee, attributing it to the interest free advance. The CIT(A) relied on a previous Tribunal decision and granted relief. The Tribunal found the facts similar to previous years and upheld the CIT(A)'s decision based on the High Court's judgment. The appeal by the Assessing Officer was dismissed.

Issue 3: Disallowance of payments made for registration of products in Iraq
The Assessing Officer disputed the deletion of an addition of ?1,32,000 made for registration charges paid to a Delhi-based agent. The AO argued that the payment was for kickbacks and not for business purposes. The CIT(A) deleted the disallowance, stating that the payment was legitimate and deductible under section 37. The Tribunal agreed with the CIT(A), finding the payment for a valid purpose and not as kickbacks. The appeal by the Assessing Officer was dismissed.

In conclusion, all grounds of appeal by the Assessing Officer were dismissed, and the appeals by the assessee and cross objections were also dismissed for lack of prosecution. The Tribunal upheld the decisions of the CIT(A) based on legal principles and previous judgments.