2019 (12) TMI 661 - AT - Income Tax

Interest free loans to sister concerns - HELD THAT - Hon ble Apex Court in the case of CIT vs. Reliance Industries Ltd. 2019 (1) TMI 757 - SUPREME COURT has affirmed the view of the High Court to the effect that if the interest free funds available to the assessee were sufficient to meet its investment, then it could be presumed that the investment were made from the interest free funds available with the assessee. The Apex Court in the case of Hero Cycles Ltd. 2015 (11) TMI 1314 - SUPREME COURT also analyzed laid down the same dictum. In the instant case, the interest free funds available with the assessee were more than the advance paid to its sister concerns, therefore the issue in hand remanded to the file of AO to decide accordingly as per dictum of the Hon ble Apex Court. Ground No.1 2 are co-related and hence allowed for statistical purposes. Interest subsidy by the Revenue Authorities as Revenue receipt - HELD THAT - CIT(A) has correctly observed that the appellant has himself shown the amount of interest subsidy as Revenue Receipt however, it is a fact that as per the judgment of jurisdictional High Court in the case of Sh. Balaji Alloys (supra), the interest subsidy has been treated as Revenue receipt, hence in view of the same, the Assessing Officer is directed to consider this aspect afresh while following the judgment of the Jurisdictional High Court in the case of Sh. Balaji Alloys 2011 (1) TMI 394 - JAMMU AND KASHMIR HIGH COURT Disallowance of Bank Interest expenses will decrease the (claimed) loss of the assessee, but will also increase deduction u/s 80-IB - HELD THAT - As in the case of Sunandan Aggarwal Vs. ITO, Jammu 2016 (2) TMI 1266 - ITAT AMRITSAR the disallowances of interest shall result in decrease of loss and therefore, cannot be treated as taxable income as the same will not change the amount of deduction u/s 80-IB of the Act. In the interest of justice, in our considered view, it would be appropriate to remand the instant issue to the file of Assessing Officer for decision afresh as per dictum of aforesaid tribunal's judgments. Hence, revised ground No.4 also stands allowed for statistical purposes.

Summary

Issues involved:
1. Disallowance of interest expenses related to loans given to sister concerns
2. Treatment of interest subsidy as revenue receipt
3. Disallowance of bank interest expenses and its impact on taxable income

Issue 1: Disallowance of interest expenses related to loans given to sister concerns:
The appellant provided interest-free loans to its sister concerns and also took loans from Syndicate Bank and HDFC Bank. The assessing officer disallowed the interest expenses paid to the banks, suspecting that these loans might have been used for interest-free loans to the sister concerns. On appeal, the CIT(A) upheld the disallowance of interest not incurred for business purposes. The appellant argued that the interest-free funds available exceeded the loans given, thus no addition was warranted. Citing precedents, including the Supreme Court's ruling in CIT vs. Reliance Industries Ltd., it was held that if interest-free funds were adequate to cover investments, it could be presumed that investments were made from such funds. Consequently, the matter was remanded to the Assessing Officer for further consideration. Grounds 1 and 2 were allowed for statistical purposes.

Issue 2: Treatment of interest subsidy as revenue receipt:
The appellant contested the treatment of interest subsidy as a revenue receipt by the Revenue Authorities, citing a judgment of the J&K High Court in Shree Balaji Alloys vs. CIT. The CIT(A) noted that the appellant had himself classified the interest subsidy as a revenue receipt in financial statements and tax returns. While acknowledging the appellant's argument, the CIT(A) directed the Assessing Officer to reconsider the issue in line with the jurisdictional High Court's ruling in Sh. Balaji Alloys. Consequently, Ground 3 was allowed for statistical purposes.

Issue 3: Disallowance of bank interest expenses and its impact on taxable income:
The appellant contended that disallowing bank interest expenses would reduce the claimed loss but increase the deduction under section 80-IB, thus should not be added to taxable income. Citing tribunal judgments, the appellant argued that such disallowances would not alter the deduction under section 80-IB. The Tribunal decided to remand the issue to the Assessing Officer for fresh consideration based on the tribunal's previous judgments. Revised Ground 4 was allowed for statistical purposes.

Conclusion:
The appeals filed by the assessee were allowed for statistical purposes, with various grounds being upheld or remanded for further consideration. The judgment addressed issues related to interest expenses, treatment of interest subsidy, and the impact of disallowed bank interest expenses on taxable income.