2020 (8) TMI 97 - AT - Income Tax

Addition being amount of sales tax advance paid - where such amount, which is not claimed as an expenditure by the assessee while preparing P L A/c, then can any addition be made on such an entry? - HELD THAT - We find no merit in the orders of the authorities below as the amount has only been shown as an advance and not claimed as an expenditure. Now, coming to the second stand of the AO even if the said amount was contingent liability, but in view of the provision of section 43B of the Act, such amount are duly allowable as expenditure in the year of payment. However, the same is not the case of the assessee and accordingly, we direct the Assessing Officer to delete the addition - Decided in favour of assessee. Disallowance of interest being interest payable on loan advanced to subsidiary M/s. Sagar Power Ltd. - HELD THAT - From entries passed by the assessee in its books of accounts and details furnished reflects that in the account of interest on unsecured loans with ICICI Bank , the assessee is debiting the interest quarter-wise which is due to ICICI Bank and simultaneously crediting the said account being interest on loan given to M/s. Sagar Power Ltd. Entry to entry amount is debited credited to the account. Assessee is not charging any interest due on the loan disbursed to the ICICI bank to the subsidiary company. The said interest is shown as recoverable from M/s. Sagar Power Ltd. in the final analysis, no amount has been claimed as a deduction. In these facts and circumstances, there is no merit in making the aforesaid addition in the hands of the assessee on account of interest attributable to the loan raised from ICICI Bank for the so called benefit of the subsidiary. Similarly, the loan which has been shown as due to ICICI Bank is in turn being treated as advance to the subsidiary. On such advancement of loan to the subsidiary, there is no merit in making any disallowance on account of notional interest. - Decided in favour of the assessee. Difference in gross receipt of interest - AO difference in gross receipt of interest - HELD THAT - Issue relating to the availment of loan from ICICI bank and its advancement to subsidiary M/s. Sagar Power Ltd. in the paras above. The assessee on the other hand has not claimed the expenditure of interest due to ICICI bank and has also not shown the interest received from M/s. Sagar Power Ltd., as it had set off the interest account i.e. interest receipt from subsidiary with the interest due to ICICI bank. In these facts and circumstances, we find there is no merit in the exercise carried out by the Assessing Officer. In case the interest income is added in the hands of the assessee then, the interest expenditure which is equivalent to the interest income earned should be debited and NIL income is to be assessed in the hands of the assessee. Ground of appeal raised by the assessee is allowed.

Summary

Issues Involved:
1. Addition of sales tax advance payment
2. Disallowance of interest on loan advanced to subsidiary
3. Addition of interest on loan taken over by the assessee for subsidiary
4. Difference in gross receipt of interest

Addition of Sales Tax Advance Payment:
The assessee appealed against the addition of ?15,50,466 as sales tax advance payment. The Assessing Officer disallowed this amount as a contingent liability, which the CIT(A) upheld. However, the ITAT ruled in favor of the assessee. The ITAT noted that the amount was shown as an advance in the balance sheet and not claimed as an expenditure. Referring to section 43B of the Income-tax Act, the ITAT directed the Assessing Officer to delete the addition as the amount was not debited to the Profit & Loss Account.

Disallowance of Interest on Loan Advanced to Subsidiary:
The issue revolved around the disallowance of interest amounting to ?49,50,000 on a loan advanced to the subsidiary, M/s. Sagar Power Ltd. The Assessing Officer contended that the loan was not utilized for business purposes, leading to the disallowance. However, the ITAT disagreed, citing the business nature of the transaction between the assessee and its subsidiary. Referring to the Supreme Court's decision, the ITAT allowed the appeal, emphasizing that the interest disallowance was unjustified.

Addition of Interest on Loan Taken Over for Subsidiary:
Another contention was the addition of ?35,12,122 as interest on a loan taken over by the assessee for the subsidiary company. The ITAT found that the loan transaction was a business arrangement benefiting the assessee, and no disallowance was warranted. The ITAT highlighted that the interest was not charged to the subsidiary by the assessee, leading to the allowance of the appeal.

Difference in Gross Receipt of Interest:
The final issue pertained to a difference in gross receipt of interest, with the Assessing Officer adding ?1,20,47,243. The ITAT analyzed the interest transactions between the assessee, the subsidiary, and ICICI Bank. It concluded that the interest income should be offset by the interest expenditure, resulting in a NIL income assessment. Consequently, the ITAT allowed the appeal on this issue.

In conclusion, the ITAT ruled in favor of the assessee on all grounds, directing the Assessing Officer to delete the additions and disallowances made. The appeal was allowed, emphasizing the business nature of the transactions and the incorrect application of tax provisions by the revenue authorities.