2022 (3) TMI 673 - AT - Income Tax

TDS u/s 194A - non-deduction of TDS for interest paid to Barclays Investment Loan (India) Ltd - HELD THAT - It is explained by the assessee that the lender company has closed its operation in India, therefore, appellant could not lay hand on the certificate issued u/s 201 of the Act. Though appellant succeeded to get certificates from the two other lenders and placing it before the Ld. First Appellate Authority to get part relief. This Bench is of considered view that the appellant needs an opportunity to bring on record the other sources of information or documents to establish if certificate was issued by Barclays Investment and Loan (India) Ltd. Accordingly, the AO is directed to conduct a proper inquiry in that regard including giving opportunity to the assessee. Consequently ground no. 1 is determined in favour of the assessee for statistical purpose. Disallowance of interest on the advances made by the assessee - HELD THAT - There is no reason to differ. All the machinery for which the advance was given were part of the replacement machinery and said machineries for which the advance was given was not for extension of existing business. The Bench is thus inclined to decided this ground in favour of the assessee. Addition u/s 37(1) of difference in the rate of interest - HELD THAT - It can be observed that the assessee has paid bill discounting charges 15 and 16% to Sandhar Automotavies (Dhumspur) and 19% to Sandhar Enterprises. While as per the own case of assessee they are connected enterprises of one proprietor. Thus, the Ld. First Appellate Authority has rightly disallowed amount being not based on principles of prudence and considering them excessively paid. Even otherwise, admittedly, in assessee s own case for the year 2012-13, the Co-ordinate Bench has also determined the issue against the assessee and meeting the similar fate, in the present appeal, ground no. 3 is determined against the assessee. Addition u/s 37(1) - HELD THAT - Sanction letter placed on record by the assessee makes it apparent the loan of the 70,00,000/- , taken from SIDBI was to meet margin money for working capital requirement of the company. The interest on this loan stands allowed by the Ld. AO as revenue expenditure that being so there could be no justification to disallow the process charges made for procuring the loan as capital expenditure. Thus, only to the extent of ₹ 78,652/- impugned addition of total ₹ 2,42,136/- is liable to be set aside. Accordingly this ground is allowed part.

Summary

Issues Involved:
Assessment under Income Tax Act, 1961 - Additions made by Ld. AO - Appeal against order u/s 250(6) - Grounds of appeal raised by assessee - Disallowances under various sections - Bill discounting charges disallowed - Process charges for term loan disallowed - Legal principles followed by Ld. Tax Authorities - Judicial review by ITAT Delhi.

Analysis:

Ground No. 1:
The appellant contested the addition of &8377; 2,47,363/- under section 40(a)(ia) of the Income Tax Act, 1961, for non-deduction of TDS. The appellant cited the closure of the lender company's operations in India as a reason for not obtaining the required certificate. The Tribunal directed the AO to conduct a proper inquiry to verify the certificate's issuance by the lender company, providing the appellant with an opportunity to present additional evidence. Consequently, ground no. 1 was decided in favor of the appellant for statistical purposes.

Ground No. 2:
Regarding ground no. 2, the Tribunal examined the issue of disallowance of interest on advances made by the assessee. The Tribunal found that the advances were for replacement machinery and not for extending the existing business. Based on relevant statutory provisions and judicial pronouncements, the Tribunal decided this ground in favor of the appellant.

Ground No. 3:
The appellant challenged the disallowance of bill discounting charges paid to related entities at different rates. The Tribunal upheld the disallowance, considering the excessive payments not based on principles of prudence. Ground no. 3 was determined against the appellant, as similar issues had been decided against the appellant in a previous case.

Ground No. 4:
In ground no. 4, the Tribunal reviewed the disallowance of interest on advances made by the assessee. The Tribunal found that the advances were given out of interest-free funds and were not for the relevant assessment year. Therefore, this ground was decided in favor of the appellant.

Ground No. 5:
The appellant contested the disallowance of process charges for a term loan taken for working capital requirements. The Tribunal noted that the loan was specifically for working capital needs, and thus, the process charges should be treated as revenue expenditure. The Tribunal partially allowed this ground, setting aside the addition of &8377; 78,652/- out of the total &8377; 2,42,136/-.

In conclusion, the appeal filed by the assessee was partly allowed for statistical purposes, with the Tribunal providing detailed reasoning for each ground of appeal and the corresponding decision.

This comprehensive analysis covers the key issues raised in the judgment, detailing the arguments presented by the parties, the legal principles applied, and the Tribunal's findings for each ground of appeal.