2022 (9) TMI 884 - HC - Income Tax

Disallowance of interest expenditure - whether borrowed funds advanced by the Assessee to the Contract Bottling Units ( CBUs ) used by the Assessee for the purposes of business since no revenue was disclosed from such activities? - addition made as Assessee had failed to prove a direct nexus of the said interest expenses for its business purposes as stipulated u/s 36 and 37 - ITAT upholding the order of CIT(A) and deleted the disallowance - HELD THAT - CIT(A) has returned a finding of fact that the working capital loan taken by the Assessee for its business purposes was provided to the CBUs as per the terms and conditions of its agreement. The said working capital provided to the CBUs was taken into account by the parties while fixing the bottling charges payable under the agreement. CIT(A) concluded that the working capital loan availed by the Assessee from the Standard Chartered Bank had been used wholly and exclusively for the business purposes and therefore, deleted the addition on account of interest payment on loan made by the AO. Expenses of legal and professional fees as well as the warehousing and demurrage charges, debited to the profit and loss account CIT(A) held that since the AO has not alleged that these expenses are bogus or of a personal nature the same do not warrant any disallowance. CIT(A) held that the said expenses have been incurred wholly and exclusively for the business purposes and therefore, deleted the disallowances. ITAT and CIT(A), both fact finding authorities have concurrently held that the expenses claimed by the assessee were duly incurred in the course of business. In the present appeal, the appellant has not placed any material on record to contradict the aforesaid concurrent finding of facts returned by the ITAT and CIT(A) while reversing the disallowances made by the AO. The appellant has failed to point out any error of law in the findings of the ITAT - No substantial questions of law arise for consideration and accordingly, the appeal is dismissed.

Summary

Issues:
Challenge to ITAT order on interest expenditure disallowance and legal & professional fee expenses and warehousing expenses disallowance.

Interest Expenditure Disallowance:
The appeal challenged the ITAT order upholding the CIT(A)'s decision to delete the disallowance of interest expenditure amounting to Rs.2,79,11,315 made by the AO. The appellant argued that the borrowed funds advanced to Contract Bottling Units (CBUs) were not used for business purposes as no revenue was disclosed from such activities. It was contended that the CBUs were separate entities, and the Assessee failed to prove a direct nexus of interest expenses for business purposes as required by Sections 36 and 37 of the Income Tax Act, 1961. However, the CIT(A) found that the working capital loan provided to CBUs was used for business purposes as per the agreement terms, and the ITAT concurred with this finding. The ITAT dismissed the Revenue's appeal, affirming that the loan was utilized exclusively for business purposes.

Legal & Professional Fee Expenses Disallowance:
The appeal also contested the ITAT's decision to delete the disallowance of Rs.44,74,729 for legal and professional fee expenses and Rs.25,27,483 for warehousing and demurrage expenses made by the AO. The appellant argued that since there was no business activity during the financial year, these expenses should not have been allowed. However, the CIT(A) held that since the AO did not allege these expenses to be bogus or personal, they were incurred wholly and exclusively for business purposes, leading to their deletion. The ITAT upheld this decision, stating that the expenses were for maintaining the business establishment during the relevant year. The ITAT dismissed the Revenue's appeal, emphasizing that no disallowance was warranted as the expenses were found to be legitimate business expenditures.

Conclusion:
Both the interest expenditure disallowance and legal & professional fee expenses and warehousing expenses disallowance were challenged in the appeal. However, the CIT(A) and ITAT, as fact-finding authorities, concurrently held that these expenses were legitimately incurred for business purposes. The appellant failed to provide any material contradicting these findings, and no legal errors were pointed out in the ITAT's decision. Consequently, the appeal was dismissed as no substantial questions of law arose for consideration based on the factual and legal analysis provided by the CIT(A) and ITAT.