2005 (2) TMI 443 - AT - Income Tax

2006 (8) TMI 229 - AT

Issues Involved:
1. Disallowance of interest under Section 36(1)(iii) of the Act.
2. Disallowance of interest paid to M/s P.J. Pipes & Vessels (P) Ltd.
3. Addition of interest receivable on advance to M/s Apurva Tubes (P) Ltd.
4. Addition on account of inflated purchases transacted through M/s P.J. Pipes & Vessels.
5. Addition on account of inflated valuation of opening stock.
6. Disallowance of excess rent paid to Shri Bharat J. Vora under Section 40A(2)(b) of the Act.
7. Disallowance of interest receivable on advance to M/s Apurva Tubes (P) Ltd. for the asst. yr. 1991-92.
8. Disallowance of interest amount on account of alleged cash balance for the asst. yr. 1991-92.

Detailed Analysis:

1. Disallowance of Interest under Section 36(1)(iii) of the Act:
The AO disallowed Rs. 3 lakhs out of interest for the asst. yr. 1989-90, noting that the assessee had excess cash holdings. The CIT(A) confirmed this disallowance. However, the Tribunal found that the disallowance was based on a similar disallowance in the preceding year, which had been decided in favor of the assessee by the Tribunal. Following the earlier decision, the Tribunal deleted the addition of Rs. 3 lakhs, allowing the assessee's grounds on this issue.

2. Disallowance of Interest Paid to M/s P.J. Pipes & Vessels (P) Ltd.:
The AO disallowed interest payment in excess of 15%, resulting in a disallowance of Rs. 1,42,800. The CIT(A) sustained disallowance of interest in excess of 18%, resulting in a net addition of Rs. 71,300. The Tribunal found that the interest paid at 21% was reasonable and deleted the addition of Rs. 71,300, allowing the assessee's grounds and rejecting the Revenue's grounds on this issue.

3. Addition of Interest Receivable on Advance to M/s Apurva Tubes (P) Ltd.:
The AO added Rs. 2,10,000 as interest receivable on an advance of Rs. 5,67,893. The CIT(A) sustained disallowance to the extent of Rs. 85,175. The Tribunal found that there was no chance of recovery of the principal amount, and it was improper to expect the assessee to charge interest. The Tribunal deleted the disallowance of Rs. 85,175, allowing the assessee's grounds and rejecting the Revenue's appeal on this issue.

4. Addition on Account of Inflated Purchases Transacted through M/s P.J. Pipes & Vessels:
The AO made an addition of Rs. 6 lakhs based on inflated purchases. The CIT(A) deleted the addition, finding that the transactions were not collusive and the purchases were genuine. The Tribunal upheld the CIT(A)'s order, rejecting the Revenue's ground on this issue.

5. Addition on Account of Inflated Valuation of Opening Stock:
The AO made an addition of Rs. 2 lakhs to the trading results, noting that the opening stock was valued at inflated figures. The CIT(A) deleted the addition, observing that there was no addition made to the closing stock for the asst. yr. 1988-89. The Tribunal upheld the CIT(A)'s order, rejecting the Revenue's ground on this issue.

6. Disallowance of Excess Rent Paid to Shri Bharat J. Vora under Section 40A(2)(b) of the Act:
The AO disallowed Rs. 1,64,748 out of total rent paid to Shri Bharat J. Vora, considering the rent excessive. The CIT(A) deleted the disallowance, finding that the rent paid was reasonable for the premises in a commercial area. The Tribunal upheld the CIT(A)'s order, rejecting the Revenue's ground on this issue.

7. Disallowance of Interest Receivable on Advance to M/s Apurva Tubes (P) Ltd. for the Asst. Yr. 1991-92:
The CIT(A) sustained the addition of Rs. 66,220 as interest receivable on advance. The Tribunal, following its decision for the asst. yr. 1989-90, deleted the addition, allowing the assessee's grounds on this issue.

8. Disallowance of Interest Amount on Account of Alleged Cash Balance for the Asst. Yr. 1991-92:
The CIT(A) sustained the disallowance of Rs. 5,640 on account of alleged cash balance. The Tribunal, following its decision for the asst. yr. 1989-90, deleted the addition, allowing the assessee's grounds on this issue.

Conclusion:
Both the appeals of the assessee are allowed, and the only appeal of the Revenue is dismissed.

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