2003 (4) TMI 235 - AT - Income Tax

Summary

Issues:
1. Deletion of addition of Rs. 48,950 on account of variation in purchase price.
2. Deletion of addition made on account of disallowance out of interest of Rs. 3,88,089.

Analysis:

Issue 1: Deletion of addition of Rs. 48,950 on account of variation in purchase price
The Assessing Officer (AO) added Rs. 48,950 under section 40A(2)(b) of the IT Act, alleging that purchases from a sister-concern were made at higher rates compared to market prices. The CIT(A) deleted this addition after considering the fluctuating nature of market prices for the agricultural commodity in question. The CIT(A) observed that the AO failed to consider lower rates paid to the sister-concern in previous transactions and ignored the average purchase price submitted by the seller. The Tribunal upheld the CIT(A)'s decision, noting the absence of collusiveness or evidence of overpricing, and the normal fluctuations in prices in business transactions.

Issue 2: Deletion of addition on account of disallowance out of interest of Rs. 3,88,089
The AO disallowed interest of Rs. 3,88,089 charged from a sister-concern on trading transactions, despite explanations by the assessee regarding contractual obligations and interest charged on financial transactions only. The CIT(A) ruled in favor of the assessee, emphasizing that interest can be claimed under section 36(iii) if borrowed funds are used for business purposes and interest is paid and claimed as a deduction. The CIT(A) found no justification for restricting the interest claim and cited principles of consistency in similar cases. The Tribunal upheld the CIT(A)'s decision, noting the lack of nexus between interest-bearing borrowed funds and interest-free advances, and the absence of any previous disallowances or discussions on the calculation of the disallowed amount.

In both issues, the Tribunal upheld the CIT(A)'s decisions, emphasizing the lack of evidence supporting the AO's additions and the justifications provided by the assessee regarding market fluctuations and contractual obligations. The Tribunal found no grounds for interference and dismissed the appeal filed by the Revenue.