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2024 (5) TMI 688 - AT - Income TaxDisallowance of interest u/s 36(1)(iii) - The AO disallowed interest on the grounds that the advance given to an individual was not for business purposes. - Advance made against the intended purchase of property for corporate office of the assessee company - CIT(A) deleted the disallowance - HELD THAT - CIT(A) observed that he found that the AO s contention that the assessee company never had any intention to purchase the premises and that the Sale Agreement was executed merely as a tool to divert interest-free funds to Smt. Poonam Gupta, was based merely on presumptions and surmises; that Smt. Poonam Gupta was not related to the Directors of the company, or their relatives; that in fact, the assessee was a lessee of the premises, which the assessee company had hired for use as office premises; that thus, there was a preexisting business relationship between the assessee and Smt. Poonam Gupta; that the business purpose for seeking to acquire the said property, which was held for use on lease rent basis, also could not be doubted, particularly when a written agreement had been entered into between the assessee and Smt. Poonam Gupta for the purpose. Advance amount as per the agreement had been paid through bank cheques, and the bonafides of the purchaser s and the seller s intention also stood established by the fact that the required No Objection Certificate had duly been obtained from the Government Authorities; that thus, CIT(A) found that there was a nexus between the advance made and the business purpose of acquiring a property for the office of the assessee company in Delhi - suspicion, however strong could not take the place of evidence or proof; that the addition had been made by the AO on the presumption that the advance was extended for the personal use of Smt. Poonam Gupta, which presumption did not stand borne out by the entirety of the facts, or by any material placed on record by the AO - business expediency of the advance given and the intention of the assessee to purchase the premises could not be doubted in view of the facts on record; that the adverse inference drawn by the AO on account of the assessee having made investments in other fixed assets to improve its manufacturing operations, and, on account of the assessee allegedly showing lack of urgency to get the Sale Deed registered, was also misplaced, because the Revenue cannot assume the role of the Board of Directors of the company and decide as to how the business decisions are to be taken - no disallowance u/s 36(1)(iii) of the Act was called for on the account of the advance of Rs. 90 lacs made against the intended purchase of property for corporate office of the assessee company. Decided in favour of assessee. Higher deduction u/s 80IC - as per AO Assessee devised a colorful mechanism to divert its profit to subsidiary entity for claiming a higher deduction - CIT(A) explained that the Assessee has successfully explained the fall in GP rate - HELD THAT - In this Guidance Note, it has been stated that Rule 9 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 deals with sales of a related person; that related person has been defined in Section 4(3)(b) of the Excise Act; that if a manufacturer sells goods to any related person, it will be treated as goods sold to a related person; that Rule 9 specifies that the goods can be sold to a related person for two purposes, one for onward sales when the related person is a dealer/distributor of the assessee and, second, where the related person buys goods from the assessee for consumption in the production or manufacture of the articles, the value shall be determined in the manner specified in Rule 8, i.e., assessable value to be 110% cost of production as per the proviso to Rule 9. Further, it was also brought on record that the assessee company has been obtaining certificates from the qualified Cost Accountants regularly/periodically for valuation as per the Excise Rules, for fixing the rates to be charged on the cost plus 10% margin method for semi-finished goods sold to M/s Jai Suspension Systems LLP. Copies of such certificates were also placed on record before the AO vide Note alongwith letter dated 03.03.2015. The adopting of the aforesaid method by the assessee stands duly accepted by the Department consistently over the years, under scrutiny assessment and no addition with reference thereto has been made. The documentary evidence furnished by the assessee in this regard stands tabulated in the written submissions filed by the assessee before the ld. CIT(A), as reproduced. It is also not the case of the Department that there has been any change in the facts and circumstances of the case for the year under consideration vis- -vis the said earlier assessment years. It being so, there was no occasion for the AO for taking a divergent view from that taken by the Department in the earlier years in not making any deduction in this regard. CIT(A), it is seen, has duly taken into consideration all the above factors and has recorded elaborate findings of fact with regard thereto, and it is on the basis of thereof that the ld. CIT(A) has, and, in our considered opinion, rightly so, deleted the addition made by the AO wrongly. It is, therefore, that we find that the deletion ordered by the ld. CIT(A) requires no interference at our hands. Then, the order of the Tribunal on this issue, for A.Y. 2009-10, under exactly similar facts and circumstances as present for the year under consideration, stands confirmed by the Hon'ble High Court, vide its order 2023 (10) TMI 1143 - PUNJAB AND HARYANA HIGH COURT passed during the pendency of the present appeal before us. The said order of the Hon'ble High Court has not been shown to have been reversed, or even stayed, on appeal, or otherwise. Decided against revenue.
Issues Involved:
1. Deletion of disallowance of interest under section 36(1)(iii) of the Income Tax Act, 1961. 2. Legality of the Commissioner of Income Tax (Appeals) order in light of the decision in CIT-1 Vs. Abhishek Industries Limited. 3. Explanation of the fall in Gross Profit (GP) rate and alleged diversion of profit to a subsidiary entity for higher deduction under section 80IC of the Income Tax Act, 1961. 4. Contention that the Assessing Officer did not controvert or disprove the assessee's contentions in the remand report. 5. Allegation of the Commissioner of Income Tax (Appeals) misinterpreting the provisions of the Income Tax Act, 1961. Summary of Judgment: Issue 1 & 2: Deletion of Disallowance of Interest under Section 36(1)(iii) The Assessing Officer (AO) disallowed interest on an advance of Rs. 90,00,000/- given to Smt. Poonam Gupta, asserting it was not for business purposes. The Commissioner of Income Tax (Appeals) [CIT(A)] deleted this disallowance, accepting the assessee's explanation that the advance was for purchasing property for business purposes, which could not be completed due to financial constraints. The CIT(A) noted that the advance was eventually recovered, and the AO's reliance on the case of CIT Vs. Abhishek Industries Limited was misplaced. Issue 3 & 4: Explanation of Fall in GP Rate and Alleged Diversion of Profit The AO added Rs. 10,95,77,393/- to the income of the assessee, estimating a higher GP rate, alleging that the assessee diverted profits to its subsidiary, which claimed a higher deduction under section 80IC. The CIT(A) deleted this addition, noting that the assessee provided substantial evidence showing that the fall in GP rate was due to increased power and fuel costs. The CIT(A) also noted that the AO did not provide adequate opportunity for the assessee to justify the fall in GP rate and did not disprove the assessee's contentions in the remand report. The CIT(A) also observed that any adjustment for diversion of profits should have been made in the hands of the subsidiary entity under section 80IA(10), not the assessee. Issue 5: Allegation of Misinterpretation of Income Tax Act Provisions The Department's ground alleging that the CIT(A) misinterpreted the provisions of the Income Tax Act, 1961, was rejected. The Tribunal found no merit in this ground, noting that the CIT(A) had correctly interpreted and applied the relevant provisions of the Act. Conclusion: The Tribunal upheld the CIT(A)'s order, dismissing the Department's appeals for both assessment years 2012-13 and 2013-14. The Tribunal found that the CIT(A) had correctly deleted the disallowances and additions made by the AO, based on a thorough examination of the facts and evidence presented.
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