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2024 (6) TMI 213 - AT - Income TaxProportionate disallowance of interest expenditure - borrowed funds have been utilized in making interest free advances to the group companies - HELD THAT - Facts on record reveal that the so called investments are not in the nature of loans and advances, but are investments in equity and preference shares of group companies. Therefore, the allegation of the departmental authorities that the assessee has diverted borrowed funds to group companies without charging any interest are factually incorrect. AO himself has recorded a factual finding that the assessee had sufficient interest free funds available with it. That being the factual position on record, as per the settled legal principle, it has to be presumed that interest free funds available with the assessee have been invested in acquisition of shares of group companies. In any case of the matter, it is observed that identical disallowances were made by the AO in assessment years 2002-03, 2003-04 and 2005-06. While deciding the issue, learned first appellate authority deleted the disallowances. While deciding the appeals filed by the Revenue 2019 (3) TMI 693 - ITAT DELHI upheld the decision of learned first appellate authority. On going through the aforesaid order of the Tribunal, we find parity of facts between the impugned assessment year and the appeals for other assessment years decided by the Tribunal. That being the factual position on record, we delete the disallowance made u/s 36(1)(iii) of the Act. This ground is allowed. Disallowance towards cost of acquisition of land - assessee could not furnish the bills/vouchers pertaining to the aforesaid cost - as alleging that the assessee furnished the photocopy of letter issued by MTDC and no original was furnished, FAA sustained the disallowance - HELD THAT - As could be seen, learned first appellate authority has rejected the additional evidence on the ground that it is only a photocopy and no original document was furnished. From the facts on record, it is observed that additional evidence furnished by the assessee is a letter from MIDC, which is a State Government organization. If learned first appellate authority had any doubt regarding the authenticity of such document, he could have conducted necessary inquiry himself or through the Assessing Officer to verify the authenticity of the document. Without conducting any such inquiry, he could not have rejected the additional evidences. We restore the issue to the AO to verify assessee s claim by properly examining the documentary evidences furnished by the assessee by way of additional evidences. In case, any inquiry is required to be conducted with reference to such evidences, it is open to the Assessing Officer to do so. Ground is allowed for statistical purposes. Disallowance of long term capital loss on sale of shares - HELD THAT - Facts on record reveal that in course of hearing before the first appellate authority the assessee had furnished certain additional evidences, however, rejecting such additional evidences, learned first appellate authority has sustained the disallowance. In our view, the additional evidences furnished by the assessee will have a crucial bearing for deciding the issue. Therefore, such evidences should not be rejected without verifying their authenticity. We restore the issue to the AO for deciding afresh after considering all the evidences, including the additional evidences filed by the assessee before learned first appellate authority. Needless to mention, the AOmust provide due and reasonable opportunity of being heard to the assessee before deciding the issue. Ground is allowed for statistical purposes. Disallowance of long term capital loss - HELD THAT - It is the case of the assessee that the shares of INAPEX Ltd. were acquired by the assessee by way of buy-back offer in the financial year 1995-96. It is observed, to justify its claim, the assessee had submitted copy of buy-back acceptance letter of the company and also a copy of cheque received from the company towards buy-back. While the AO has disallowed assessee s claim without assigning any reason, learned first appellate authority has sustained the disallowance alleging lack of complete information. Considering the fact that documentary evidences furnished by the assessee have not been properly evaluated by the departmental authorities, we are inclined to restore this issue to the file of Assessing Officer for de novo adjudication after providing due and reasonable opportunity of being heard to the assessee. Ground is allowed for statistical purposes. Taxability being interest on income tax refund - HELD THAT - While deciding assessee s appeal, learned first appellate authority granted relief to the assessee. While giving effect to the order of learned Commissioner (Appeals), the AO determined interest on income tax refund, which according to the assessee, was offered to tax. Thus, it is the case of the assessee before us that once the interest on income tax refund is withdrawn, the addition made deserves to be deleted. Having considered rival submissions, we are of the view that assessee s claim needs to be factually verified by the AO having regard to the facts and evidences brought on record. Therefore, we restore this issue to the AO for fresh adjudication after providing due and reasonable opportunity of being heard to the assessee. Ground is allowed for statistical purposes. Disallowance of foreign as well as domestic travel expenses - HELD THAT - The observation of the AO while disallowing the expenses is too ambiguous and general in nature. He has not doubted the fact that the expenses, indeed, were incurred. The only reason for disallowing foreign travel expenses is, the assessee has no business interest in the cities/countries, in respect of which, foreign travel expenses have been incurred. What he means by business interest is not clear. There is absolutely no observation by the AO that the foreign travel expenses were not related to assessee s business or were personal in nature. Similarly, he has disallowed the domestic travel expenses by observing that the concerned person has no business connection to the assessee. On what basis the AO has come to such conclusion is not forthcoming from the assessment order. In the aforesaid scenario, we do not find any infirmity in the decision of learned first appellate authority in deleting the disallowances. Ground is dismissed. Disallowance of prior period expenses - HELD THAT - While deciding the issue in appeal, learned first appellate authority found that the major part of the expenses pertained to sales incentives payable to dealers of assessee s tractor division for the financial year 2002-03. He has further given a factual finding that the claim of incentives has to be based on aggregate performance for the year, hence, it is not possible for the assessee to verify the claim of incentives by the dealers on closure of account on 31.03.2003. However, it was factually found that the sales promotion expenses actually crystallized/finalized on 30.06.2003 falling in financial year 2003-04 corresponding to assessment year 2004-05. Thus, the liability to pay the expenditure accrued in the assessment year under dispute. That being the case, it cannot be treated as prior period expenses. It is worth mentioning that identical issue has been decided in assessee s own case by the Tribunal in earlier assessment year. While deleting the disallowance, learned first appellate authority has also taken cognizance of the decision of Tribunal. In aforesaid view of the matter, we do not find any infirmity in the decision of the first appellate authority in deleting the disallowance. Disallowance on account of sales promotion expenses - Addition on the ground that such expenses relate to payment of bills of various hotels and observing that such expenses are not incurred for the purpose of business, the AO disallowed it - FAA deleted addition on the reasoning that AO has not established on record that such expenses are not incurred for the purpose of business - HELD THAT - Having perused the observation of the Assessing Officer, we find that the reason given for disallowance of expenditure is very much general and vague. He has not stated on what basis he has come to the conclusion that such expenses are not for the purpose of business. Undisputedly, the Assessing Officer has not doubted the fact that expenses were incurred. No infirmity in the decision of learned first appellate authority in deleting the disallowance. This ground is dismissed.
Issues Involved:
1. Proportionate disallowance of interest expenditure. 2. Disallowance of cost of acquisition of land. 3. Disallowance of long-term capital loss on sale of shares of Escorts Hospital & Research Centre Ltd. (EHRCL). 4. Disallowance of long-term capital loss on sale of shares of INAPEX Ltd. 5. Taxability of interest on income tax refund. 6. Deletion of disallowance of foreign and domestic travel expenses. 7. Deletion of disallowance of prior period expenses. 8. Deletion of disallowance of sales promotion expenses. Issue-wise Detailed Analysis: 1. Proportionate Disallowance of Interest Expenditure: The assessee challenged the disallowance of interest expenditure amounting to Rs. 21,11,00,000/-. The Assessing Officer (AO) disallowed this amount on the grounds that the borrowed funds were utilized for making interest-free advances to group companies. The Tribunal found that the investments were in equity and preference shares, not loans and advances. The AO had also recorded that the assessee had sufficient interest-free funds. The Tribunal concluded that the interest-free funds were presumed to be used for the investments and deleted the disallowance under section 36(1)(iii) of the Act. 2. Disallowance of Cost of Acquisition of Land: The assessee claimed a cost of Rs. 62,53,675/- for the acquisition of leasehold land, which was disallowed by the AO due to lack of original bills/vouchers. The Tribunal noted that the first appellate authority rejected the additional evidence without proper inquiry. The issue was restored to the AO for verification of the documentary evidence provided by the assessee, with instructions to allow the assessee a reasonable opportunity to be heard. 3. Disallowance of Long-term Capital Loss on Sale of Shares of EHRCL: The AO disallowed the long-term capital loss of Rs. 4.72 crores on the sale of shares of EHRCL, which was sustained by the first appellate authority by rejecting additional evidence. The Tribunal restored the issue to the AO for fresh adjudication, emphasizing the need to verify the authenticity of the additional evidence and providing the assessee a reasonable opportunity to be heard. 4. Disallowance of Long-term Capital Loss on Sale of Shares of INAPEX Ltd.: The AO disallowed the long-term capital loss of Rs. 3,88,612/- on the sale of shares of INAPEX Ltd. without providing any reasoning. The first appellate authority sustained the disallowance due to incomplete information. The Tribunal restored the issue to the AO for de novo adjudication, instructing the AO to properly evaluate the documentary evidence provided by the assessee and ensure a reasonable opportunity to be heard. 5. Taxability of Interest on Income Tax Refund: The AO withdrew the interest on income tax refund of Rs. 72,67,332/- due to additional demand created by various additions. The assessee argued that once the interest on the refund was withdrawn, the addition should be deleted. The Tribunal restored the issue to the AO for factual verification, instructing the AO to provide the assessee a reasonable opportunity to be heard. 6. Deletion of Disallowance of Foreign and Domestic Travel Expenses: The AO disallowed foreign travel expenses of Rs. 51,58,466/- and domestic travel expenses of Rs. 2,21,542/- on the grounds that the expenses were not related to the business. The first appellate authority deleted the disallowances, noting that the AO did not establish that the expenses were not incurred for business purposes. The Tribunal upheld the deletion, finding the AO's observations too ambiguous and general. 7. Deletion of Disallowance of Prior Period Expenses: The AO disallowed prior period expenses of Rs. 8,48,29,423/- as they pertained to earlier years. The first appellate authority found that the major part of the expenses related to sales incentives that crystallized in the assessment year under dispute. The Tribunal upheld the deletion, noting that the liability accrued in the relevant assessment year and could not be treated as prior period expenses. 8. Deletion of Disallowance of Sales Promotion Expenses: The AO disallowed sales promotion expenses of Rs. 7,86,942/- on the grounds that they were not incurred for business purposes. The first appellate authority deleted the disallowance, noting that the AO did not establish that the expenses were not for business purposes. The Tribunal upheld the deletion, finding the AO's reasoning vague and general. Conclusion: The assessee's appeal is partly allowed, and the Revenue's appeal is dismissed. The Tribunal provided detailed instructions for the AO to verify the facts and evidence in several issues, ensuring the assessee is given a reasonable opportunity to be heard.
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