2024 (8) TMI 629 - AT - Income Tax

Addition of interest made with respect to the interest free loans advanced by the assessee Company to its sister concerns / related parties - Whether CIT(A) is correct in law and facts of the case, in allowing the expenditure, when the assessee has failed to prove that the funds were completely utilized by the sister concerns/related companies for business purposes alone? - HELD THAT - Onus is on the assessee to prove that there is commercial expediency for the advances taken as interest free from the related parties. From the financials of the M/s. Coastal Packagings, we find that the assessee is an individual and proprietor of M/s. Coastal Packagings and also has accepted the interest free advances outstanding as on 31.03.2014 from the assessee company where he also the Wholetime Director and further has made investment in assessee Company itself for Rs. 23.96 crores. We consider this as benefit derived by the Individual Director s in his proprietary concern where he holds 100% ownership as proprietor of M/s. Coastal Packagings. Therefore, in the case of S.A. Builders 2006 (12) TMI 82 - SUPREME COURT relied on by the CIT(A) cannot be applied to the instant case. With respect to the interest free advance to M/s. Diehard Dies Pvt., Limited, no documentary evidences have been provided before us to substantiate that it arose due to commercial expediency of the related parties. CIT(A) has erred in considering the transaction has arisen out of business / commercial expediency and therefore we have no hesitation to set-aside the order of the CIT(A) thereby restoring the order of the AO on this issue. Appeal of the revenue is allowed.

Summary

Issues:
Delay in filing appeal before the Tribunal, additions made by the Assessing Officer, deletion of the addition of interest made by the Assessing Officer regarding interest-free loans advanced by the assessee Company to its sister concerns/related parties.

Delay in filing appeal before the Tribunal:
The appeal filed by the revenue against the order of the Learned Commissioner of Income Tax (Appeals) was delayed by 3 days. The revenue provided reasons for the delay, citing administrative issues due to the Joint Commissioner of Income Tax holding multiple charges. The Tribunal condoned the delay, finding it reasonable and sufficient, allowing the appeal to proceed on merits.

Additions made by the Assessing Officer:
The assessee, a Private Limited Company engaged in the production and marketing of hybrid sowing seeds, filed its return for A.Y. 2014-15. The Assessing Officer made various additions during scrutiny, including for delay in payment of Provident Fund, delay in payment of bonus to employees, disallowance of interest claimed in the Profit & Loss A/c, and disallowance under section 35(2AB). The Ld. CIT(A) partly allowed the appeal of the assessee.

Deletion of the addition of interest made by the Assessing Officer:
The main issue contested by the revenue was the deletion of the addition of interest made by the Assessing Officer regarding interest-free loans advanced by the assessee Company to its sister concerns/related parties. The revenue argued that the advances were disproportionate to the business dealings with the related parties. The Authorized Representative contended that the advances were made for commercial expediency. The Tribunal found that the advances were not adequately supported by evidence and that the Ld. CIT(A) erred in considering them as arising from business expediency. Consequently, the Tribunal allowed the revenue's appeal, setting aside the order of the Ld. CIT(A) and restoring the Assessing Officer's decision on this issue.

Conclusion:
The Tribunal allowed the appeal of the revenue, setting aside the Ld. CIT(A)'s order regarding the deletion of the addition of interest made by the Assessing Officer. The decision was based on the lack of evidence supporting the commercial expediency of the interest-free loans advanced to the sister concerns/related parties, contrary to the findings of the Ld. CIT(A).