2012 (8) TMI 189 - AT - Income Tax

Disallowance towards interest - term loan availed by the assessee was in fact utilized for the purpose of acquisition of the specific asset - assessee has transferred some funds to the group concerns Held that - Assessee has not indicated the purpose for which the loan was advanced or the commercial expediency which necessitated advance of funds by the assessee - when the funds were diverted and the assessee paid interest on the borrowed funds, the proportionate interest relatable to funds transferred to group concern has to be disallowed against assessee Addition of Rs. 1 lakh towards the amount outstanding in the name of sister concern of the assessee - assessing officer added the outstanding amount in the name of sister concern since three years period has been expired Held that - Provisions of section 41(1) found that the principle that the expiry of period of limitation prescribed under the Limitation Act cannot extinguish the debt but it will only prevent the creditor from enforcing the debt. Therefore, the provisions of section 41(1) are not applicable - assessing officer is not justified in adding back the amount of Rs. l lakh to the total income of the assessee In favor of assessee Deduction u/s 80IB for extracting granite from granite hills and crushing granite boulders - DR submitted that extracting granite from granite hills cannot be considered to be a manufacturing activity Held that - Tribunal had an occasion to consider the very same issue in the assessee s own case and found that the activity of the assessee amounts to manufacture - Since the activity of the assessee was considered by the co-ordinate bench of this Tribunal and held to be manufacturing activity entitled for deduction u/s 80IB, for the sake of consistency - assessee is entitled for deduction u/s 80IB of the Act

Summary

Issues involved:
1. Disallowance of interest for assessment year 2006-07.
2. Sales promotion expenditure for assessment year 2006-07.
3. Addition of outstanding amount for assessment year 2007-08.
4. Deduction u/s 80IB for extracting granite for assessment years 2006-07 and 2007-08.

Analysis:
1. Disallowance of interest for assessment year 2006-07:
The dispute revolved around the disallowance of interest by the assessing officer. The appellant argued that the borrowed funds were not diverted, and therefore, no interest should be disallowed. However, the tribunal found that the funds generated in the course of business were indeed diverted to a group concern. As the purpose for transferring funds was not explained by the appellant, the tribunal upheld the disallowance of interest, emphasizing the need for establishing commercial expediency.

2. Sales promotion expenditure for assessment year 2006-07:
The appellant decided not to press this ground of appeal during the hearing. Consequently, the tribunal disallowed the appeal related to sales promotion expenditure.

3. Addition of outstanding amount for assessment year 2007-08:
The assessing officer added an outstanding amount to the total income of the assessee, citing the expiration of the limitation period. However, the tribunal, following the judgment in a similar case, ruled that the expiry of the limitation period does not extinguish the debt but only prevents its enforcement. Therefore, the tribunal directed the assessing officer to delete the addition of the outstanding amount.

4. Deduction u/s 80IB for extracting granite:
The issue centered around whether extracting granite could be considered a manufacturing activity for claiming deduction u/s 80IB. The revenue contended that it did not qualify as manufacturing. However, the tribunal, based on a previous decision in the assessee's case, held that the activity amounted to manufacturing and was entitled to the deduction. It was noted that the new definition introduced by the Finance Act, 2009, was not applicable to the assessment years in question, and thus, the deduction was allowed based on consistency with previous decisions.

In conclusion, the tribunal dismissed one appeal, partly allowed another, and dismissed two more appeals based on the detailed analysis and judgment provided for each issue involved in the case.