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2012 (10) TMI 670 - AT - Income TaxDisallowance of interest expenses debited in P&L account - CIT(A) deleted the addition - Held that - DR did not bring to our notice any material, establishing nexus of the borrowed funds with the aforesaid amount outstanding - As decided in CIT Vs. H.B. Stock Holdings Ltd. 2009 (7) TMI 42 - DELHI HIGH COURT that loan was given to a sister concern before the loan was taken from the bank, while sufficient interest free funds and surplus in the form of share premium money was available with the assessee. In these circumstances upheld the findings of the ITAT, deleting the disallowance on account of interest in relation to advances to sister concern in the absence of any nexus of borrowed funds with interest free advances to sister concern - in favour of assessee. Non deduction of TDS - disallowance of amount reimbursed by the assessee in respect of payment made to Network Solutions - Held that - As the assessee did not deny that tax was required to be deducted at source in terms of the said provisions, but could not be deducted, payment having been made through the credit card by one Shri Gunjit Singh. As is apparent from the aforesaid provisions, mode of payment is immaterial, thus CIT(A) was justified in upholding the disallowance in terms of provisions of sec. 40a(ia) - against assessee. Disallowance of Purchase and installation of a new transformer - Held that - The assessee incurred expenses towards purchase of a new transformer installed in the premises taken on lease, contending replacement of existing HT transformers and related panels by a new LT Transformer, since the premises prior to accommodation was used as studio and the electrical systems worn out were inadequate for the purpose of business of the assessee. The assessee claimed that since it was not the owner of the premises where these assets were fixed and had only a limited period of tenancy rights, the entire expenditure was revenue in nature. The purchase of a new transformer does not have any apparent relation with lease or otherwise of the premises. The assessee placed no material to show how this expenditure on purchase/installation of transformer has any relation with lease of the premises. In any case, there is nothing to suggest that this expenditure has been incurred by way of repairs or renovation of any asset. In the facts and circumstances of the case, expenditure incurred towards purchase of altogether new transformer in a newly leased premises is definitely capital expenditure, the expenditure having brought a new advantage and enduring benefit to the assessee - against assessee. Liability towards reimbursement of a capital account transaction of an erstwhile partner - Held that - Neither the AO nor the CIT(A) recorded any findings on the submissions of the assessee that the amount was not claimed in the profit and loss account and that one of the partners having retired from the assessee firm as well as firm Pravin Anand & Partners and the latter firm having made payment to the said partner, the assessee was required to adjust the capital account of the said partner in its books. In net effect, the transaction represented reduction of capital account of the partner. In the absence of any findings on these statements made on behalf of the assessee, either by the AO or by the CIT(A), we consider it fair and appropriate to set aside the order of the CIT(A) and restore the matter to his file for read adjudicating the issue - in favour of assessee for statistical purposes.
Issues Involved:
1. Deletion of addition on account of disallowance of interest expenses. 2. Disallowance of reimbursement payment made to Network Solutions. 3. Disallowance of expenses related to the purchase and installation of a new transformer. 4. Disallowance of liability due to Pravin Anand & Partners. Detailed Analysis: 1. Deletion of Addition on Account of Disallowance of Interest Expenses: The Revenue challenged the CIT(A)'s decision to delete the addition of Rs. 26,75,176/- made by the AO on account of disallowance of interest expenses. The AO observed that the assessee had made interest-free advances to M/s Anand & Anand Associates and made significant investments. Despite the assessee's assertion that the advances were from earnings and not borrowed funds, the AO disallowed the interest. The CIT(A) deleted the disallowance, relying on the previous year's decision and the Delhi High Court's ruling in CIT Vs. Sushma Kapoor. The Tribunal upheld the CIT(A)'s decision, noting no evidence of borrowed funds being diverted for non-business purposes and dismissed the Revenue's appeal on this ground. 2. Disallowance of Reimbursement Payment Made to Network Solutions: The AO disallowed Rs. 29,857/- reimbursed by the assessee to Shri Gurjot Singh for payments made to Network Solutions, citing non-deduction of TDS under section 194J. The CIT(A) upheld the disallowance, stating that the mode of payment (credit card) does not exempt TDS obligations. The Tribunal agreed with the CIT(A), noting that the provisions of section 194J were applicable and dismissed the assessee's appeal on this ground. 3. Disallowance of Expenses Related to the Purchase and Installation of a New Transformer: The AO treated Rs. 10,96,704/- out of Rs. 25,66,721/- spent on a new transformer as capital expenditure, allowing depreciation instead. The CIT(A) upheld this decision, distinguishing it from revenue expenditure. The Tribunal supported the CIT(A)'s view, emphasizing that the expenditure brought a new advantage and enduring benefit, thus qualifying as capital expenditure. The Tribunal dismissed the assessee's appeal on this ground. 4. Disallowance of Liability Due to Pravin Anand & Partners: The AO added Rs. 3,37,500/- as outstanding liability, which was not allowable under the cash system of accounting. The CIT(A) upheld this addition. The assessee argued that the amount was not claimed in the profit and loss account but was an adjustment of the capital account due to a partner's retirement. The Tribunal found that neither the AO nor the CIT(A) addressed these submissions and remanded the matter to the CIT(A) for re-adjudication, directing a detailed examination of the assessee's claims. Conclusion: The Tribunal dismissed the Revenue's appeal in its entirety and partly allowed the assessee's appeal for statistical purposes, specifically remanding the issue regarding the liability to Pravin Anand & Partners for further examination.
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