2012 (11) TMI 92 - AT - Income Tax

Addition on account of income from other sources - Deemed income or Gift u/s 56(2)(vi) - receipt without consideration - interest free unsecured loan amount received from proprietorship concern of HUF - Held that - the amount has been clearly reflected in the balance sheet as loan - Assessing Officer himself has recorded in the assessment order that the amount was received from HUF and was recorded in the balance sheet as liability of unsecured loan addition deleted Capital or revenue expenditure - consultancy charges - consultancy of designing the equipment as per specifications of the export Held that - Appellant has been in the business of manufacturing of rectifiers for very long and similar rectifiers had been supplied to different customers earlier than this sale as well - product in question has been designed in house by the assessee and the services provided by M/s Jeet Engineers are only in the nature of facilitating the sales of the product. Even otherwise an amount of Rs. 1,50,000/- is too small to be paid as remuneration for designing of rectifiers. As such there is no evidence to hold that the payment made was for the purposes of designing. The claim of the appellant that the same represents revenue expenditure is correct - addition deleted

Summary

Issues:
1. Addition of Rs. 50,00,000 as income from other sources under section 56(2)(vi).
2. Addition of Rs. 1,50,000 as capital expenditure.

Analysis:

Issue 1 - Addition of Rs. 50,00,000 as income from other sources:
The Assessing Officer raised this issue as the assessee received a loan of Rs. 50.00 lakhs without paying any interest, leading to a show cause notice under section 56(2)(vi). The appellant argued that the money was received from a Hindu Undivided Family (HUF) and thus exempt under section 10(2). However, the Assessing Officer added the amount to the income of the assessee under section 56(2)(vi). On appeal, the CIT(A) referred to a High Court decision and deleted the addition, stating that the amount was received from HUF and recorded as a liability in the balance sheet. The ITAT upheld this decision, emphasizing that the amount was taken as an unsecured loan and was repaid, aligning with the High Court's ruling.

Issue 2 - Addition of Rs. 1,50,000 as capital expenditure:
The Assessing Officer disallowed Rs. 1,50,000 claimed as consultancy charges, considering it as capital expenditure for designing equipment. The appellant contended that it was a commission for executing an export order, not for designing equipment. The CIT(A) sought a remand report and allowed the expenses, noting that the payment was for sourcing, export, and installation, not for designing equipment. The ITAT agreed with the CIT(A), stating that the payment was for facilitating sales, not for designing, and upheld the decision to delete the addition.

In conclusion, the ITAT dismissed the appeal filed by the revenue, confirming the decisions of the CIT(A) on both issues.