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2012 (11) TMI 799 - AT - Income TaxDisallowance of interest expenses alleged that assesses has advanced Rs.12 lacs to M/s. Millenium and Rs.20,65,000/- to M/s. Bajaj Chemical Products. On these advances no interest has been charged. The assessee is giving interest bearing funds without charging any interest - appellant submits that the loan to M/s. Millennium was given for very short period during the year. However, the principal amount had not received within the stipulated time and accordingly it was not prudent to charge interest Held that - AO had calculated notional interest presuming that the loan was given on the first day of accounting year, which is not correct. As the loan was given during the year, interest even on notional basis can be calculated for the days of use only though under the facts and circumstances, the same was not required - AO has not shown any nexus between interest bearing funds and the amount advanced at a lesser rate of interest. Thus, basically the nexus itself is not established - addition deleted In favor of assessee Disallowance on account of payment of PF and ESIC alleged that same were not paid within the due date provided in the relevant statute - Held that - Amount in question has been paid before the due date of filing of return disallowance deleted In favor of assessee
Issues:
1. Deletion of disallowance of interest expenses 2. Deletion of disallowance of payment of PF and ESIC Issue 1: Deletion of disallowance of interest expenses The Revenue appealed against the order by the CIT(A) regarding the deletion of disallowance of interest expenses of Rs.4,89,750. The AO contended that the assessee provided interest-bearing funds to certain parties without charging any interest, leading to a diversion of business profits. The assessee argued that no interest was charged on trade advances and that the funds provided were from its substantial interest-free funds. The CIT(A) deleted the disallowance after considering the submissions made by the assessee. The Revenue challenged this decision, but the ITAT upheld the CIT(A)'s order. The ITAT noted that the AO failed to establish a nexus between interest-bearing funds and the funds provided at a lesser rate of interest. It was observed that the interest-free funds of the assessee covered the advances, and hence, the disallowance was not warranted. Therefore, the ITAT dismissed Ground no.1 in the Revenue's appeal. Issue 2: Deletion of disallowance of payment of PF and ESIC The second ground of the appeal related to the deletion of disallowance of Rs.7,84,393 for the payment of PF and ESIC, as they were not made within the due date specified by the relevant statute. The CIT(A) relied on the decision of the Ahmedabad Bench of ITAT in the case of Smartchem Technologies Ltd vs. ITO and deleted the addition since the amounts were paid before the due date of filing the return. The Revenue appealed against this decision, but the ITAT upheld the CIT(A)'s order, stating that the payment was made before the due date of filing the return. Therefore, the ITAT dismissed this ground raised by the Revenue. In conclusion, the ITAT upheld the CIT(A)'s decisions regarding both issues, leading to the dismissal of the Revenue's appeal.
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