2013 (11) TMI 961 - AT - Income Tax

Disallowance u/s 40A(2)(b) Interest paid to sister concerns - Held that - Outside parties had also supplied goods and services to assessee to whom no interest had been paid for delayed payments - Payments of interest to sister concerns is apparently excessive compared to market value - CIT(A) has however allowed relief on the ground that interest payment made have been inbuilt into the price charged by the sister concerns - Prices charged by the sister concerns were not favourable to the assessee compared to other parties - The order of CIT(A) giving relief cannot be upheld - This aspect requires fresh consideration at the level of AO as the same had not been examined either by AO or by CIT(A) The issue was restored for fresh consideration. Addition u/s 68 Loan taken - Held that - Necessary details and evidence in support of the transactions had been filed before CIT(A) which had also been sent to the AO for verification and report - The assessee has filed confirmation from the party along with PAN No. of the party which have been placed on record - The assessee has also filed copy of ledger account in the books of the assessee as well as copy of the assessee s account in the books of the other party - Copy of the bank account in which these transactions were recorded had also been filed along with reconciliation statement - The loan taken by the assessee was as per hire purchase agreement, copy of which had also been filed - The assessee had discharged the burden of explaining the transactions satisfactorily with support of documentary evidences Decided against Revenue.

Summary

Issues:
1. Disallowance of interest u/s 40A(2)(b)
2. Addition u/s 68 of the IT Act

Issue 1: Disallowance of interest u/s 40A(2)(b):
The appeal concerned the disallowance of interest paid to sister concerns under section 40A(2)(b) of the IT Act. The AO disallowed the interest payment as excessive compared to market value since no interest was paid to other parties. The CIT(A) restricted the disallowance to 20% of the interest amount, stating that the interest may have been included in the price. However, the ITAT found no evidence supporting this and remanded the matter to the AO for fresh consideration, emphasizing the lack of examination at previous levels. The ITAT set aside the CIT(A) order for a detailed reevaluation by the AO.

Issue 2: Addition u/s 68 of the IT Act:
Regarding the addition made under section 68 of the IT Act, the AO added a sum as income due to unconfirmed loans. The CIT(A) confirmed part of the addition related to one loan but deleted the addition for another loan. The ITAT noted that the assessee provided confirmations, hire purchase agreements, ledger accounts, and bank statements to prove the transactions. The CIT(A) deleted the addition for one loan, stating that the assessee had sufficiently proven the transaction with supporting documents. The ITAT upheld the CIT(A) decision, finding that the burden of proof was met by the assessee, and no discrepancy was found in the loan transaction, leading to the deletion of the addition.

In conclusion, the ITAT partially allowed the revenue's appeal for statistical purposes, addressing the issues of interest disallowance and addition under sections 40A(2)(b) and 68 of the IT Act, respectively. The judgment emphasized the importance of proper examination and documentation in tax disputes to establish the validity of transactions and avoid unwarranted additions.