2014 (7) TMI 865 - AT - Income Tax

Interest payment Genuineness of claim not established Held that - CIT(A) has mentioned the matter set out in the letter - nowhere in the order of the CIT(A) mentioned that the CIT(A) has made any factual verification of the contents - if the AO has not made necessary examination the CIT(A) is bound to make examination himself relying upon Kapoorchand Shrimal vs CIT 1981 (8) TMI 2 - SUPREME Court - it is the duty of the appellate authority to correct the lacunae in the orders of the authorities and if it is required to remit the issue to them matter remitted back to the AO Decided against Revenue. Notional interest on advance Failure to furnish explanation Held that - The assessee has made advance to the party and has made purchases - advance made was subsequently adjusted also - CIT(A) right in holding that no notional interest was liable to be charged - it is not the case of the AO that the advance made by the assessee was not trade advance but loan advanced - it is the real income that is taxable and not notional income Decided against Revenue. Deferred revenue expenses disallowed Held that - CIT(A) has deleted the addition and gave a finding that disallowance on account of deferred revenue expenditure was already added back by the assessee in the computation of income - the disallowance made by the AO has resulted in double disallowance, which cannot be sustained order of the CIT(A) upheld Decided against Revenue.

Summary

Issues involved:
1. Disallowance of interest payment
2. Disallowance of notional interest on advance
3. Disallowance of deferred revenue expenditure

Issue 1: Disallowance of interest payment:
The appeal by the Revenue challenged the order of the ld. C.I.T.(A)- Central-II, Kolkata regarding the disallowance of interest payment totaling Rs. 34,18,026. The AO disallowed the amount as the assessee failed to establish the genuinity and necessity of the claim despite requisition. The ld. CIT(A) deleted the addition based on the explanation provided by the appellant, stating that the interest was claimed on debentures and term loans, which had been allowed in earlier years. The Tribunal noted that the ld. CIT(A) did not verify the contents of the explanation thoroughly. Citing the duty of the appellate authority to correct lacunae in orders, the Tribunal remitted the issue to the AO for further examination, emphasizing the need for factual verification.

Issue 2: Disallowance of notional interest on advance:
The AO added Rs. 7,62,917 as notional interest on an advance made to M/s. Sheffield Appliances Ltd. The ld. CIT(A) disagreed, stating that trading advances typically do not carry interest. The Tribunal upheld the ld. CIT(A)'s decision, noting that the advance was related to purchases and adjustments, and there was no indication that it was a loan advance. Emphasizing taxation of real income over notional income, the Tribunal supported the deletion of the addition.

Issue 3: Disallowance of deferred revenue expenditure:
The AO disallowed Rs. 54,44,881 as deferred revenue expenditure due to lack of details provided by the assessee. The ld. CIT(A) reversed this, noting that the amount had already been added back in the computation of income. The Tribunal agreed with the ld. CIT(A), stating that the disallowance led to double counting, which was not justified. Consequently, the Tribunal upheld the deletion of the addition.

In conclusion, the Tribunal partially allowed the Revenue's appeal for statistical purposes, remitting the first issue back to the AO for further examination while upholding the decisions on the second and third issues in favor of the assessee.