2014 (10) TMI 474 - AT - Income Tax

Proportionate interest expenses Expenses made for implementation of new project which could not take off Held that - ₹ 5.44 crores was given as an advance to Subham Appliances for the new project of the Assessee - the project could not be implemented and the amount advanced was returned back to the assessee in subsequent year - CIT(A) while deleting the addition has given a finding that the inter corporate deposits advanced by the Assessee were recalled during the year and it was the source of advance - AO has not established the nexus between the borrowed funds and the advance given to Subham Appliances to prove that the money has been advanced out of borrowed funds - assessee has submitted that Subham Appliances is not a related party, the transaction has not been doubted and the advance was for the business purpose - revenue could not controvert the findings of CIT(A) and there was no reason to interfere with the order of CIT(A) Decided against revenue. Publicity and advertisement expenses Held that - AO while disallowing the expenses has noted that the various details like address, PAN No, copies of the invoices were not furnished by the Assessee and therefore the genuineness was not proved and therefore the expenses were disallowed by AO - CIT(A) has noted that various details like copy of the advertisement contract, copy of bills and other material were furnished before him and after considering the evidences submitted before him, CIT(A) deleted the addition - nothing has been placed on record to demonstrate that on the additional evidences that were submitted by Assessee before CIT(A), any remand report was called from AO - the AO should be granted an opportunity to examine the additional evidences which were submitted by Assessee before CIT(A) thus, the matter is to be remitted back to the AO for fresh adjudication Decided in favour of revenue. Sales promotion expenses disallowed Held that - AO while disallowing the expenses has noted that no details were furnished by the Assessee nor has the Assessee proved that the expenses crystallized during the year - CIT(A) has noted that before him the Assessee has filed the details of expenditure in respect of which the bills were received after the end of the relevant period and therefore the liability crystallized - there are no details of the nature of expenses in the order of CIT(A) nor the details of the expenses have also been placed thus, the matter is to be remitted back to the AO for fresh adjudication Decided in favour of revenue. Deduction u/s 80HHC Held that - As decided in assessee s own case for the earlier assessment year, it has been held that the balance amount of miscellaneous income is business income and hence should not be excluded from the profit of business for the purpose of calculation of deduction u/s 80 HHC Decided partly in favour of revenue.

Issues Involved:
1. Deletion of disallowance of interest expenses.
2. Deletion of disallowance of publicity and advertisement expenses.
3. Deletion of disallowance of sales promotion expenses.
4. Deletion of disallowance of prior period expenses.
5. Computation of deduction under section 80HHC.

Issue-wise Detailed Analysis:

1. Deletion of Disallowance of Interest Expenses:
The Revenue challenged the deletion of the disallowance of Rs. 27,99,225/- being proportionate interest expenses related to an advance of Rs. 5,44,25,000/- made to M/s. Shubham Appliances Pvt. Ltd. The AO argued that the advance was made from borrowed funds and not for business purposes. However, the CIT(A) found no nexus between the borrowed funds and the advance, noting that the advance was made from inter-corporate deposits. The Tribunal upheld the CIT(A)'s decision, as the Revenue could not provide evidence to the contrary.

2. Deletion of Disallowance of Publicity and Advertisement Expenses:
The AO disallowed Rs. 9,60,000/- paid to Kamyani Sales Promotion Pvt. Ltd. due to insufficient evidence. The CIT(A) allowed the expense based on additional evidence provided by the assessee, which was not reviewed by the AO. The Tribunal remitted the issue back to the AO for reconsideration, emphasizing the need for the AO to examine the additional evidence.

3. Deletion of Disallowance of Sales Promotion Expenses:
The AO disallowed Rs. 2,92,226/- paid to Gujarat Soaps Ltd. due to a lack of sales made by them for the assessee. The CIT(A) allowed the expense based on an agreement dated 31.07.1998, which was not before the AO. The Tribunal remitted the issue back to the AO to examine the agreement and other submissions.

4. Deletion of Disallowance of Prior Period Expenses:
The AO disallowed Rs. 3,59,317/- as prior period expenses due to a lack of evidence proving that the liability crystallized during the year. The CIT(A) allowed the expense based on details provided by the assessee, which were not reviewed by the AO. The Tribunal remitted the issue back to the AO to examine the details and additional evidence.

5. Computation of Deduction Under Section 80HHC:
The AO computed the deduction under section 80HHC by considering the total turnover of the entire business and including excise duty and sales tax. The CIT(A) directed the AO to compute the deduction unit-wise and exclude excise duty and sales tax from the total turnover. The Tribunal upheld the CIT(A)'s decision, following the precedent set in earlier years and the Supreme Court's ruling in Laxmi Machine Works.

Conclusion:
The Tribunal upheld the CIT(A)'s decisions on interest expenses and the computation of deduction under section 80HHC. However, it remitted the issues of publicity and advertisement expenses, sales promotion expenses, and prior period expenses back to the AO for reconsideration, emphasizing the need for the AO to examine the additional evidence provided by the assessee. The appeals of the Revenue were partly allowed for statistical purposes.

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