2015 (4) TMI 674 - AT - Income Tax

Dis-allowance of Interest expenses u/s.36(i)(iii)of the Income Tax Act,1961 - Direct nexus between borrowings and business purpose - Interest free advances given prior to taking such loans - Dis-allowance of reimbursement of expenses u/s 40(a)(ia), TDS not deducted - Held that - Nothing contrary was brought to our knowledge on behalf of Revenue. Facts being similar so following same reasoning, we are not inclined to interfere in the order of CIT(A) because interest bearing funds were held not to be diverted for non business use and accordingly disallowance in question was rightly deleted by CIT(A). For sake of consistency, we uphold the same. In respect to matter of disallowance of reimbursement of expenses, it was held that CIT(A) rightly observed that no TDS is required to be deducted in case reimbursement bills were separately raised. Assessee has made payment to C&F Agent and separate bills were raised in respect of reimbursement expenses incurred by Agent on behalf of assessee. The fact that separate bills wee issued for services and for reimbursement was not disputed in assessment order. As discussed above, in M/s. Om Satya Exim Private Ltd. 2011 (5) TMI 894 - ITAT AHMEDABAD held that assessee was not liable to deduct TDS on reimbursement of expenses incurred by Agent on behalf of assessee. Disallowance in respect of these items has not been made u/s. 40(a)(ia). Nothing contrary was brought to our knowledge on behalf of revenue. Facts being similar so following same reasoning, CIT(A) was justified in deleting addition made by Assessing Officer on account of disallowance u/s. 40(a)(ia) of the Act. We uphold the same. - Decided against the revenue.

Summary

Issues Involved:
1. Disallowance of Rs. 8,33,252/- on account of interest expenses under Section 36(1)(iii) of the Income Tax Act.
2. Disallowance of Rs. 55,94,825/- on account of non-deduction of TDS under Section 40(a)(ia) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Disallowance of Rs. 8,33,252/- on Account of Interest Expenses:

The Assessing Officer disallowed the interest expenses claimed by the assessee, arguing that the assessee had given interest-free loans to M/s. Aarti Impex and other parties without demonstrating any business purpose. The AO noted that the assessee failed to prove the availability of interest-free funds at the time of advancing these loans and relied on various judicial precedents to support the disallowance.

The CIT(A) reversed the AO's decision, stating that the borrowings were specifically made for purchasing office premises and motor cars, and there was a direct nexus between the borrowings and their utilization for business purposes. The CIT(A) referred to the assessee's own case for the previous assessment year (2007-08), where it was established that the interest-free advances were given prior to taking the loans, and thus, the borrowed funds were not used for non-business purposes.

The Tribunal upheld the CIT(A)'s decision, noting that the facts were similar to the previous year, and there was no evidence to suggest that interest-bearing funds were diverted for non-business use. Therefore, the disallowance of interest expenses was rightly deleted by the CIT(A).

2. Disallowance of Rs. 55,94,825/- on Account of Non-Deduction of TDS:

The Assessing Officer disallowed the expenses claimed by the assessee under Section 40(a)(ia) for failing to deduct TDS on payments made to clearing and forwarding (C&F) agents. The AO argued that the payments were substantial and not petty expenses, and as per Section 194C of the Act, TDS was required to be deducted on such payments.

The CIT(A) granted relief to the assessee, who contended that the payments made to the C&F agents included reimbursements of expenses, and separate bills were raised for these reimbursements. The CIT(A) relied on the ITAT, Ahmedabad Bench's decision in the case of M/s. Om Satya Exim Private Ltd., which held that TDS was not required to be deducted on separately billed reimbursements of expenses.

The Tribunal affirmed the CIT(A)'s decision, citing the ITAT's consistent view that no TDS is required on reimbursements when separate bills are raised. The Tribunal referenced similar cases, including DCIT vs. Ignite Mundra Pvt. Ltd., where it was held that the factual finding of separate billing for reimbursements justified the non-deduction of TDS.

Conclusion:

The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decisions on both issues. The interest expenses disallowance under Section 36(1)(iii) was deleted as the borrowed funds were used for business purposes, and the disallowance under Section 40(a)(ia) was deleted due to the separate billing of reimbursements, which did not require TDS deduction.