2015 (4) TMI 981 - HC - Income Tax

Hundi Discounting charges - ITAT deleted the addition - Held that - Three conditions had to be satisfied to claim deduction in respect of interest on borrowed capital and that the expression for the purpose of business under Section 36(1)(iii) and Section 37 is wider than the expression for the purpose of earning income, profits and gains under Section 57(iii). Therefore, it was held that interest paid for the purpose of or in the course of carrying on business is allowable in the year in which the liability arose. This Court is also of the opinion that given the dictates of consistency, the view adopted by the ITAT is fair and reasonable. Having regard to the reasoning adopted by the ITAT, this Court finds no cause to interfere with - as it is in conformity with the judgment of the Supreme Court in Madhav Prasad Jatia s case (1979 (4) TMI 2 - SUPREME Court ). - Decided in favour of the assessee. Net amount of current assets of the manufacturing division transferred to its subsidiary company - ITAT deleted addition - Held that - The entire net current assets too were valued and transferred. It was the aggregate of the book value and the net current value which constituted the sale price of ₹ 2,02,40,560/-towards which shares were in fact allotted. Given these facts, the AO appears to have assumed that the other liabilities and assets too had been transferred - which was an inaccurate assumption. The CIT (A) too appears to have ignored this important feature. Given these factors, no fault can be found with the ITAT s conclusion that regardless of how the assessee treated the transaction, i.e., either reflecting in the P&L account or omitting to do so, in sum, no gain or income arises which can be brought to tax - Decided in favour of the assessee. Notional interest - ITAT deleted addition - Held that - As the Revenue urges that no material was placed before the AO to support the contention that the advances were made from the assessee s own funds and that in these circumstances, the CIT (A) fell into error in considering fresh materials. The submissions appear to be attractive considering that the CIT (A) has stated that the appellant placed before him copies of the relevant bank accounts. However, this Court sitting in second appeal against the decision of the lower authorities has to be circumspect in such matters. This ground does not appear to have been urged before the ITAT articulating that the CIT (A) omitted to give any opportunity to it to re-examine such materials. Such ground also does not appear to have been urged during the hearing. Furthermore, this has not been raised as a ground of appeal before this Court. In the circumstances, we see no reason to depart from the rule of consistency which is also accepted in all the previous years. - Decided in favour of the assessee. Expenditure towards brokerage and commission - Held that - It is not disputed by the Revenue that for the other years, the assessee s treatment of such expenses has been in his favour and the Revenue has not chosen to challenge it. Even otherwise, we are of the opinion that such expenditure has to be allowed. - Decided in favour of the assessee

Summary

Issues:
1. Whether the Income Tax Appellate Tribunal was correct in law in deleting the addition made by the Assessing Officer on account of Hundi Discounting charges?
2. Whether the Income Tax Appellate Tribunal was correct in law in deleting the addition made by the Assessing Officer on account of net amount of current assets of the manufacturing division transferred to its subsidiary company?
3. Whether the ITAT erred in upholding the decision of Commissioner of Income Tax (Appeals) whereby the addition made by the Assessing Officer on account of notional interest amounting to Rs. 47,85,650/- was deleted?
4. Whether the ITAT erred in upholding the decision of Commissioner of Income Tax (Appeals) whereby the addition made by the Assessing Officer on account of expenses on Brokerage and Commission was deleted?

Analysis:

Issue 1:
The appellant claimed Rs. 1,15,57,034 as revenue expenditure for AY 1993-94 towards Hundi Discounting charges. The AO argued that this should be capitalized as it financed construction work. However, the ITAT disagreed, considering past treatment and legal definitions of interest. The Court upheld ITAT's decision citing consistency and legal precedent, ruling in favor of the assessee.

Issue 2:
The assessee transferred part of its manufacturing unit to a sister concern, receiving shares as consideration. The AO added Rs. 1,00,97,108 to taxable income, but the ITAT disagreed, stating no income arose as the transaction was at book value. The Court agreed, emphasizing that no gain was realized beyond the cost of assets transferred, ruling in favor of the assessee.

Issue 3:
The AO added Rs. 47,85,650 during the assessment year, alleging unclaimed interest on advances to subsidiaries. The CIT (A) and ITAT accepted the assessee's explanation based on fund sources and past practices. The Court upheld this decision, emphasizing the importance of consistency and lack of new grounds for appeal.

Issue 4:
The assessee claimed Rs. 61,78,414 as brokerage and commission expenses, which the AO disallowed due to incomplete sale deeds. However, the CIT (A) and ITAT accepted the explanation as valid selling expenses. The Court agreed, noting past favorable treatment and the nature of the expenses, ruling in favor of the assessee.

In conclusion, all issues were decided in favor of the assessee, leading to the dismissal of the appeal against the Revenue.