2017 (1) TMI 393 - AT - Income Tax

Disallowance of unexplained liability - Held that - We find that T&C had categorically stated that outstanding amount was ₹ 6.58 lakhs and not ₹ 20.90 lakhs, that the assessee had not brought on record to prove that there was advancement of loan on behalf of T&C to Saif Steel. In these circumstances, we are of the opinion that direct issue by FAA need no interference from our side.Confirming the his order, we decide the ground against the assessee.

Summary

Issues:
1. Disallowance of interest on a loan taken from SIDBI.
2. Disallowance of unexplained liability.

Issue 1: Disallowance of interest on a loan taken from SIDBI

The appellant, a company engaged in manufacturing and research of computer hardware and software, challenged the order of the CIT(A) regarding the disallowance of interest amounting to &8377; 18.14 lakhs on a loan taken from SIDBI. The Tribunal examined whether the interest paid on borrowings for acquiring shares of a subsidiary company was for the purpose of business. The appellant argued that the acquisition of shares was essential for effective control and immediate business needs. However, the Tribunal found that the shares acquired were not connected to the appellant's business purpose, as evidenced by a separate agreement for premises usage and interest-free loans to the subsidiary. Citing relevant case laws, the Tribunal concluded that the interest paid was not allowable under sections 36(1)(iii) or 37 of the Income Tax Act. The Tribunal upheld the decision against the appellant based on the precedent set in a previous assessment year, thereby dismissing the first ground of appeal.

Issue 2: Disallowance of unexplained liability

The second ground of appeal pertained to the disallowance of &8377; 13.13 lakhs as an unexplained liability by the Assessing Officer (AO). The AO noted a variance in outstanding balances between the appellant and a creditor, T&C, leading to the addition of &8377; 7.14 lakhs as unexplained liability. The First Appellate Authority (FAA) upheld the AO's decision, directing the addition of &8377; 13.13 lakhs to the appellant's total income. The Tribunal observed that T&C confirmed a lower outstanding amount than what was recorded in the appellant's books, and the appellant failed to provide evidence of a loan advancement to another party on behalf of T&C. Consequently, the Tribunal affirmed the FAA's order, deciding the second ground against the appellant. As no representation was made by the appellant, the appeal was dismissed, and the order was pronounced on 4th January 2017.

This comprehensive analysis of the legal judgment highlights the issues involved, the arguments presented, and the Tribunal's decisions on each matter, maintaining the legal terminology and significant details from the original text.