2017 (11) TMI 1419 - AT - Income Tax

Disallowance of interest - difference of interest paid on bank loans being excessive vis-a-vis interest received on loans advanced to sister concerns - Held that - It is the claim of the assessee that the said amount was borrowed with clear intention of acquiring shops which was leased to the lending bank itself and it is claimed that none of the borrowed funds were utilised for the purpose of advancing money to sister concerns. And second bone of contention of assessee is that its own funds and also other interest free funds available with it are more than the loan amount advanced to sister concern. The assessee has relied upon the decision of Hon ble Bombay High Court in the case of HDFC Bank Ltd. (2016 (3) TMI 755 - BOMBAY HIGH COURT) , Reliance Utilities and Power Ltd. (2009 (1) TMI 4 - BOMBAY HIGH COURT). It is claimed by the assessee that presumption will apply that the assessee has used interest free funds available with it for advancing loans to sister concerns. It is fairly conceded and agreed by the learned counsel for the assessee that these contentions raised by the assessee need verification by the AO and matter needed to be restored to the file of the A.O for denovo adjudication of the issue on merits in accordance with law. Thus keeping in view factual matrix of the case , we are inclined to restore this issue to the file of the AO for de-novo determination of the issue on merits in accordance with law after verification and examination of all the contentions of the assessee in the light of provisions of the statute and judicial precedents. Provision towards licence fee for renewal of Excise licence fee of PLL and RS II payable to the State Excise Department - Held that - We have observed that the provision for licence fee payable to State Government for renewal of licence was made by the assessee for the impugned assessment year while no payment has been made by the assessee to the Government till the due date of filing the return of income u/s 139(1) which has infringed Section 43B of the 1961 Act and the same cannot be allowed as an expenses for the year under consideration. Hence in view of the provisions of Section 43B these expenses claimed by the assessee towards provision for license fee cannot be allowed as no payment has been made till the due date of filing of return of income u/s 139(1) and the appellate order of the learned CIT(A) is confirmed. Hence , assessee fails on this ground Cessation of liability - licence fee payable to the State Excise Department which has been outstanding in its book of accounts as the same is not paid by the assessee to the Government - Held that - We are in agreement that there cannot be double jeopardy and the assessee cannot be prejudiced twice once by disallowing the expenses itself in the year of incurring of the said expense and secondly by treating the same amount accumulated over a period of time by treating the same as income u/s 41(1) on account of cessation of liability . Hence , in our considered view this matter need to be restored back to the file of the A.O for denovo adjudication of the entire issue on merits in accordance with law after conducting such verification as is considered fit by the AO including status of dispute between parties

Issues Involved:
1. Disallowance of interest of ?2,14,640/-
2. Disallowance of license fee of ?22,96,200/-
3. Addition u/s 41(1) of the Act of ?1,20,25,559/-
4. Addition of sundry creditor u/s 41(1) of ?33,02,000/-

Detailed Analysis:

1. Disallowance of Interest of ?2,14,640/-:
The assessee contested the disallowance of interest paid of ?2,14,640/-, which was the difference between the interest paid on bank loans amounting to ?6,31,235/- and the interest received from sister concerns amounting to ?4,16,595/-. The AO observed that the assessee had taken a secured loan from Bharat Cooperative Bank Ltd. and advanced loans to sister concerns at a lower rate of interest (6%) compared to the interest paid on the bank loan (24%). The AO disallowed the interest, which was confirmed by the CIT(A). The assessee argued that its own funds were used for advancing loans to sister concerns and that the borrowings were for business purposes. The Tribunal restored the matter to the AO for de-novo adjudication, directing the AO to verify the contentions of the assessee and decide the issue on merits.

2. Disallowance of License Fee of ?22,96,200/-:
The assessee claimed a license fee payable to the State Excise Department for the renewal of Excise licenses (PLL and RS II) amounting to ?22,96,200/-. The AO disallowed this amount, stating that the liability was not paid during the relevant financial year or till the due date of filing the return of income, thus invoking Section 43B of the Income-tax Act. The CIT(A) confirmed the disallowance. The Tribunal upheld the CIT(A)'s order, stating that the provision for license fee was not allowable as the payment was not made till the due date of filing the return of income u/s 139(1).

3. Addition u/s 41(1) of the Act of ?1,20,25,559/-:
The AO added ?1,20,25,559/- to the income of the assessee, treating it as cessation of liability under Section 41(1) of the Act. This amount was the difference between the outstanding liability shown by the assessee (?1,25,91,600/-) and the liability confirmed by the State Excise Department (?5,66,041/-). The CIT(A) confirmed the addition, stating that the assessee could not prove the genuineness of the liability. The assessee argued that this led to double addition as the amounts were disallowed on a yearly basis in the year of making the provision for the license fee. The Tribunal restored the matter to the AO for de-novo adjudication, directing the AO to verify the status of the dispute and ensure no double jeopardy.

4. Addition of Sundry Creditor u/s 41(1) of ?33,02,000/-:
The assessee did not press this ground, and it was dismissed as not pressed.

Conclusion:
The Tribunal partly allowed the appeal for statistical purposes, restoring the issues related to the disallowance of interest and the addition u/s 41(1) of the Act to the AO for de-novo adjudication. The disallowance of the license fee was upheld as per Section 43B of the Act. The appeal was dismissed for the grounds not pressed by the assessee.

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