2017 (12) TMI 798 - AT - Income Tax

Disallowance of vehicle expenses - ingenuity of claim - Held that - The assessee has not produced the supporting evidence in respect of the vehicle expenses and further expenses were incurred in cash and no log books regarding the use of the vehicle was maintained by the assessee. Accordingly in the facts and circumstances of the case the disallowance restricted by the ld. CIT(A) to 10% of the vehicle expenses is just and proper and does not require any interference. Hence, this ground of the assessee s appeal is dismissed. Disallowance of interest on advance given to the sister concern - Held that - Though the assessee has availed the cash credit facility as well as overdraft facility from ICICI Bank on which interest of ₹ 8,24,998/- was paid during the year under consideration however, neither the Assessing Officer nor the ld. CIT(A) has verified this fact that when the assessee is having its own sufficient funds to give advance to the sister concern then without establishing a direct nexus between the borrowed fund and advance no disallowance on account of interest is called for. It is not in dispute that the assessee s own fund is more sufficient to met the requirement of advance to sister concern. If the assessee s capital and profit during the year is taken into consideration the same is more than the loan given to the sister concern. Therefore, having regard to the fact that the assessee s own capital and profit during the year amounting more than ₹ 25,00,000/- then, a presumption can be raised that the advance given the assessee of ₹ 5,61,000/- is from its own fund and not from borrowed fund. Accordingly the disallowance made by the AO is deleted.

Summary

Issues:
1. Disallowance of vehicle expenses
2. Disallowance of interest on advance given to sister concern
3. Charging of interest u/s 234B, 234C & 234D

Issue 1: Disallowance of vehicle expenses
The assessee appealed against the disallowance of vehicle expenses by the Assessing Officer (AO). The AO noted that the assessee did not maintain supporting documents for the expenses incurred in cash payments. The AO disallowed a portion of the expenses, which was partly confirmed by the CIT(A). The CIT(A) restricted the disallowance to 10% of the vehicle expenses. The Tribunal upheld the CIT(A)'s decision, stating that the assessee failed to provide supporting evidence for the vehicle expenses and did not maintain log books for vehicle use. Therefore, the 10% disallowance was deemed appropriate and justified.

Issue 2: Disallowance of interest on advance given to sister concern
The AO disallowed a portion of interest claimed by the assessee on an advance given to a sister concern, stating that the borrowed funds were used for interest-free advances. The CIT(A) upheld this disallowance. However, the Tribunal found that the assessee had sufficient own funds to provide the advance, which was more than the loan amount to the sister concern. As there was no direct nexus established between borrowed funds and the advance, the Tribunal ruled in favor of the assessee and deleted the disallowance made by the AO.

Issue 3: Charging of interest u/s 234B, 234C & 234D
The Tribunal noted that the charging of interest under sections 234B, 234C, and 234D was consequential in nature and did not require specific findings. Therefore, this issue did not require further analysis. Overall, the Tribunal partly allowed the assessee's appeal based on the above considerations and observations.