2018 (2) TMI 175 - AT - Income Tax

Disallowance on account of interest expenses claimed on bill discounting charges - assessee had sufficient fund to meet this business requirement which was instead used by the assessee for making interest free advance to its related parties - Held that - CIT(A) has passed a detailed order listing therein the full sequences of events and how the bills have discounted and payments were made to sundry creditors. We are in agreement with the conclusion drawn by the CIT(A) that the AO has taken an overall view of the matter and disallowed the interest charge in arbitrary manner without application of mind. In our opinion the order of the CIT(A) is correct and deserves to be upheld. - Decided against revenue Disallowance on account of brokerage paid for getting the credit facility from nationalized banks - assessee could not establish the identity of the party and genuineness of transaction - Held that - A perusal of the order of the CIT(A) reveals that confirmation from the recipient M/s. Avias Corporate Services Pvt. Ltd. was produced before him. The learned CIT(A) also recorded a finding of fact that the bill is towards the credit facilities arranged from IOB and thus the payment was made in connection with professional services for obtaining credit facility. It was also noted by the CIT(A) that TDS has been deducted and the payment was made through banking channels. Having perused the facts on record and after hearing both the parties, we find that the learned CIT(A) has taken a correct view of the matter which deserves to be upheld - Decided against revenue

Summary

Issues:
1. Disallowance of interest expenses on bill discounting charges.
2. Disallowance of brokerage paid for obtaining credit facility from nationalized banks.

Issue 1: Disallowance of interest expenses on bill discounting charges

The appellant, a trading business in steel, filed a return of income for A.Y. 2010-11, declaring total income of ?28,37,533. The AO observed that the appellant debited ?62,28,563 as interest on bill discounting charges. It was noted that the appellant made investments/gave advances without charging interest, leading to the conclusion that interest-bearing funds were diverted to related parties without charging interest. The CIT(A) allowed the appeal, stating that the funds received from bill discounting were used to pay creditors and were thus used in the business. The Tribunal upheld the CIT(A)'s decision, emphasizing that the AO disallowed the interest charge arbitrarily without proper examination of facts, and the interest amount of ?62,28,563 was allowable to the appellant.

Issue 2: Disallowance of brokerage paid for obtaining credit facility from nationalized banks

During the year, the assessee paid ?11,03,000 as brokerage for obtaining credit facility from nationalized banks. The AO disallowed this amount as non-genuine, as the notice issued to verify the payment was returned unserved. The CIT(A) allowed the appeal, noting that the appellant produced a confirmation from the recipient and explained the need for professional services from the company. The Tribunal upheld the CIT(A)'s decision, stating that the confirmation from the recipient, TDS deduction, and payment through banking channels supported the genuineness of the brokerage payment. The Tribunal dismissed the appeal filed by the Revenue, affirming the correctness of the CIT(A)'s decision.

In conclusion, the Tribunal dismissed the Revenue's appeal, upholding the decisions of the CIT(A) regarding the disallowance of interest expenses on bill discounting charges and brokerage paid for obtaining credit facility from nationalized banks. The Tribunal found that the appellant's actions were in line with business requirements and supported by proper documentation, leading to the rejection of the Revenue's grounds of appeal.