2018 (12) TMI 310 - AT - Income Tax

Disallowance on account of interest expenses on the diversion of interest bearing loans to the associated concerns - Held that - As decided in this is not a sound accounting policy as at outset it should have been recognized the same as income on accrual basis and thereafter would have given the deduction of claim of bad debt which the assessee failed in these years. Further, when we visualize this situation as a whole traveling from three assessment years, then, it is observed that interest income was recognized on accrual basis and thereafter claimed as a bad debt of its non-realization, this has been allowed by ld. CIT(A). If we remit the issue to the file to assessing officer in subsequent years by holding that income is to be recognized on accrual basis and thereafter, it is to be claimed as bad debt whether allowable or not, then, to our mind, it will be an academic and futile exercise because in reality assessee has not received any interest income from its sister concern. It is to be recognized that in all the aforesaid three years the income from interest on accrual basis remained unrecoverable which was allowed as a bad debt. Thus, in order to avoid multiplicity of the proceedings, we allow the appeal of the assessee on this issue accordingly. Claim of brought forward and set off of unabsorbed business losses and depreciation - Held that - As decided in assessee s own case CIT(A) has directed the assessing officer to determine the claim of brought forward and set off of unabsorbed business loss for assessment year 2008-09 after giving effect to the appellate order. We restore this matter to the file of assessing officer to decide it afresh after examination of the claim of the assessee as per law

Summary

Issues Involved:
1. Disallowance of interest expenses on loans to associated concerns.
2. Disallowance of set off of unabsorbed business losses and depreciation for AY 2008-09.
3. Initiation of penalty proceedings under section 271(1)(c) of the Income Tax Act, 1961.
4. Charging of interest under section 234B and 234C of the Income Tax Act, 1961.

Issue 1: Disallowance of Interest Expenses on Loans to Associated Concerns:
The appellant contested the disallowance of ?7,42,233 as deemed interest on loans given to associated concerns. The Assessing Officer disallowed this amount, citing Section 40A(2)(b) of the Income Tax Act. The CIT(A) confirmed this disallowance based on previous years' assessments. However, the ITAT ruled in favor of the appellant, noting that interest income was not realized due to non-payment by the sister concerns. The ITAT emphasized the need for consistent accounting practices and allowed the appeal, reversing the lower authorities' decision.

Issue 2: Disallowance of Set Off of Unabsorbed Business Losses and Depreciation for AY 2008-09:
The appellant carried forward a loss of ?26,50,757 from AY 2008-09, seeking to set it off against the current year's profit. The Assessing Officer denied this set off, stating it was already claimed in AY 2010-11. The CIT(A) directed verification and allowed the set off after due diligence. The ITAT, following a similar case for AY 2010-11, remanded the issue back to the Assessing Officer for fresh assessment. Consequently, the ITAT allowed the appeal for statistical purposes, ensuring proper adjudication in line with legal provisions.

Conclusion:
The ITAT ruled in favor of the appellant on both issues, highlighting the importance of consistent application of tax laws and accounting principles. The judgments emphasized fair play and adherence to legal procedures, ensuring proper verification and assessment by the tax authorities. The appeal was partly allowed for statistical purposes, directing a fresh examination of the disputed matters in accordance with the law.