2020 (10) TMI 250 - AT - Income Tax

Deduction u/s 36(1)(iii) - CIT(A) directing to allow the interest paid to Star India Pvt. Ltd as business expenditure? - Whether a particular expenditure was necessary considering commercial expediency was to be decided from the point of view of businessman alone and not by the Revenue authorities - During the course of assessment proceedings, the assessee submitted that SIPL was not a related party within the meaning of Section 40A(2) of the Act and further, SIPL was a resident in India for tax purposes? - HELD THAT - It is quite evident that the reassessment proceedings were triggered based on interest disallowance in AY 2005- 06. The said disallowance, has ultimately been deleted by the Tribunal for AY 2005-06. Nothing on record would suggest that the said decision was not applicable to the facts of the present case. No change in material facts have been brought on record. In fact, the reassessment proceedings were triggered in this year on the basis of disallowance made in AY 2005-06. The relief has been given by Ld. CIT(A) by relying upon the appellate order for AY 2005-06 which has finally been affirmed by the Tribunal. In such a scenario, no fault could be found in the impugned order and no disallowance would survive against the assessee for the year under consideration. Therefore, by confirming the stand of Ld. CIT(A), we dismiss the appeal.

Summary

Issues involved:
- Interest disallowance u/s 36(1)(iii) for Assessment Years 2002-03 to 2004-05.

Analysis:

Issue 1: Interest disallowance u/s 36(1)(iii) for AY 2002-03:
- The revenue contested the Ld. CIT(A)'s order directing to allow interest paid to a company as business expenditure.
- The reassessment proceedings were triggered based on interest disallowance in AY 2005-06.
- The Ld. AO alleged that the interest payment was not in business expediency and disallowed it.
- The Ld. CIT(A) upheld the reassessment proceedings but deleted the disallowance on merits.
- The Tribunal affirmed the decision of Ld. CIT(A) based on commercial expediency and necessity of the expenditure.
- The reassessment proceedings were found to be based on the same grounds as AY 2005-06, where the disallowance was deleted.
- The appeal was dismissed, and the cross-objections were also dismissed as the issue was covered in the assessee's favor.

Issue 2: Interest disallowance u/s 36(1)(iii) for AY 2003-04:
- The Ld. CIT(A) held that reopening u/s 147 was not sustainable, and the issue on merits was not adjudicated.
- The issue on merits was covered in the assessee's favor by the Tribunal's decision for AY 2005-06.
- The revenue's appeal was dismissed as infructuous, and the assessee's cross-objections were allowed.

Issue 3: Interest disallowance u/s 36(1)(iii) for AY 2004-05:
- The Ld. CIT(A) upheld the reassessment proceedings but adjudicated the issue in the assessee's favor based on the appellate order for AY 2005-06.
- The revenue's appeal and the assessee's cross-objections were dismissed based on the same grounds as AY 2002-03.

Conclusion:
- The revenue's appeals and the assessee's cross-objections for all three assessment years were dismissed, except for one cross-objection for AY 2003-04, which was allowed.