2021 (12) TMI 696 - AT - Income Tax

Addition of interest paid as expenditure in connection with business activities with certain suppliers of goods, job workers for manufacturing of goods of the appellant and added in the returned income - A.O. had not allowed deduction as business expenditure of interest paid on borrowings which had been given to other companies as well as firms in connection with the continuation of business i.e business expediency - HELD THAT - Three ingredients are required for allowing interest paid which are as there should be borrowing of funds, borrowing should be for business purpose, and there should be payment of interest. The assessee fulfills all the above three conditions, as the assessee borrowed the funds from the bank as well as other, the borrowing was for the business purposes only and interest thereon was paid to the Bank as well as to others also. As all are the business transactions either of purchases/sale/Job work as well as payments/receipts through banks as the case may be in the business/Commercial expediency. In the business transaction neither the assessee paid any interest on delay payments against consideration to the above suppliers on their sale/Job Works, if any, nor charged any interest from them on delay payments received either as sale consideration or advances in connection with the commercial expediency. Considering the totality of facts and circumstances of the case, mater placed on record and the case laws relied upon by the ld. AR, we found merit in the contentions raised by the assessee and the ld. DR has not brought on record any new material to rebut or controvert the submissions and documents placed before us, therefore, we direct to delete the disallowances confirmed by the ld. CIT(A) - Decided in favour of assessee. Disallowance of interest to Bajaj Finance Ltd. - HELD THAT - Assessee has taken finance from Baja Finance Limited in 2011. The repayment was made accordingly to the monthly installment. As per the provisions, the assessee has debited TDS deducted on the interest paid in the account of the company. The assessee time and again required M/s Bajaj Finance Limited to reimburse the same. However, in spite of the repeated request no such reimbursement of the tax deducted at source was made. Accordingly during the year claimed the amount of TDS as interest in the profit loss account. As the non recovery of the same is decided during the year, the same is current year expenditure and allowable during the year. However, the interest was deposited in the year under consideration, it must be allowed in any one of the years either the year under consideration on account of payment or in the preceding year being the relevant year, if the expenditure is allowed in this year under consideration even though there would be no any loss of revenue to the department because the rate of tax is one and the same for both the assessment years. Considering the totality of facts and circumstances of the case, we direct to delete the disallowance confirmed by the ld. CIT(A) - Decided in favour of assessee.

Summary

Issues Involved:
1. Sustaining the disallowance of interest ?22,06,319/- as business expenditure under Section 36(1)(iii) of the Income Tax Act.
2. Sustaining the disallowance of interest ?45,130/- on borrowings from Bajaj Finance Ltd.
3. Condonation of delay in filing the appeal.

Issue-wise Detailed Analysis:

1. Sustaining the Disallowance of Interest ?22,06,319/- as Business Expenditure:

The assessee challenged the order of the CIT(A) confirming the disallowance of ?22,06,319/- as business expenditure under Section 36(1)(iii) of the Income Tax Act. The assessee argued that the interest paid was in connection with business activities, including transactions with suppliers and job workers. The assessee maintained that these transactions were purely business-related and necessary for maintaining business relations, purchasing raw materials, and getting job work done. The assessee provided detailed accounts and VAT returns to substantiate the business transactions with Natani Steel Industries, Supreme Meta Cast (Pvt.) Ltd., and Neelkanth Industries (Pvt.) Ltd., all of which were sister concerns.

The Tribunal noted that the assessee had borrowed funds for business purposes and paid interest on these borrowings. It was observed that the advances to sister concerns were made for business/commercial expediency and not for personal purposes. The Tribunal relied on the Supreme Court's judgment in S.A. Builders Ltd. v. CIT, which held that interest on borrowed funds used for business purposes should be allowed as a deduction. The Tribunal also referenced the Rajasthan High Court's decision in CIT v. Vijay Solvex Ltd., which supported the deduction of interest on advances made for business expediency.

Considering the facts, submissions, and judicial precedents, the Tribunal found merit in the assessee's contentions and directed the deletion of the disallowance of ?22,06,319/-.

2. Sustaining the Disallowance of Interest ?45,130/- on Borrowings from Bajaj Finance Ltd.:

The assessee contested the disallowance of ?45,130/- in interest paid to Bajaj Finance Ltd. The Tribunal noted that the assessee had taken finance from Bajaj Finance Ltd. in 2011 and had repaid it in monthly installments. The assessee had deducted TDS on the interest paid, which was not reimbursed by Bajaj Finance Ltd. Despite repeated requests, the reimbursement was not made, and the assessee claimed the TDS amount as interest in the profit and loss account for the current year.

The Tribunal observed that the interest was deposited in the year under consideration, and it should be allowed as an expenditure either in the current year or the preceding year. The Tribunal directed the deletion of the disallowance, recognizing it as a legitimate business expenditure.

3. Condonation of Delay in Filing the Appeal:

The assessee filed an application for condonation of a 50-day delay in filing the appeal. The Tribunal noted that the assessee had explained the delay was due to the director's personal circumstances and the late discovery of the appellate order on the Income Tax department's web portal. The Tribunal referred to the Supreme Court's principle in Collector, Land Acquisition v. Mst. Katiji, which emphasized a liberal approach in interpreting 'sufficient cause' for condonation of delay to ensure substantial justice.

The Tribunal found the assessee's explanation for the delay to be bona fide and not a device to cover laches. Applying a justice-oriented approach, the Tribunal condoned the delay and admitted the appeal for hearing.

Conclusion:

The Tribunal allowed the appeal, directing the deletion of the disallowances of ?22,06,319/- and ?45,130/-. The delay in filing the appeal was condoned, enabling the appeal to be adjudicated on its merits.