2024 (10) TMI 737 - AT - Income Tax

Additions towards excess of interest expenditure claimed on unsecured/bank loans, brokerage/commission and bank charges - assessee has failed to demonstrate that the financial assistance availed of on interest has been utilized for the purpose of business and that there is no diversion - HELD THAT - It is now well-settled that where an assessee has a pool of funds comprising of both interest free and interest laden funds, the advance made to subsidiaries, family, friends or relatives are presumed to be made out of such interest free funds, provided the interest free funds available are sufficient to meet the amount of such advances. It is also well settled that the AO cannot question the commercial wisdom/expediency. AO cannot place himself in the armchair of the assessee. The only aspect which would normally enter into the consideration of the AO is whether the interest free funds available are sufficient to meet the interest free advances or advances at a lower rate of interest. It can thus be seen that it would essentially be an exercise of examination of the facts pertaining to the particular assessment year. CIT-DR is right that an omnibus reliance cannot be placed in such a case on the previous decision in the assessee s own case inasmuch as the question about the availability of sufficient interest free funds as well as the nature and extent of the advances made during the relevant period would be a question of fact relevant to the said period. On perusal of order passed by the CIT(A), we find that the CIT(A) has recorded a specific finding that the facts obtaining in the year under consideration are identical to the facts for assessment year 2015-16 in respect of which there is already an order passed by the Tribunal in assessee s favour deleting the addition made towards excess of interest expenditure. We have made an attempt to examine the facts and have found on the basis of the statements as reproduced above that even under the year under consideration, assessee had sufficient interest free funds so as to cover the advances made on interest to related parties except in case of Shreepati Build Infra Investment Ltd. where the rate of interest is said to be 9%. For all other related parties, the interest rate charged is 12%. Insofar as Shreepati Build Infra Investment Ltd. is concerned, the promoter is shown to be a shareholder/Director. In respect of two unrelated parties, Jitendra F. Jain and New India Roadways, the advance is made at 9% p.a. The other two additions relating to brokerage, commission and bank charges are consequential in nature. Since we have deleted interest disallowance, both these additions are liable to be deleted - Decided against revenue.

Summary

Issues:
Challenge to order of CIT(A) deleting additions made by Assessing Officer for excess interest expenditure, brokerage/commission, and bank charges for assessment year 2016-17.

Analysis:
The appeal by Revenue challenges the CIT(A) order deleting additions made by Assessing Officer. The respondent-assessee, a promoter of a group of companies, filed RoI declaring income. Assessing Officer made additions towards excess interest expenditure, brokerage/commission, and bank charges. Assessee contended before CIT(A) that additions were unjustified as funds were not diverted and Assessing Officer questioned commercial expediency. CIT(A) deleted the additions, leading to the Revenue's appeal.

The CIT(A) relied on an earlier Tribunal decision for the same assessee's case in assessment year 2015-16, finding identical facts. The Revenue argued that Assessing Officer's view was reasonable, emphasizing the importance of proving no diversion of interest funds for non-business activities. The respondent-assessee supported the CIT(A)'s decision, citing availability of interest-free funds to cover advances and relying on legal precedents.

The Tribunal noted the presumption that advances to related parties are made from interest-free funds if available. It emphasized that Assessing Officer cannot question commercial wisdom and must consider if interest-free funds cover advances. While the Revenue argued against blanket reliance on previous decisions, the Tribunal found facts similar to the earlier year. It concluded that the assessee had sufficient interest-free funds to cover advances, except for specific cases, leading to the dismissal of the Revenue's appeal.

The Tribunal found no grounds for interference, dismissing the Revenue's appeal and upholding the CIT(A) order. The appeal was concluded on 16/04/2024.