2014 (9) TMI 1061 - AT - Income Tax

ITAT Upholds CIT(A) Decisions on Revenue's Appeal: Disallowance of Expenses, Interest, and Conversion Expenses (A)

ACIT, Circle 33 (1), New Delhi Versus Kalinga International

The ITAT upheld the CIT(A)'s decisions in dismissing the Revenue's appeal on three issues: disallowance of expenses based on precedent, disallowance of ... Disallowance of expenses on insurance, depreciation, interest on finance and car expenses - CIT(A) deleted the addition - Held that:- CIT(A) deleted such addition by relying on the Tribunal order passed in assessee’s own case for AY 2000-01. The ld. DR could not bring on record any material to indicate that there was any fallacy in such order or in the subsequent years such order has not been followed. Respectfully following the precedent, we approve the view taken by the ld. CIT(A) on this issue.- Decided against revenue Disallowance of interest @ 12% on such interest free loans and advances to the related parties and others - Held that:- the impugned order that interest free loans were given to the persons whose properties were used by the assessee for showrooms and godowns, on which no rent was paid. It can be seen from the impugned order that the AO himself, while passing order u/s 143(3) for the AY 2009-10, accepted the assessee’s submissions on this score and did not make any such addition. When interest free loans were given to the parties from whom the assessee had taken premises for its business purpose without paying any rent, the notional interest on such loans can be considered as quid pro quo of rent. Since the AO has himself accepted the assessee’s case, in his order for AY 2009-10, we hold that no interference can be made in the impugned order on this issue - Decided against revenue Addition on account of conversion expenses - Held that:- The assessee was to use this property of some third person for business purpose and the same was not possible unless it was so converted, the conversion charges in such circumstances could not have been considered as a capital expenditure. The case is not even hit by Expl. 1 to sec. 32(1) inasmuch as payment of such conversion charges cannot be considered as any capital expenditure ‘on the construction of any structure or doing of any work in or in relation to, and by way of renovation or extension of, or improvement to, the building’. We, therefore, hold that such a payment cannot be considered as capital expenditure.- Decided against revenue Issues:1. Disallowance of expenses based on ITAT order for AY 2000-01.2. Disallowance of interest on interest-free loans to related parties.3. Disallowance of conversion expenses as capital expenditure.Analysis:Issue 1: Disallowance of expenses based on ITAT order for AY 2000-01The Revenue appealed against the CIT(A)'s order deleting the addition of certain expenses amounting to Rs. 1,88,061. The Revenue argued that the CIT(A) erred in relying on the ITAT's order for AY 2000-01 to delete the disallowance. The ITAT, after hearing the arguments, noted the absence of the assessee and proceeded ex parte. The ITAT upheld the CIT(A)'s decision, stating that the Revenue failed to provide any evidence to challenge the ITAT's precedent. Consequently, the ITAT dismissed this ground of appeal.Issue 2: Disallowance of interest on interest-free loans to related partiesThe AO disallowed an amount of Rs. 15,56,334 as interest on interest-free loans given by the assessee to related parties. The CIT(A) reversed this decision. The ITAT examined the case and found that the interest-free loans were given to parties providing premises for the assessee's business without rent. Noting that the AO accepted a similar case for AY 2009-10, the ITAT held that the interest-free loans were a quid pro quo for the rent-free premises. Therefore, the ITAT upheld the CIT(A)'s decision and dismissed this ground of appeal.Issue 3: Disallowance of conversion expenses as capital expenditureThe AO disallowed Rs. 6,13,200 claimed as deduction for conversion charges, considering it as a capital expenditure. The CIT(A) disagreed, noting that the property belonged to a third party and was used for the assessee's business. The ITAT concurred, stating that the conversion charges were necessary for using the property for business and did not fall under capital expenditure. The ITAT held that the payment did not qualify as capital expenditure under the relevant section. Thus, the ITAT upheld the CIT(A)'s decision on this issue as well.In conclusion, the ITAT dismissed all grounds of appeal by the Revenue, upholding the CIT(A)'s decisions regarding the disallowance of expenses based on precedent, interest on interest-free loans, and conversion expenses.