2012 (11) TMI 5 - AT - Income Tax

Tribunal rules in favor of appellant on interest expenses but dismisses appeal on salary paid to director's relative

Belgium Glass & Ceramics P. Ltd. Versus Assistant Commissioner of Income Tax, Cir. 1(1) Baroda.

Belgium Glass & Ceramics P. Ltd. Versus Assistant Commissioner of Income Tax, Cir. 1(1) Baroda. - TMI Issues involved:1. Disallowance of interest expenses claimed by the appellant company.2. Addition of salary paid to a relative of the directors.Detailed Analysis:Issue 1: Disallowance of interest expenses claimed by the appellant companyThe appellant challenged the addition of Rs.5,39,462 as interest expenses by the Assessing Officer (AO) alleging diversion of borrowed funds for interest-free advances to associates and directors. The appellant argued that its own funds without interest exceeded the advances made, citing precedents like Torrent Financiers Vs. ACIT and CIT Vs. Raghuvir Synthetics Ltd. The Department contended that the appellant maintained mixed funds without a nexus between interest-free loans and advances. Upon review, the Tribunal found the appellant had sufficient capital and interest-free creditors to cover the advances made, hence no disallowance was warranted. Relying on the cited court decisions, the Tribunal ruled in favor of the appellant, allowing Ground No.1 of the appeal.Issue 2: Addition of salary paid to a relative of the directorsThe second ground of appeal pertained to the addition of Rs.1,56,600 for salary paid to a relative of the directors. The appellant failed to provide evidence supporting that the salary was for services rendered by the lady directors. As a result, the Tribunal upheld the disallowance, stating that the appellant did not meet the burden of proof. Consequently, Ground No.2 of the appeal was dismissed. In conclusion, the Tribunal partly allowed the appellant's appeal, ruling in their favor on the first issue regarding interest expenses but dismissing the appeal on the second issue of salary addition.