2021 (8) TMI 1287 - AT - Income Tax

Key Tax Disputes Resolved: Tribunal Rules in Favor of Assessee on Various Grounds

M/s. JMC Automotive Components Pvt. Ltd. Versus ITO, Ward 2 (1), Faridabad

M/s. JMC Automotive Components Pvt. Ltd. Versus ITO, Ward 2 (1), Faridabad - TMI Issues Involved:1. Addition under section 40(a)(ia) of the Income Tax Act, 1961.2. Disallowance of interest under section 36(1)(iii) of the Income Tax Act, 1961.3. Addition due to difference in the rate of interest.4. Addition of proportionate interest under section 36(1)(iii) of the Income Tax Act, 1961.Detailed Analysis:GROUND NO.1: Addition under section 40(a)(ia) of the Income Tax Act, 1961The Assessing Officer (AO) disallowed an amount of Rs. 21,20,492 under section 40(a)(ia) for not deducting TDS on payments made to six companies. The Commissioner of Income Tax (Appeals) [CIT(A)] restricted this addition to Rs. 9,80,782 after the assessee provided certificates under section 201 from four companies. The Tribunal directed the AO to correct a factual error in the total amount and provide relief of Rs. 15,602. The Tribunal also instructed the AO to verify the certificate from Bajaj Auto Finance Ltd. and conduct an enquiry regarding Barclays Investment & Loan, which had closed its operations in India. Consequently, this ground was determined in favor of the assessee for statistical purposes.GROUND NO.2: Disallowance of interest under section 36(1)(iii) of the Income Tax Act, 1961The AO disallowed interest of Rs. 2,68,529 on advances made for the purchase of plant and machinery, as the machinery was not put to use. The CIT(A) confirmed this addition. The Tribunal, following a previous order in the assessee's own case for AY 2011-12, held that the advances were for replacement machinery in the regular course of business, not for business extension. Therefore, the addition was deleted, and this ground was determined in favor of the assessee.GROUND NO.3: Addition due to difference in the rate of interestThe AO added Rs. 7,24,761 for excessive bill discounting charges paid to Sandhar Enterprises and Sandhar Automotives (Dhumspur) due to lack of documentary evidence. The CIT(A) restricted this addition to Rs. 1,40,946, noting a differential rate of interest of approximately 3%. The Tribunal upheld the CIT(A)'s findings, as the assessee could not justify the excess interest paid to Sandhar Enterprises. Consequently, this ground was determined against the assessee.GROUND NO.4: Addition of proportionate interest under section 36(1)(iii) of the Income Tax Act, 1961The AO made an addition of Rs. 1,51,500 for proportionate disallowance of interest to M/s. Anant Raj Industries Ltd. and M/s. Jawahar Chits Pvt. Ltd. The CIT(A) deleted the addition for M/s. Jawahar Chits Pvt. Ltd. but confirmed Rs. 1,42,500 for M/s. Anant Raj Industries Ltd. The Tribunal, following a previous order in the assessee's own case for AY 2011-12, held that the assessee had sufficient interest-free funds, and the presumption is that these funds were used for interest-free advances. Therefore, the addition was deleted, and this ground was determined in favor of the assessee.Conclusion:The appeal was partly allowed for statistical purposes, with the Tribunal providing specific directions for verification and correction of errors by the AO. The Tribunal upheld the CIT(A)'s findings on the differential interest rate but sided with the assessee on other grounds, following precedents and statutory provisions. The order was pronounced in open court on August 13, 2021.