Tribunal allows business expenses, overturns disallowance on interest. Revenue's appeals dismissed.

The Tribunal upheld the allowability of business expenses claimed by the assessee and deleted the disallowance of interest on loans advanced to sister concerns. The revenue's appeals were dismissed, and the assessee's appeal was allowed.

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Issues Involved:
1. Allowability of business expenses claimed by the assessee.
2. Disallowance of interest on loans advanced to sister concerns/related parties.

Issue 1: Allowability of Business Expenses Claimed by the Assessee

The revenue challenged the CIT(A)'s decision to allow business expenses claimed by the assessee for Assessment Years 2013-14 and 2014-15, arguing that the assessee posted meager business income while claiming large expenses without carrying out any business activity. The AO disallowed expenses totaling Rs. 3,71,23,836/- for AY 2013-14, citing that they were not incurred wholly and exclusively for earning commission and brokerage income. The CIT(A) relied on its previous orders for AY 2008-09 and 2009-10, which held that the assessee was engaged in business activities despite not declaring business income due to disputes affecting property sales.

The Tribunal upheld the CIT(A)'s decision, noting that the facts of the case remained consistent with previous years where similar expenses were allowed. The Tribunal emphasized the principle of consistency, stating that the revenue had not pointed out any differences in facts between the current and previous assessment years. Therefore, the Tribunal found no infirmity in the CIT(A)'s order and declined to interfere, dismissing the revenue's appeals.

Issue 2: Disallowance of Interest on Loans Advanced to Sister Concerns/Related Parties

The assessee appealed against the CIT(A)'s decision to disallow interest on loans advanced to sister concerns on a proportionate basis. The CIT(A) noted that substantial amounts of borrowed money were advanced to sister concerns without interest, and directed the AO to disallow proportionate interest out of the total interest debited to the P&L account. The assessee argued that its own interest-free funds were sufficient to cover the interest-free advances given to sister concerns, relying on judgments from the Hon'ble Bombay High Court and the Hon'ble Karnataka High Court which held that in cases of mixed funds, it should be presumed that advances are made from interest-free funds if sufficient interest-free funds are available.

The Tribunal agreed with the assessee, noting that the assessee's own interest-free funds as on 31.03.2014 were higher than the interest-free advances given to sister concerns. Respectfully following the judgments of the Hon'ble Bombay High Court and the Hon'ble Karnataka High Court, the Tribunal held that the CIT(A) was not justified in disallowing interest expenditure and deleted the disallowance.

Conclusion:

In the combined result, both the appeals of the revenue were dismissed, and the appeal of the assessee was allowed. The Tribunal upheld the allowability of business expenses claimed by the assessee and deleted the disallowance of interest on loans advanced to sister concerns.

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