2019 (10) TMI 1065 - AT - Income Tax

Tribunal Disallows Write-Off as Business Deduction, Directs AO to Adjust Interest Income

Kokuyo Camlin Limited Versus ACIT -10 (1) (2), Mumbai

The Tribunal upheld the disallowance of the write-off of advances to a wholly owned subsidiary as a business deduction, citing lack of documentary ... Disallowance of write off of advances given to wholly owned subsidiary claimed as business deduction - HELD THAT:- No documentary evidence in the form of any communication or resolution of Board of Director is placed on record. The assessee though filed a number of decisions in support of his submission; however, the ld. AR of the assessee mainly relied upon the decision of Mumbai Tribunal in Jackie Shroff [2019 (1) TMI 400 - ITAT MUMBAI] and ACIT vs. OSN Infrastructure & Projects Pvt. Ltd. [2018 (4) TMI 1125 - ITAT DELHI] In our view, both the decision are distinguishable on the facts of the present case in Jackie Shroff (supra) case the money was advanced for business expediency, however in the case in hand the assessee funded the capital working requirement of CAL. Further, in ACIT vs. OSN Infrastructure & Projects Pvt. Ltd. (supra), the said assessee was engaged in the business of development of infrastructure, construction and real estate trading, advance/ money to various parties to buy land, the said parties failed to buy land and pay money, however in the case in hand the assessee funded the capital working requirement. Thus, the advance was made for business expediency. Thus, both the case is based on peculiar facts of those cases and is not applicable on the present case. Therefore, in view of the aforesaid discussion, we do not find any illegality or infirmity in the order passed by lower authorities, which we affirmed.- Decided against assessee. Addition of interest income - year of assessment - HELD THAT:- During the assessment, the assessee was asked to reconcile the entries in Form 26-AS. The assessee filed its reply dated 22.07.2016 wherein the assessee stated that accept the amount as the TDS was received in subsequent F.Y. i.e. F.Y. 2014-15, the assessee offered the same on the basis of accrual basis due to non-availability of exact figure. The Assessing Officer on the basis of details of Form 26- AS made the addition - CIT(A) upheld the action of Assessing Officer holding that the non-receipt of TDS does not holding any ground and confirmed the action of Assessing Officer. We direct the Assessing Officer to verify the fact, if the interest is offered in the subsequent year then the same be deleted from the year under consideration. However, if any difference is found in offering the interest income, the same be taxed in the year under consideration and corresponding set of remaining amount offered in subsequent year be given to the assessee. Hence, Ground No. 3 & 4 are allowed for statistical purpose. Issues Involved:1. Disallowance of write-off of advances given to a wholly owned subsidiary.2. Addition of interest income received from a bank.Detailed Analysis:1. Disallowance of Write-off of Advances Given to a Wholly Owned Subsidiary:The appellant contested the CIT(A)'s decision to uphold the AO's disallowance of the write-off of advances amounting to INR 3,05,32,140 given to its wholly owned subsidiary, Camlin Alphakids Limited (CAL), as a business deduction. The appellant argued that the advances were made to meet the working capital requirements of CAL, which was expected to act as a forward integration of the appellant’s stationary business. The write-off was claimed as a business loss due to the subsidiary's continuous losses and the decision by the new management to disengage from CAL's business activities.The appellant cited several case laws to support their claim, including S.A. Builders Ltd. Vs. CIT and CIT vs. Amalgamation (P.) Ltd., arguing that the advances were made out of commercial expediency. However, the AO and CIT(A) concluded that the advances were capital in nature and not directly related to the appellant's business, referencing the case of Salem Magnesite Pvt. Ltd vs. CIT. The Tribunal upheld the lower authorities' decision, noting the lack of documentary evidence, such as a Board of Directors' resolution, to support the write-off claim. The Tribunal affirmed that the advances were not allowable as a business expenditure under sections 28, 29, or 37(1) of the Income Tax Act.2. Addition of Interest Income Received from a Bank:The appellant objected to the addition of INR 2,56,442/- as interest income from Kotak Mahindra Bank, arguing that they consistently recognized interest income based on TDS certificates rather than Form 26AS. The appellant claimed that the interest income was accounted for and offered for tax in the subsequent assessment year (AY 2015-16) due to the receipt of TDS certificates in that year.The AO added the interest income based on Form 26AS for AY 2014-15, and the CIT(A) upheld this addition. The Tribunal directed the AO to verify if the interest income was indeed offered in the subsequent year and, if so, to delete the addition from the current year. If any discrepancies were found, the AO was instructed to tax the interest income in the current year and provide a corresponding set-off in the subsequent year.Conclusion:The Tribunal dismissed the appeal regarding the write-off of advances to the subsidiary, affirming the decisions of the lower authorities. However, it allowed the appeal concerning the addition of interest income for statistical purposes, directing the AO to verify and adjust the interest income accordingly. The order was pronounced in the open court on 04/10/2019.