2019 (12) TMI 210 - AT - Income Tax

Tribunal allows appeal, directs fresh consideration on subvention expenses, upholds new unit expenditure disallowance, rejects deemed interest addition.

M/s. PioneerMotors (Kannur) Private Limited Versus The Dy. Commissioner of Income-tax, Circle – 2 (1) Kannur.

The Tribunal partly allowed the appeal, condoning the delay in filing the appeal and proceeding to hear it on its merits. It directed the matter of ... Disallowance of subvention expenditure - claim of the assessee that subvention expenses represent amounts given to customers by way of discount etc. as per the instruction of the suppliers - HELD THAT:- Ledger folio of the subvention expenses is enclosed in the paper book filed by the assessee from pages 8 to 19. The total expenses incurred is ₹ 11,63,682. The total turnover for the year is ₹ 24.86 crore and the turnover increased for the year by ₹ 1,67,37,327. We are of the view that if the assessee can prove by producing the sale invoices that these subvention expenses are discount given to the customers, necessarily, the disallowance is uncalled for. For examination of the said issue, the matter is restored to the Assessing Officer for fresh consideration. The assessee shall produce sample sales invoices for the above said period to prove that the discounts are given to the customers. Disallowance of expenditure incurred for setting up of Ape Four Wheeler Unit - HELD THAT:- The assessee had claimed as revenue expenditure a sum of ₹ 10,16,666. These are expenses incurred for setting up a dealership unit at Kannur. We have perused the details of the expenses, which are placed in the paper book filed by the assessee. Expenditure claimed are bank charges, bonus, commission paid, salary and wages, staff welfare expenses, etc. These expenses are clearly incurred for setting up a new unit and cannot be stated that it is an expenditure incurred for extension of existing unit. The new premises were taken on lease and new agreements were signed. The expenditure incurred is for setting up of a new business, cannot be allowed as a revenue expenditure. Interest attributed to the funds diverted to sister-concern - HELD THAT:- It is clear that no funds were diverted to sister concern during the relevant assessment year. No addition / disallowance was made on this account in the earlier assessment years or in the subsequent assessment years. Moreover, we find that M/s.Pothen & Pothen Automobiles Private Limited (sister concern) is an authorized distributor for three wheeler spare parts from Trichur to Kasargode. Since the assessee is dealing in Ape three wheelers, it receives spare parts required from M/s.Pothen & Pothen Automobiles Private Limited and procuring the spare parts, advances were given by the assessee-company. So there is element of commercial expediency of such advances to the sister concern. Since no fresh advances were given during the relevant assessment year to the sister concern and when no addition on this account was made in the earlier assessment years or in the subsequent assessment years, according to us, no addition can be made on a notional basis to the interest income under the head `income from other sources’. Issues:1. Delay in filing appeal - condonation of delay2. Disallowance of subvention expenses3. Disallowance of expenditure for setting up Ape Four Wheeler Unit4. Confirmation of addition of deemed interest on funds diverted to sister concernDelay in filing appeal - Condonation of delay:The appeal was filed with a delay of 33 days, and the Managing Director of the assessee-company provided reasons for the delay. The Tribunal found sufficient cause for the delay and decided to condone it, proceeding to hear the appeal on its merits.Disallowance of subvention expenses:The assessee claimed subvention expenses of Rs. 11,63,628, representing amounts given to customers as discounts per supplier instructions. The Assessing Officer disallowed Rs. 5 lakh, citing lack of verifiable details. The CIT(A) reduced the disallowance to Rs. 3 lakh. The Tribunal directed the matter back to the Assessing Officer for fresh consideration, requiring the assessee to provide sample sales invoices to prove the discounts given to customers.Disallowance of expenditure for setting up Ape Four Wheeler Unit:The Assessing Officer disallowed Rs. 10,16,666 as not revenue expenditure for setting up a new unit. The CIT(A) upheld this decision, stating the expenses were for a new business setup, not an extension of an existing unit. The Tribunal confirmed this view, denying the appeal on this ground.Confirmation of addition of deemed interest on funds diverted to sister concern:The Assessing Officer added Rs. 3,21,000 as income from other sources, attributing interest on advances to a sister concern. The CIT(A) upheld this addition, stating the funds were not advanced for business purposes but to assist the sister concern. However, the Tribunal found no funds were diverted during the relevant assessment year, and the advances had commercial expediency. As no addition was made in previous or subsequent years, the Tribunal allowed this ground of appeal.In conclusion, the Tribunal partly allowed the appeal for statistical purposes, addressing each issue raised by the assessee comprehensively and providing detailed reasoning for its decisions.