2021 (1) TMI 212 - AT - Income Tax

Tribunal Overturns Disallowances: Directors' Travel, Interest-Free Loans Deemed Business Purposes; Gains Remain Capital.

Sagar Drugs & Pharmaceuticals Pvt. Ltd. Versus Dy. Commissioner of Income Tax, Circle-4 (1) (2), Ahmedabad

The tribunal ruled in favor of the appellant, overturning the disallowances made by the Assessing Officer. It deleted the disallowance of directors' ... Disallowance of directors’ foreign travel expenses - Addition of 50% of the total expenses on the ground that the same was not being incurred for business purposes - HELD THAT:- It is relevant to mention that the assessee’s business is of manufacturing of dye intermediate and chemicals. In Dubai they attended the Beauty World expo. In U.S.A. they attended a meeting and discussed business proposal at trade fare. In Thailand they attended meeting of YPO Chapter Retreat. All the relevant documents in support of such tours indicating the business purposes of the assessee company were duly submitted before the authorities below as it appears from the order impugned as well as the Paper Book filed before us - we delete the addition made by the authorities below. Disallowance of interest expenses for providing interest free loan for subsidiary company under Section 36(1)(iii) - HELD THAT:- The said issue was settled in view of the judgment and order passed by the Hon’ble Supreme Court in the case of SA Builders Ltd [2006 (12) TMI 82 - SUPREME COURT] whereby and whereunder it was decided that in the event the fund is utilized by sister concerns for business purposes it was allowable. Since we do not find any deviation in the facts as available on record before us we find substance in assessee’s counsel’s submission and thus allow the ground by deleting the disallowance of interest expenses. Gain on sale of Mutual Funds - STCG or business income - HELD THAT:- In view of the rule of consistency we find no reason in disallowing such sale of Mutual Funds as STCG and hence we delete the same. Assessee appeal allowed. Issues Involved:1. Disallowance of directors' foreign travel expenses.2. Disallowance of interest expenses for providing interest-free loan to subsidiary company.3. Treatment of short-term capital gain on sale of Mutual Funds as business income.Analysis:1. The first issue pertains to the disallowance of directors' foreign travel expenses. The Assessing Officer disallowed 50% of the total expenses amounting to Rs. 33,37,683 on the grounds of lack of business purposes. However, the appellant argued that the visits were for business-related activities such as attending meetings, trade fairs, and conferences. The appellate tribunal found that the assessee had submitted relevant documents supporting the business purposes of the visits. Additionally, citing previous years' judgments in favor of the assessee and the nature of the business, the tribunal deleted the disallowance, ruling in favor of the appellant.2. The second issue concerns the disallowance of interest expenses of Rs. 12,27,149 for providing an interest-free loan to a subsidiary company under Section 36(1)(iii) of the Income Tax Act. The tribunal noted that similar issues had been decided in favor of the assessee in previous assessment years, considering the commercial expediency and business purposes involved in the transactions. Referring to relevant case law and past judgments, the tribunal upheld the appellant's contention and deleted the disallowance of interest expenses.3. The third issue revolves around the treatment of short-term capital gain on the sale of Mutual Funds as business income. The appellant argued that similar issues had been decided in their favor for previous assessment years, supported by the order passed by the Commissioner of Income Tax (Appeals). The tribunal, observing the rule of consistency and lack of contrary arguments from the Revenue, ruled in favor of the appellant and deleted the treatment of the capital gain as business income.In conclusion, the tribunal allowed the appellant's appeal, overturning the disallowances and deletions made by the lower authorities. The judgment was pronounced in open court on 06/01/2021.