2024 (2) TMI 1195 - AT - Income Tax

Interest expense disallowance reversed when sufficient interest-free surplus funds available for advances given in earlier years

M/s Phenil Sugars Limited, (Since amalgamated with M/s Basti Sugar Mills Co. Ltd.) Versus ITO, Ward-16 (3), New Delhi (Presently ACIT Circle 19 (2), Delhi

The ITAT Delhi ruled on two issues in favor of the assessee. First, regarding disallowance of interest expenses on interest-free advances, the tribunal ... Disallowance of interest expenses - as alleged assessee has foregone interest by giving interest free advance to various parties - disallowance confirmed by CIT(A) - HELD THAT:- On perusal of the balance sheet of the assessee for the current year, we find that the assessee had sufficient interest-free surplus funds available with it. Therefore, as per the settled legal principles, it has to be presumed that the interest-free surplus funds have been utilized for interest-free advances. In any case, it is a fact on record that the loans in respect of which interest disallowance has been made were given in earlier assessment years - Thus we direct the assessing officer to delete the disallowance. Ground no. 1 and 2 are allowed. Estimation of income - addition made by applying GP rate of 7.33% on account of alleged difference in stock as per books of account and as per stock statement for hypothecation with the bank - HELD THAT:- Hon’ble jurisdictional High Court [2017 (11) TMI 396 - DELHI HIGH COURT] AO in his order has only considered the closing stock of sugar as on 31.03.1999, as per the bank statement which is at 3,98,125 Qtls. and after comparing the same with that of the closing stock as on 31st March 1999 in the audited accounts i.e. 3,10,934 Otls. and gone on to add the difference in excess stock of 87,191 Qtls, as assessee's income for the year - when the AO has placed absolute reliance to the closing stock figures as per bank statement for making the above stated addition to income then he should have necessarily taken the figures of opening stock of sugar as well from the same source, namely the statement as on 31.03.1998 as furnished to the bank. This preposition is based on the principle of consistency in approach as it would be improper to place reliance on the book stock for opening balance and in the same breadth the bank statement for closing balance. Decided in favour of assessee. Issues involved:1. Disallowance of interest expenses2. Non-adjudication of certain claims by the CIT(A)3. Addition on adhoc basis for alleged difference in stockIssue 1: Disallowance of interest expensesThe appellant contested the disallowance of Rs. 85,86,000 in interest expenses by the Ld. CIT(A), arguing that loans and advances were for commercial expediency and there was no diversion of interest-bearing funds. The appellant also cited previous favorable decisions by the Hon'ble ITAT and CIT(A) to support their claim. The Tribunal considered the balance sheet and noted that the interest-free surplus funds were utilized for interest-free advances, as loans in question were given in earlier years. Relying on past decisions and the appellant's own case, the Tribunal directed the assessing officer to delete the disallowance, thereby allowing grounds 1 and 2 of the appeal.Issue 2: Non-adjudication of certain claimsThe appellant challenged the CIT(A) for not adjudicating certain claims made during assessment proceedings, citing legal validity and the SC decision in Goetze (India) Ltd vs. CIT. However, the Tribunal did not delve into this issue in detail in the judgment.Issue 3: Addition on adhoc basis for alleged difference in stockThe appellant contested the addition of Rs. 1,87,63,000 made by applying a GP rate on the alleged difference in stock as per books of account and stock statement. The Assessing Officer based the addition on a previous year's assessment, where the Ld. First Appellate Authority had deleted a similar addition. The Tribunal referred to a decision by the Hon'ble jurisdictional High Court, which highlighted discrepancies in the Assessing Officer's approach and upheld the CIT(A)'s order. Consequently, the Tribunal directed the Assessing Officer to delete the addition, allowing ground 3 of the appeal.The general ground 4 was not specifically addressed in the judgment. The appeal of the assessee was allowed by the Tribunal, and the order was pronounced in open court on 21.02.2024.