ITAT Adjusts Interest Calculation; Deletes Disallowance of Advances Due to Lack of Fund Diversion Evidence.

The ITAT partially allowed the appeals for both assessment years. It upheld the levy of interest under sections 234B and 234C, directing the AO to recalculate interest based on tax determined under section 143(1). The Tribunal deleted the disallowance of interest on advances to sister concerns, citing insufficient evidence of fund diversion.

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Issues Involved:
1. Disallowance of salary payments u/s 40(b).
2. Levy of interest u/s 234B and 234C.
3. Disallowance of interest on advances to sister concerns.

Summary:

1. Disallowance of Salary Payments u/s 40(b):
The assessee initially challenged the disallowance of salary paid to certain individuals invoking the provisions of section 40(b) of the Act. However, these grounds were not pressed by the assessee, and hence, were dismissed.

2. Levy of Interest u/s 234B and 234C:
The assessee raised two additional grounds challenging the levy of interest u/s 234B and 234C. The first ground argued that there was no direction to charge interest under specific sections in the assessment order. The second ground contended that interest should be calculated on the returned income, not the assessed income. The Tribunal admitted these additional grounds as they pertained to the jurisdiction of levying interest.

The Tribunal reviewed various judicial pronouncements, including decisions from the Hon'ble Patna High Court, Hon'ble Supreme Court, and other High Courts. It was concluded that if there was no direction to charge interest in the assessment order, the levy of interest would be illegal. However, if there was a direction to charge interest without specifying the section, the Department could levy interest under the applicable sections. In the present case, the assessment orders for both years contained directions to charge interest, thus justifying the Department's levy of interest.

Regarding the calculation of interest u/s 234B, the Tribunal noted that amendments to the section clarified that interest should be charged up to the date of regular assessment. The Tribunal directed the Assessing Officer to recalculate interest based on the tax determined under sub-section (1) of section 143, not on the returned income.

3. Disallowance of Interest on Advances to Sister Concerns:
The assessee challenged the disallowance of interest on the grounds that the interest-bearing funds were allegedly diverted to sister concerns without charging interest. The Tribunal emphasized that the onus was on the Revenue to prove such diversion. Citing various judicial precedents, it was held that non-charging of interest on loans given by the assessee cannot be a sufficient ground for disallowing interest paid on loans taken by the assessee unless a nexus is established. The Tribunal concluded that the CIT(A) was not justified in sustaining the disallowance of interest and thus deleted the disallowance.

Conclusion:
The appeals for both assessment years were partly allowed, with specific directions for recalculating interest and deleting the disallowance of interest on advances to sister concerns.

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