TaxTMI 
TaxTMI 
2017 (9) TMI 1699
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....09.10.2014 granted partial relief to the assessee. Aggrieved by the order of Ld.CIT(A), assessee is now in appeal before us and has raised the following grounds : "1. On the facts and in the circumstances of the case and in the law the Lower authorities have erred in making a disallowance on proportionate interest on loan by disregarding appellant's contention in this regards. 2. On the facts and in the circumstances of the case and in the law the Lower Authorities have erred in making a disallowance u/s 40(a)(ia) of the Income Tax Act, 1961 for alleged defaults of non-deduction of TDS by disregarding appellants contention in this regards." 3. Ground No.1 is with respect to disallowance of proportionate interest. 3.1 During the course of assessment proceedings, on perusing the details furnished, AO noticed that assessee had debited bank interest of Rs. 8,59,079/- on the bank loans aggregating to Rs. 74,96,527/- obtained by assessee and at the same time assessee had granted interest free advance of Rs. 1,27,34,934/- to its sister concern, M/s. Hira Enterprises. The assessee was asked to explain as to why the interest on the interest free amount advanced siste....
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....cer and pleaded that the interest expenditure of Rs. 3,59,152/- pertaining to the said loan needs to be fully allowed. Explaining the other part. of the expenditure relating to cash credit facility availed from Karad Urban Co-op Bank Ltd., the A.R. conceded that the said facility was used by the appellant for making advances to the sister concern. Drawing attention to the relevant bank extracts, he however, stressed that the facility was utilized only for 2/3 days and was repaid out of the firm's resources. Explaining the position of capital balances of the partners during the year, the Id. A.R. submitted that the partners had a collective credit balance of Rs. 21,05,597/- during the year. Thus, emphasizing that the cash credit facility of the Karad Co.op. Bank Ltd. was utilized for a very short period and that the partners had positive credit balance on which no interest was being paid, the ld.A.R. pleaded that only a nominal part of the interest paid of Rs. 4,99,927/- paid to the Karad Co-op. Bank needed to be disallowed. 2.3 I have given the appellant's submissions the most careful consideration. As per provisions of section 36(1)(iii) of the Act, the interest on lo....
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....without carrying any interest is to be disallowed under section 36(1)(iii). Such borrowings to that extent cannot possibly be held for the purpose of business but for supplementing the cash diverted without deriving any benefit out of it. It was held: "The entire money in a business entity comes in a common kitty and the appellant's business is no different. The monies received as share capital, as term loan, as working capital loan, as sale proceeds etc. do not have any different colour. The only thing sufficient to disallow the interest paid on the borrowing to the extent the amount is lent to sister concern without carrying any interest for non-business purposes would be that the assessee has some loans or other interest bearing debts to be repaid. In case the assessee had some surplus amount which, according to it, could not be repaid prematurely to any financial institution, still the same is either required to be circulated and utilized for the purpose of business or to be invested in a manner in which it generates income and not that it is diverted towards sister concern free of interest. This would result in not presenting true and correct picture of the accounts o....
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....concerns or other without carrying any interest and without any business purpose, the interest to the extent the advance had been made without carrying any interest is to be disallowed under Section 36(1)(iii) of the Act. In fact, the Delhi High Court in Punjab Stainless Steel Industries vs CIT reported in 324 ITR 396 held that it may not be relevant as to whether the advances have been extended out of the borrowed funds or out of mixed funds which include borrowed funds. The test to be applied in such cases is not the source of the funds but the purpose for which the advances are extended. It was also held that the question to be applied in each case was to see whether the interest free advance was commercially expedient for the assessee or not. It was held that the commercial expediency would include such purpose as is expected by the assessee to advance its business interest and may include measures taken for preservation, protection or advancement of its business interests, which has to be distinguished from the personal interest of its directors or partners, as the case may be. In other words, there has to be a nexus between the advancing of funds and business interest of the ....
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....the Apex Court, it needs to be examined whether the amounts in question that were advanced to sister concerns without any interest were justified by reasons of commercial expediency or not. No justification has been provided by the appellant for the amounts advanced and the examination of the written submission filed 03.11.2011 do not touch upon the issue at all. In reaching these conclusions, I m guided by the fact that while a businessman is normally expected to take sound and prudent business decisions (in CIT v. Walchand & Co. (P.) Ltd. [1967] 65 ITR 381 (SC) it was observed that yardstick will have to be taken from the businessman point of view but the businessman must be a prudent businessman), the tax authorities are still entitled to examine the business expediency. This was the ratio of the Punjab and Haryana High Court decision in CIT vs Rockman Cycle Industries Pvt. Ltd. reported in 326 ITR 291 as well as the apex Court decision in SA Builders case (supra). Accordingly, the interest expenditure incurred by the appellant that have been claimed u/s 36(1)(iii), cannot be allowed in its entirety. However it is seen that the Assessing Officer has disallowed the entire b....
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....d to controvert the findings of Ld.CIT(A). In view of the aforesaid facts, we find no reason to interfere with the order of Ld.CIT(A) and thus this ground of the assessee is dismissed. 6. Second ground is with respect to disallowance u/s 40(a)(ia) of the Act. 6.1 AO on perusing the details of expenses noticed that assessee had made payments to various persons (the details of which are listed at page 2 of the assessment order). The payment aggregating to Rs. 34,28,931/- inter-alia on account of printing charges, loading and unloading charges, payment of rent and interest on which assessee had not deducted TDS. The assessee was show caused and asked to explain as to why the expenses not be disallowed u/s 40(a)(ia) of the Act. Assessee inter-alia submitted that provisions of Sec.40(a)(ia) of the Act are not applicable. The submission of the assessee was found not acceptable to the AO. AO was of the view that the provisions of Sec.194C are attracted and since assessee has not deducted TDS the amount was liable for disallowance u/s 40(a)(ia) of the Act. He accordingly disallowed Rs. 34,28,931/-. Aggrieved by the order of AO, assessee carried the matter before Ld.CIT(A) who granted....
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.... processing charges of Rs. 97,774/- (out of total disallowance of Rs. 3,11,134/- and transport charges of Rs. 1,18,333/- are being contested. I have examined the sample copies of the printing bills of M/s. Shiv Offset Printers, Sangli, M/s. Prakash Offset Printers, Ichalkaranji and M/s. Ashok Print Pack, Sangi filed by the appellant at pages 8 to 10 of the paper book. Perusal of the same reveals that the amounts are charged as a consolidated figure inclusive of printing of zarda labels, kacchi misri labels, plate charges as well as packing and forwarding charges. Thus, the printing charges are fixed per ream of plastic-coated color printing done for packaging the end-product i.e., zarda which is manufactured by the appellant. The work done by these printers falls within the definition of a works contract / sub-contract as specified in section 194C. The fact that there is no written contract is immaterial or that the transactions were routine transactions has no bearing to the applicability of Section 194C and consequently, the disallowance made u/s 40(a)(ia). So far as the tobacco processing bills are concerned, again, it is found that the composite charges are paid, inclusive of t....