TaxTMI 
TaxTMI 
2026 (7) TMI 496
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....Y. 2022-2023 on 02.11.2022 where under the assessee declared total loss of Rs. 20,38,94,424/-. Thereafter, case was selected for scrutiny assessment on the ground that the assessee has shown low net profit, interest expenditure is high, high ratio of TDS to refund, claim of large value refund, etc. Accordingly, notice was issued under Section 143(2) of the Act on 23.06.2023 as well as Section 142(1) of the Act. The assessee duly responded to all the notices issued by the Assessing Officer from time to time. Thereafter, during the course of assessment proceedings, various notices were issued under the provisions of Section 142(1) of the Act which were duly responded by the assessee. Finally, a Show Cause Notice dated 21.03.2024 was issued. In response assessee company could not file any reply because Finance Head of the assessee Company (Mr. Ravinder Kudiyal) was on leave during that time on account of his marriage on 02.03.2024. Thereafter, assessment was framed by adding following disallowance of expenditure/addition to the total income of the assessee : a. Addition of Rs. 6,16,29,807/- being the deemed interest income on interest free loan of Rs. 51,35,81,730/- given by ....
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....39; to be sustainable, there must be objective, cogent material showing that an income has accrued or that the assessee has realized an economic gain in the form of interest, or there is a statutory basis to treat the transaction as yielding income. In the present case: • The advances are proven by bank records and ledger entries in the books the assessee and of the subsidiary; the payments were used for accepting an asset (plot) and for project development expenses by the subsidiary. • The subsidiary did not make payments to the assessee in the nature of interest, nor has any interest income been reflected in the assessee's accounts for the year. • There is no material to show diversion or misappropriation of funds for personal use or non-business purposes by directors or related parties of the assessee. Commercial expediency and nexus: The documents show that the advances were in furtherance of the commercial plan of the assessee group to develop and operate IT Park-related infrastructure and that the subsidiary's activities were directly related to the assessee's business objectives. The funds were therefore deployed fo....
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....ecame imperative as a business expediency in view of undertaking given to financial institutions by assessee to effect that it would provide additional margin to subsidiary company to meet working capital for meeting any cash losses Insofar as loans to directors were concerned, said loans were granted out of assessee's own surplus funds -Whether in view of aforesaid, impugned order passed by High Court was to be set aside - Held, yes [In favour of assessee] Further, the Hon'ble HIGH COURT OF ALLAHABAD in the case of Hindalco Industries Co. vs. Commissioner of Income Tax, Allahabad reported at [2017] 88 taxmann.com 532 (Allahabad) has held as under: Section 36(1)(ii) of the Income-tax Act, 1961 - Interest on borrowed capital (Interest free loan) - Assessment year 1989-90 - Where for welfare and proper functioning of subsidiary companies, assessee in its wisdom decided to advance loan to them at lower rates of interest than that paid by it on borrowed funds, so that subsidiary companies might function properly and assessee being holding company would also be benefited, it could be said that loan advanced to sister companies was for commercial expediency and ....
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....ed to a business purpose or commercial expediency, was a 'personal' one, and a commercial entity can have no such personal purpose - Whether on facts, Tribunal was justified in allowing interest under section 36(1)(ii) Held, yes [Para 12] [In favour of assessee]" Further, the Ld. ITAT MUMBAI BENCH 'C' in the case of Deputy Commissioner of Income Tax, Circle 7(3)(2), Mumbai vs. Piramal Realty (P.) Ltd reported at [2018] 100 taxmann.com 294 (Mumbai - Trib.) has held as under: "Section 36(1)(iii) of the Income-tax Act, 1961 - Interest on borrowed capital (Interest free advances) Assessment year 2012-13 Assessing Officer disallowed a part of interest paid by assessee-company on its borrowed funds on ground that it had advanced an interest free loan to a company wherein assessee had 50 per cent of stake through its 100 per cent subsidiary company - Whether when clearly loan given by assessee was for purpose of assessee's business and was given according to its corporate strategy, and same was never contested by revenue, impugned disallowance of part of interest by Assessing Officer was unjustified - Held, yes [Paras 20 and 21] [In favour of assessee....
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....making ad-hoc disallowances of a lump-sum amount to cover various leakages of revenue appears to be made on the basis of presumptions rather than core evidence. Such a disallowance is in the nature of ad-hoc disallowance which is solely based on presumptions and surmises. The Hon'ble Supreme Court of India in the case of Omar Salay Mohamed Sait vs. Commissioner of Income-tax reported at [1959] 37 ITR 151 (SC)[05-03- 1959] held as under: "Section 254 of the Income-tax Act, 1961 - Appellate Tribunal - Order of - Assessment year 1948-49 - Whether Tribunal should not base its findings on suspicions, conjectures, or surmises nor should it act on evidence at all or on improper rejection of material and relevant evidence or partly on evidence and partly on suspicions, conjectures or surmises and if it does anything of that sort, its findings, even though on questions of fact, will be liable to be set aside by Supreme Court - Held, yes" Further, the Hon'ble Supreme Court in the case of Dhakeshwari Cotton Mills Ltd. vs. CIT reported at 26 ITR 775 held as under: "Section 143 of the Income-tax Act, 1961 [Corresponding to section 23(3) of the Indian ....
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....ny part of expenditure in question was either bogus or fictitious or same was not incurred by assessee wholly and exclusively for purpose of his business, ad-hoc disallowance of expenditure was not justified" Further, the Ld. ITAT Amritsar Bench in the case of Baba Farid Public Welfare Society vs. Income-tax Officer (Exemptions) reported at [2022] 145 taxmann.com 233 (Amritsar - Trib.) has held as under: "Where Assessing Officer made ad-hoc disallowance of 10 per cent of total expenses, as Assessing Officer had not specified specific lacuna related to disallowance of expenditure, disallowance so made was to be deleted" The submissions of the appellant were forwarded to the AO during remand proceedings but no comments were offered on the merits of the case. In view of above discussion and stated legal pronouncements, it is held that the AO has made the said additions on an ad-hoc basis which are liable to be deleted. Issue (3): Addition of Trade Payables under Section 68- Rs. 4,07,12,410/- Nature of claim: The assessee's books record trade payables totalling Rs. 4,07,12,410/ The AO has treated these balances as unexplained credits and....
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....wed. 4.2 Other Grounds of Appeal: Since the addition has been deleted on merits of the case, other grounds of appeal become academic in nature, no specific adjudication is required in these grounds. In the result, the appeal is allowed." "Decision : I have carefully considered the facts of the case as well as submission of the appellant and gone through the observation and findings of the AO .The contention of the appellant on this ground is acceptable in as much as it is observed from the assessment orders vis - vis above remand report that main reason of making disallowance of sundry creditors being on account of non- furnishing of proofs in relation to identity genuineness and creditworthiness of the creditors claimed by the Appellant Company during the FY 2015-16, have been verified by the AO in remand proceeding and neither any negative observation nor any adverse remark in relation to transaction in respect of trade creditors has been marked by the Assessing Officer (AO) in the remand report. In view of that considering the entire conspectus of the case I am of opinion that the appellant is able to establish beyond doubt with corroborating ....