M/S NM AGRO FOOD PRODUCTS PVT. LTD.,SRIGANGANAGAR vs. ACIT, CENTRAL CIRCLE-3, JAIPUR, JAIPUR

ITA 1552/JPR/2025Status: DisposedITAT Jaipur28 September 2026AY 2014-1512 pages
AI SummaryPartly Allowed

What were the facts?

The assessee, M/s NM Agro Food Products Pvt. Ltd., is appealing against the order of the CIT(A) for assessment year 2014-15. The AO had made four additions, three of which were confirmed by the CIT(A) and are now under appeal. These include a transfer pricing adjustment of Rs. 3,64,380 for interest paid to related parties, a disallowance of Rs. 2,92,363 under Section 14A, and a disallowance of interest expenses of Rs. 24,73,296 under Section 36(1)(iii). The assessee's return declared a total income of Rs. 50,31,660, while the AO assessed it at Rs. 82,62,500. The CIT(A) deleted one addition but confirmed the other three.

What did the Tribunal hold?

On the first issue concerning the transfer pricing adjustment, the Tribunal held that the CIT(A) erred in treating the appeal as infructuous based on an alleged agreement. The Tribunal noted that the assessee had contested the ALP before the TPO and filed an appeal disputing the addition. Furthermore, Section 92CA(4) mandates the AO to compute income in conformity with the TPO's determination, leaving no discretion. The Tribunal found that the TPO had not identified a comparable uncontrolled transaction and had constructed a notional rate by adding a premium to the bank's prime lending rate. The reliance on interest paid to other related parties as an 'internal CUP' was also deemed misplaced. The Tribunal decided the ground on merits, finding the disallowance to be unsubstantiated. On the second issue regarding Section 14A, the Tribunal held that a disallowance under Section 36(1)(iii) for interest-free advances can only be made if borrowed capital is shown to have been diverted. The Tribunal noted the assessee's substantial own funds exceeding the advances and its interest income exceeding expenditure. The AO had not identified any borrowing used for the advances, and the disallowance was a percentage of total interest without relation to advances or borrowings. Following precedents like Reliance Industries Ltd. (supra) and Hero Cycles (P.) Ltd. (supra), the Tribunal held that where own funds are sufficient, the onus is on the Revenue to prove diversion of borrowed funds, which was not done. The Tribunal directed the deletion of the disallowance of Rs. 24,73,296 under Section 36(1)(iii). The appeal was partly allowed.

What were the issues?

1. Whether the CIT(A) erred in confirming the disallowance of Rs. 3,64,380 in respect of interest paid to related parties by stating it was above the Arm's Length Price (ALP) and that the addition was agreed upon by the appellant, contrary to the assessee's contention that it contested the ALP before the TPO and never conceded the addition. This issue turns on the interpretation of Section 92CA(4) of the Income Tax Act, 1961, and the binding nature of TPO's determination. The assessee argued that the TPO constructed a notional rate, and its own uncontrolled borrowings demonstrated that the rates paid were within the ALP. The revenue contended that the assessee agreed to the addition and the TPO reasonably allowed a premium over the bank rate. 2. Whether the CIT(A) erred in confirming the disallowance of Rs. 2,92,363 under Section 14A of the Act, read with Rule 8D, due to alleged lack of evidence that interest-free funds were utilized for investments and no specific cash flow statement was submitted. The assessee argued that its own funds exceeded the investments and the AO had not established diversion of borrowed funds. The revenue relied on S.A. Builders Ltd. v. CIT (Appeals) [2007] 288 ITR 1 (SC) arguing that interest on borrowed funds advanced without interest is allowable only if it's a commercial expediency, which was not established. The assessee further argued that the disallowance was computed on a total interest figure that did not match the figure adopted by the AO for Section 14A.

Which sections of the Income-tax Act were involved?

Section 14A,Section 36(1)(iii),Section 92CA,Section 250,Section 143(3),Section 254(2B)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘B’ BENCH, JAIPUR

Before: Shri Kuldip Singh & Shri Prakash

PER : PRAKASH, ACCOUNTANT MEMBER:-

1.

This appeal by the Assessee is directed against the order of the learned Commissioner of Income Tax (Appeals) [hereinafter referred to as "the learned CIT(A)"], Jaipur-4, dated 26.09.2025 passed under section 250 of the Income Tax Act, 1961 (hereinafter referred to as "the Act"), arising out of the assessment order dated 29.12.2017 passed by the Assessing Officer (hereinafter referred to as "the AO") under section 143(3) of the Act for the assessment year 2014-15. 2. The grounds of appeal raised by the Assessee before us in the memorandum of appeal in Form No. 36 read as u

The order continues below.

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