SHRI GULSHAN BATHLA,SONEPAT vs. JCIT, SONEPAT

PDF · subscribers
ITA 4100/DEL/2013Status: DisposedITAT Delhi19 August 2016AY 2009-105 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held that interest paid on borrowings for business purposes is allowable if established under Section 36(1)(iii). Regarding ad-hoc disallowances, the Tribunal found that while some disallowance was justified due to potential personal use, the percentage could be reduced.

What were the facts?

The assessee claimed deduction for bank interest and incurred various expenses like advertisement, courier, and telephone. The Assessing Officer (AO) disallowed bank interest and made an ad-hoc disallowance on other expenses. The CIT(A) upheld these disallowances.

What were the issues?

Whether interest paid on borrowings for business purposes is deductible and the justification for ad-hoc disallowances on various expenses.

Which sections of the Income-tax Act were involved?

Section 36(1)(iii)

AI-generated summary — verify with the full judgment below

Cases cited in this judgment(3)Show list

Detected automatically from the text. Citations are also linked where they appear in the judgment. The count shows how many other judgments on BharatTax rely on the same authority.

Income Tax Appellate Tribunal, DELHI BENCH: ‘C’: NEW DELHI

Before: SHRI S.V. MEHROTRA, & SHRI CHANDRA MOHAN GARG

For Appellant: Shri K. Sampath & Rajkumar, Advs
Hearing: 27.07.2016

PER CHANDRA MOHAN GARG, JUDICIAL MEMBER

1.

This appeal filed by the assessee is directed against the order of the CIT(A), Rohtak, dated 02/05/2013 for A.Y 2009-10 passed in first appeal No. 548/SPT/2011-12.

2.

The grounds raised by the assessee read as follows :

“On the facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in confirming the following actions of the A.O:

1. disallowing the bank interest to the tune of Rs. 8,09,711/-

2. making 15% adhoc disallowance out of advertisement, courier charges, miscellaneous expenses, printing and stationery, repair and maintenance, sales promotion, workshop expenses, telephone and car running expenses.

Ground No 1

3.

Apropos Ground No. 1, the ld. AR of the assessee contended that the CIT(A), for upholding the impugned addition by disallowing bank interest to the tune of Rs. 8,09,711/- has relied on the decision of the CIT(A) Vs. Abhishek Industries Ltd [2006\ 156 Taxman 257 [P & H] which is not a good law. To this proposition, the ld. AR has placed reliance on the decision of Hon'ble Supreme Court in the case of Munjal Sales Corporation Vs. CIT 298 ITR 298 [SC] and decision of the Hon'ble Punjab High Court in the case of Gurdas Garg Vs. CIT [2015] 63 Taxman.com 289 [P&H]. The ld. AR also submitted that the CIT(A) for A.Y 2011-12 has allowed similar claim of the assessee having similar set of facts and circumstances.

4.

Per contra, the ld. DR of the Revenue supported the action of the AO and contended that no material was brought on record to show that the said interest free loans/advances have been given for business purposes. Thus, the CIT(A) was correct in upholding the addition. 2

5.

On careful consideration of the above, we are of the view that on careful perusal of the Hon'ble Supreme Court order in the case of Munjal Sales [supra], we observe that after referring to the decision of Hon'ble Punjab and Haryana High Court in the case of Abhishek Industries [supra], it was held that interest paid on borrowings can be allowed a deduction in computing the business profits and every assessee, including a firm, ha to establish, in the first instances, that it was allowable u/s 36(1)(iii) of the Income-tax Act, 1961 [hereinafter referred to as 'the Act'].

6.

In the present case, as per balance sheet, the facts, as noted by the CIT(A) in para 4 of the impugned order, clearly reveals that as on 31.3.2009, the capital was 11.15 lakhs and interest free unsecured loans were 112.49 lakhs totalling to Rs. 123.64 lakhs. The amount of interest free loans/advances given by the assessee to the sister concern/persons were Rs. 94.53 lakhs which is fully covered by the capital and interest free loans/advances taken by the assessee thus interest paid by the assessee, on the interest bearing loans, taken for the purpose of business of the assessee cannot be disallowed. This claim has been allowed by the CIT(A) for A.Y 2011-12 order dated 30.12.2015. Hence, we are inclined to hold that the issue and contentions of the assessee gets strong support from the decision of the Hon'ble Supreme Court in the case of Munjal Sales Corporation and we allow the same and the AO is directed to delete the disallowance. Accordingly, Ground No. 1 of the assessee is allowed.

Ground No. 2.

7.

Apropos Ground No. 2, the ld. AR contended that the AO was not correct in making adhoc disallowance of 15% out of advertisements, courier charges, miscellaneous expenses, printing of stationery, repair and maintenance, sales promotion, workshop expenses, telephone and car running expenses, as the assessee placed all the relevant bills and vouchers to support these claims and there was no element of personal use.

Alternatively, the ld. AR submitted that if all the adhoc disallowance has to be made, then it may kindly be reduced to 10% of the total claim.

8.

The ld. DR, on the other hand, supported the impugned order. However, he fairly submitted that the Revenue has no objection if it is found just and proper to reduce the percentage of disallowance. From the above submissions, we are of the view that the assessee could not satisfy us about the possibility of element of personal use. Thus the alternative plea of the assessee also not objected by the ld. DR is accepted and the AO is directed to reduce and restrict the estimated disallowance @ 10% of total impugned claim of the assessee. Accordingly, Ground No. 2 of the assessee is partly allowed as indicated above.

9.

In the result, the appeal of the assessee stands partly allowed as indicated above.

The order is pronounced in the open court on 19.08.2016.

More judgments on Section 36(1)(iii)

All 3,665 judgments and leading authorities on Section 36(1)(iii) →

Recent GST High Court judgments

Search GST case law →