Whether allowance of expenses on proportionate basis in relation to commercial production at one of units can be said to be perverse if such allowance is based on finding of facts by CIT(A) as well as ITAT - NO: HC

THE issue is - Whether allowance of expenses on proportionate basis in relation to commercial production at one of units can be said to be perverse if such allowance is based on finding of facts by CIT(A) as well as ITAT. NO is the answer.

Facts of the case

The assessee had filed its return declaring loss of Rs. 12,58,75,530/- which was later revised to Rs. 12,54,22,870/-. The assessee subsequently filed second revised return declaring loss of Rs. 12,21,73,800/- and third revised return declaring loss of Rs.12,10,86,890/-. Consequently, assessment u/s 143(3) was completed at total income of Rs. 1,35,75,290/-. The AO inter alia held that the commercial production in the MDF Division, Tohana had not started within the period relevant to the A.Y and, therefore, all expenses claimed under this division were disallowed. The proportionate expenses for two days debited under various heads in respect of this division were also capitalized. Accordingly, an amount of Rs. 11,61,00,407/- was disallowed on account of depreciation of MDF Division, Tohana and Rs. 1,13,53,888/- on account of expenses related to MDF Division, Tohana. Besides, an amount of Rs. 11,93,328/- was disallowed on account of interest free loans to persons specified u/s 40A(2)(b). On appeal, the CIT(A) accepted the assessee's appeal in part.

Having heard the parties, the High Court held that,

Expenses on proportionate basis

++ it is seen that the CIT(A) accepted the assessee's appeal and directed the AO to allow depreciation and also allow the expenses on proportionate basis for the period from January 1992 to March 1992 and also actual expenses of two days after holding that the production was started on 30.3.1992 in the MDF Division. The Tribunal concurred with the findings recorded by the CIT(A). Nothing could be shown by counsel for the revenue that the concurrent finding of fact recorded by CIT(A) and the Tribunal that commercial production was started in MDF Division, Tohana on 30.3.1992 was erroneous or perverse. It is a pure finding of fact based on appreciation of material and evidence on record in which no perversity could be shown by counsel for the revenue;

Interest free loans

++ as regards the question qua addition on account of interest on interest free loans to sister concern or persons covered u/s 40A(2),it may be noticed that the AO added Rs. 11,93,328/- as notional interest on interest free advances given by the assessee. The assessee contended on appeal before the CIT(A) that the loans were taken in the earlier years and thus they could not be said to have been diverted for non business purposes during the present year and no notional interest could be added. The CIT(A) upheld the addition to the extent of Rs. 6,94,132/- and allowed relief of Rs. 4,99,196/- on account of interest free loans given to M/s Southern Synthetics Limited. Further, the ITAT deleted the interest disallowance referable to the amount advanced to Novica investments since no nexus between the borrowed funds and the amounts advanced to the above said concern without interest was proved by the department. However, in the absence of any evidence on behalf of the assessee, the disallowance in respect of the other four concerns was sustained. Nothing could be pointed out that the aforesaid finding of fact recorded by the CIT(A) and the Tribunal was erroneous or perverse in any manner.