2016 (4) TMI 1234 - AT - Income Tax

Disallowance u/s 36(1)(iii) out of interest paid and the disallowance is in any case too excessive - Held that - The lower authorities have not properly considered the reply of the assessee and also the documentary evidence submitted by the assessee in support of its claim. It appears that the Assessing officer has completely ignored the relevant documents furnished by the assessee. Even, the first appellate authority has passed a cryptic order without considering the submissions made by the assessee in support of its claim. Thus we set aside the findings of the CIT(A) to the above extent and remand the matter to the Assessing officer with the direction to decide the limited issue concerning the loans and advances made to M/s Punjab Machinery Works P. Ltd, M/s Vicky Carriers and M/s Rajiv Kapoor Transport afresh, in accordance with law, after affording due and reasonable opportunity of being heard to the assessee.

Summary

Issues:
1. Disallowance of interest under section 36(1)(iii) on loans and advances.
2. Disallowance of interest on advances to related parties for non-business purposes.
3. Disallowance of interest on advances to transport companies.

Analysis:

Issue 1: Disallowance of interest under section 36(1)(iii) on loans and advances:
The appellant challenged the disallowance of ?1,010,167 under section 36(1)(iii) of the Income-tax Act, 1961. The Assessing Officer required details of loans and advances, questioning the interest disallowance. The appellant argued the amounts were paid for fabrication of LPG trucks and tanks for business purposes. The Tribunal found the amounts were trade advances and not subject to interest disallowance. The appellant provided documentary evidence supporting the business nature of the transactions, leading to the deletion of the disallowance.

Issue 2: Disallowance of interest on advances to related parties for non-business purposes:
The appellant had given loans and advances to related parties for various purposes. The Assessing Officer disallowed interest under section 36(1)(iii), claiming non-business purposes. The CIT(A) upheld the disallowance for certain parties, citing lack of business purpose. However, the Tribunal found the Assessing Officer and CIT(A) failed to consider the documentary evidence provided by the appellant. The matter was remanded to the Assessing Officer for a fresh decision after considering the evidence and providing a fair opportunity to the appellant.

Issue 3: Disallowance of interest on advances to transport companies:
The appellant had advanced significant amounts to transport companies for truck operations. The Assessing Officer disallowed interest under section 36(1)(iii) without proper consideration of the business nature of the advances. The CIT(A) upheld the disallowance, but the Tribunal found the authorities overlooked the appellant's submissions and evidence. The Tribunal set aside the CIT(A)'s decision, remanding the matter to the Assessing Officer for a proper review based on the appellant's claims and evidence.

In conclusion, the Tribunal allowed the appeal in part and remanded certain issues for fresh consideration. The judgment emphasized the importance of assessing loans and advances based on their business nature and providing a fair opportunity for the appellant to present evidence and arguments.