2012 (10) TMI 211 - AT - Income Tax

Non speaking order and non grant of sufficient opportunity of being heard - dispute regarding allowance of business expenditure - Held that - Perusal of the order shows that Assessing Officer has not applied his mind on any of the issues. The only reason assigned by the AO is that reply of the assessee is not acceptable, but why it is not acceptable is nowhere disclosed. It emerges out from the record that CIT(A) has called for certain information and assessee was in the process of collecting those information. It has filed adjournment application through registered post also because the first appellate authority refused to entertain them. Considering the assessment order being non speaking and non grant of sufficient opportunity of hearing demonstrated by the assessee in the adjournment application, it is held that end of justice would be met if issues are set aside to the file of CIT(A) for re-adjudication.

Summary

Issues:
1. Proper opportunity of hearing not allowed by CIT(A) and Assessing Officer.
2. Disallowance of business expenses.
3. Claim of interest expenses not allowed partly.

Issue 1: Proper opportunity of hearing not allowed by CIT(A) and Assessing Officer:
The appeal was filed against the order of the Ld CIT(A) for not allowing a proper reasonable opportunity of hearing. The Assessing Officer noted the claim of business expenses amounting to Rs. 12,14,379/- but disallowed it as there was no business activity during the relevant year. The written reply by the assessee was not considered, leading to the addition of the entire claimed amount. The Assessing Officer also disallowed interest expenses of Rs. 20,72,611/- as it was not related to the construction or acquisition of any house property. The Ld CIT(A) upheld these disallowances. The Tribunal found that the assessment order lacked detailed reasoning and the assessee was not given sufficient opportunity to present its case. Consequently, the Tribunal set aside the issues to the file of Ld CIT(A) for re-adjudication with proper hearing.

Issue 2: Disallowance of business expenses:
The Assessing Officer disallowed all business expenses claimed by the assessee, amounting to Rs. 12,14,379/-, as there was no business activity carried out during the relevant year. The assessee argued that the business was not ceased, but there was a lull in activity, and the expenses were necessary to maintain the corporate entity. The Ld CIT(A) upheld the disallowance, allowing only Rs. 1 lakh as an expenditure. However, the Tribunal found that the Assessing Officer did not provide a clear reason for disallowing the expenses and that the assessee was not given a proper opportunity to present its case. Therefore, the Tribunal set aside the issue for re-adjudication by the Ld CIT(A) with due opportunity of hearing.

Issue 3: Claim of interest expenses not allowed partly:
The assessee claimed interest expenses of Rs. 20,72,611/- partly against income from house property and partly under the head income from business and profession. The Assessing Officer disallowed this claim as the interest was not related to the construction or acquisition of any house property. The Ld CIT(A) rejected the claim due to lack of documentary evidence supporting the purpose of the loan. The Tribunal observed discrepancies in the records and the timing of loan transactions, indicating a lack of justification by the assessee. Consequently, the Tribunal allowed the appeal for statistical purposes and directed a re-adjudication of the issue by the Ld CIT(A) with proper opportunity of hearing.

This detailed analysis of the legal judgment highlights the issues involved, the arguments presented by the parties, and the decisions made by the authorities and the Tribunal.