2014 (4) TMI 116 - AT - Income Tax

Quantum of Disallowance - Disallowance of interest payments Held that - in absence of any appearance on behalf of assessee, unable to ascertain correctness of working of learned Departmental Representative - Set aside impugned order of CIT(A), and restore matter to file of Assessing Officer, with direction to re-determine issue afresh - He shall afford reasonable opportunity of hearing to assessee, and re-determine quantum of disallowance, if any warranted, in accordance with law Decided partly in favour of Revenue.

Summary

Issues: Disallowance of interest payments made by the Assessing Officer

Analysis:
1. The appeal by the Revenue was against the order of the Commissioner of Income-tax(Appeals) for the assessment year 2006-07, specifically regarding the disallowance of interest payments made by the Assessing Officer, which was deleted by the CIT(A).

2. The Assessing Officer noted additions to fixed assets by the assessee and charged interest on these additions from April 2005 to November 2005, amounting to Rs.73,08,430. The interest claimed as revenue expenditure, Rs.60,82,006, was disallowed by the Assessing Officer. However, the CIT(A) found the explanation of the assessee acceptable, considering the funding pattern of the project and the sources of funds used for modernization and expansion. The CIT(A) observed that the Assessing Officer erred in presuming the total project was funded only by term loans, whereas it was partly funded by Term Loans, External Commercial Borrowings (ECBs), and internal accruals.

3. The Departmental Representative submitted that the Assessing Officer erroneously considered only term loans for interest calculation, while the assessee argued that ECBs should not be included. The Departmental Representative suggested that only Rs.17,74,000 should have been disallowed instead of the Rs.60,82,006 disallowed by the Assessing Officer.

4. As the assessee did not appear, the ITAT set aside the CIT(A) order and directed the Assessing Officer to redetermine the issue of disallowance. The Assessing Officer was instructed to reevaluate the quantum of disallowance, afford a reasonable opportunity of hearing to the assessee, and make a decision based on all relevant aspects and evidence presented by the assessee.

5. Ultimately, the Revenue's appeal was partly allowed for statistical purposes, with the order pronounced on 24.10.2013.