2015 (4) TMI 789 - AT - Income Tax

Dis-allowance of Interest on loan - Remand report submitted by AO - Undisclosed income - Best judgement assessment, notice not served due to change in address of assessee - Held that - So far as disallowance of interest is concerned, it is seen that AO has verified the loan confirmation and the copy of TDS certificate deducted on such a payment. Even the capacity of the lenders has also been accepted. Thus, there is no reason for confirming the disallowance of interest payment made by the assessee to the loan creditors from whom loans were taken in earlier years. Regarding ad hoc disallowance on account of expenses, it is seen that in the remand report the assessing officer has not given any adverse comment with regard to the genuineness of the expenses or has given any adverse comment that they are unverifiable. He has simply stated that it is not clear as to, from where the figure of ₹ 5,11,926/- has been taken by the AO in the original assessment order, when the assessee has debited the amount in the P/L account at ₹ 7,16,723/-. In the absence of any adverse comment with regard to un-verifiability of expenses, we do not find any reason to sustain any part of the disallowance on ad hoc basis. Thus, the finding of the Ld. CIT(A) which is completely based on remand report of the AO is upheld. Accordingly, the ground raised by the department stands dismissed. we find that in the P/L Account under the head indirect income , amount of loans received of ₹ 45,387/- has duly been credited. Such a payment received is also corroborated by confirmation of account by M/s. S.A. Jewells Mumbai and Jayant I. Jain, wherein details of interest received and also the TDS deducted on such loans has been given. Thus, in wake of these evidences, it cannot be held that interest income shown by the assessee is unexplained income. Accordingly, the assessee's ground no. 3 is allowed.In the result the Cross Objection filed by the Assessee is partly allowed.

Issues Involved:
1. Non-consideration of AO's remand report on addition of 20% of Rs. 5,11,926/- on account of expenses.
2. Disallowance of Rs. 22,00,234/- on account of interest due to lack of verification/examination of loan transactions.
3. Request to restore the CIT(A) order to AO for verification as the order was passed u/s 144.
4. Addition of Rs. 45,387/- on account of un-reconciled interest.
5. Initiation of penalty proceedings u/s 271(1)(c).
6. Levy of interest u/s 234B and 234C.

Detailed Analysis:

1. Non-consideration of AO's Remand Report on Addition of 20% of Rs. 5,11,926/- on Account of Expenses:
The Revenue challenged the CIT(A)'s decision for not considering the AO's remand report regarding the addition of 20% of Rs. 5,11,926/- on account of expenses. The AO had not specified the individual components forming the total of Rs. 5,11,926/-. The assessee provided a summary and ledger accounts pertaining to an amount of Rs. 7,16,723/- debited to the P&L account. The AO's remand report did not provide any adverse comments regarding the genuineness or verifiability of the expenses. Consequently, the CIT(A) upheld the assessee's contention, and the ITAT found no reason to sustain any part of the disallowance on an ad hoc basis.

2. Disallowance of Rs. 22,00,234/- on Account of Interest Due to Lack of Verification/Examination of Loan Transactions:
The Revenue contended that the CIT(A) erred by not directing a verification/examination of the assessee's claim of loans, leading to a disallowance of Rs. 22,00,234/- on account of interest. The assessee provided loan confirmations and TDS certificates during the appellate proceedings. The AO, in the remand report, verified the loan confirmations and TDS certificates, concluding that the genuineness of the transactions could not be doubted. The ITAT upheld the CIT(A)'s decision, noting that the AO had accepted the genuineness of the loans and the interest paid thereon.

3. Request to Restore CIT(A) Order to AO for Verification as the Order was Passed u/s 144:
The Revenue requested that the CIT(A) order be restored to the AO for verification, as the original assessment was completed u/s 144 due to non-compliance by the assessee. The ITAT noted that the CIT(A) had already remanded the matter to the AO, who verified the details and provided a remand report. The ITAT found no reason to restore the order to the AO for further verification, as the AO had already scrutinized the details and accepted the assessee's explanations.

4. Addition of Rs. 45,387/- on Account of Un-reconciled Interest:
The assessee contested the addition of Rs. 45,387/- on account of un-reconciled interest. The assessee provided the P&L account and confirmation of accounts from two parties, showing that the amount of Rs. 45,387/- was duly credited as indirect income. The ITAT found that the interest income was corroborated by the confirmation of accounts and TDS details, concluding that the interest income was not unexplained. Thus, the assessee's ground was allowed.

5. Initiation of Penalty Proceedings u/s 271(1)(c):
The assessee challenged the initiation of penalty proceedings u/s 271(1)(c). The ITAT deemed this ground premature and dismissed it.

6. Levy of Interest u/s 234B and 234C:
The assessee contested the levy of interest u/s 234B and 234C. The ITAT noted that this issue was consequential in nature and dismissed the ground.

Conclusion:
The ITAT dismissed the Revenue's appeal and partly allowed the assessee's cross-objection. The CIT(A)'s order, based on the AO's remand report, was upheld, and the addition of Rs. 45,387/- on account of un-reconciled interest was deleted. The initiation of penalty proceedings and the levy of interest were dismissed as premature and consequential, respectively.

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