2019 (7) TMI 1972 - AT - Income Tax

Disallowance of proportionate interest on borrowed funds @ 12% - assessee has not been able to establish that the funds were transferred to its sister company for the purpose of business - as per AO assessee is taking two different stands i.e. initially it was stated that the advance was given for the purpose of construction of a hospital and subsequently, it was stated that the advance was given with an intention to acquire shares in demerged company - HELD THAT - On perusal of MoU between the assessee and USAIPL, we find that there is a clause that the assessee shall acquire the shares of the demerged company. Assessee stated that the assessee could not acquire the equity shares initially because at that point of time the demerger of the said company has not yet taken place and on demerger, assessee had acquired the shares of the company, for which, he filed copies of the documents showing shareholding of the Kamineni Health Services Pvt. Ltd. We find that the documents filed before us by the assessee, as additional evidence, go to the root of the matter and in the interest of justice, we admit the same and remit the issue to the file of the AO for de-novo consideration. Needless to say that the assessee shall be given fair opportunity of hearing in the matter. Appeal of the assessee is treated as allowed for statistical purposes.

Summary

Issues:
1. Disallowance of finance cost on interest-free advance to a sister company.
2. Acceptance of additional evidence by the Appellate Tribunal.

Issue 1: Disallowance of Finance Cost:
The appeal pertains to the Assessment Year 2012-13 where the assessee, a healthcare company, filed its return showing a loss under normal provisions and book profits under section 115JB. The Assessing Officer (AO) noted an interest-free advance of Rs. 6,03,39,031/- to a sister company, along with significant financial charges on borrowed funds. The AO questioned the prudence of providing interest-free advances considering the financial burden. The assessee explained the advance was for constructing a super speciality hospital and acquiring equity in the demerged company. However, the AO disallowed a proportionate interest on borrowed funds, citing inconsistency in the purpose of the advance. The CIT(A) upheld the AO's decision. The Appellate Tribunal, after considering additional evidence, found relevant documents supporting the purpose of the advance. Consequently, the Tribunal admitted the additional evidence and remitted the issue back to the AO for fresh consideration, ensuring a fair hearing for the assessee.

Issue 2: Acceptance of Additional Evidence:
During the appeal before the Appellate Tribunal, the assessee submitted additional evidence including a Memorandum of Understanding (MoU) with the sister company and financial statements. The Departmental Representative opposed the admission of this evidence. The Tribunal, after hearing both parties, acknowledged the crucial nature of the documents to establish the purpose of the advance. The Tribunal noted the clause in the MoU regarding acquiring shares of the demerged company, supporting the assessee's contention. Considering the importance of the additional evidence in clarifying the purpose of the advance, the Tribunal admitted the documents and directed a fresh assessment by the AO. This decision underscores the Tribunal's commitment to ensuring a just and thorough examination of the case, providing the assessee with a fair opportunity to present its case effectively.

In conclusion, the Appellate Tribunal's judgment in this case highlights the significance of substantiating claims with relevant documentation and the importance of a fair and thorough assessment process. The decision to admit additional evidence and remit the issue for fresh consideration demonstrates the Tribunal's commitment to upholding justice and ensuring a comprehensive review of the facts presented during the appeal process.