2017 (5) TMI 907 - AT - Income Tax

Revision u/s 263 - Addition invoking the provisions of section 40(a)(ia) - Held that - Since the assessee did not furnish any details with regard to interest paid to the creditors, the Assessing Officer was directed to obtain the details and to examine afresh at the time of giving effect to this order and disallow proportionate interest which is attributable to the acquisition of capital assets . As rightly pointed out by the assessee wherever the Revisional Authority thought fit to set aside the matter in toto or with a specific direction to examine the applicability of section 40(a)(ia) such direction was given in the very same order whereas, with regard to interest paid to the creditors, there is a specific direction to disallow proportionate interest which is attributable to the acquisition of capital assets. In other words, the Assessing Officer s duty ends the moment analysis is made with regard to attribution of interest as to whether it is for acquisition of capital asset or a revenue expenditure. While giving effect to the order, the Assessing Officer however, did not consider the issue as to whether it was capital or revenue expenditure. Since the specific direction of the ld. Commissioner was not followed by the Assessing Officer, the order of the ld. CIT(A) as well as Assessing Officer deserves to be set aside on this limited issue with a direction to the Assessing Officer to examine the nature of the expenditure and to disallow proportionate capital expenditure, in line with the direction given by the Revisional Authority. - Appeal filed by the assessee is partly allowed.

Issues:
1. Addition under section 40(a)(ia) of the Act.
2. Claim of deduction of interest paid to loan creditors.
3. Invocation of provisions of section 40(a)(ia) of the Act by the Assessing Officer.
4. Scope of directions issued by the ld. Commissioner under section 263 of the Act.

Analysis:

Issue 1: Addition under section 40(a)(ia) of the Act
The appeal pertains to the addition of ?28,20,707 made by the Assessing Officer under section 40(a)(ia) of the Act. The ld. CIT(A) observed that the assessment was set aside under section 263 of the Act due to the failure of the Assessing Officer to make certain inquiries, including the applicability of TDS provisions on interest payments. The Assessing Officer disallowed the interest expenditure paid without TDS deduction under section 40(a)(ia) of the Act. The assessee contended that the Assessing Officer exceeded the scope of the direction given by the ld. Commissioner. However, the ld. CIT(A) held that the Assessing Officer was competent to revise the assessment as suggested by the ld. Commissioner, including the applicability of TDS provisions and disallowance under section 40(a)(ia) of the Act.

Issue 2: Claim of deduction of interest paid to loan creditors
The assessee claimed a deduction of ?52,28,927 as interest paid to loan creditors, stating that the loans were taken for business purposes. The ld. Commissioner directed the Assessing Officer to obtain details and examine the matter afresh to disallow proportionate interest attributable to the acquisition of capital assets. The Assessing Officer found that interest paid over the threshold limit without TDS deduction was ?28,20,717 and disallowed it under section 40(a)(ia) of the Act. The Tribunal noted that the Assessing Officer did not consider whether the expenditure was capital or revenue in nature as directed by the ld. Commissioner. Consequently, the Tribunal set aside the issue to the file of the Assessing Officer for proper examination of the nature of the expenditure and disallowance of proportionate capital expenditure in accordance with the direction of the Revisional Authority.

Issue 3: Invocation of provisions of section 40(a)(ia) of the Act by the Assessing Officer
The Assessing Officer invoked the provisions of section 40(a)(ia) of the Act for disallowing interest expenditure paid without TDS deduction over the threshold limit. The assessee argued that the Assessing Officer exceeded the scope of the ld. Commissioner's direction under section 263 of the Act. However, the ld. CIT(A) held that the Assessing Officer was justified in revising the assessment as per the directions given, including the applicability of TDS provisions and disallowance under section 40(a)(ia) of the Act.

Issue 4: Scope of directions issued by the ld. Commissioner under section 263 of the Act
The Tribunal analyzed the directions issued by the ld. Commissioner under section 263 of the Act regarding the examination of interest paid to loan creditors. It was observed that the Assessing Officer failed to follow the specific direction to determine whether the expenditure was capital or revenue in nature. Therefore, the Tribunal set aside the orders of the ld. CIT(A) and the Assessing Officer on this limited issue and directed the Assessing Officer to re-examine the nature of the expenditure and disallow proportionate capital expenditure in line with the direction of the Revisional Authority.

In conclusion, the appeal was partly allowed by the Tribunal based on the issues discussed and the directions provided for re-examination by the Assessing Officer.

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