2017 (5) TMI 1095 - AT - Income Tax

Loans to Director out of interest bearing funds raised by the assessee - admission of additional evidence - Held that - Before learned CIT(A) the assessee made submissions that interest is paid on term loans which were raised in financial year 2007-08 for purchase of premises and equipments and it is not possible to grant loans to Director during the relevant previous year out of interest bearing funds raised by the assessee as the interest bearing funds raised by the assessee stood utilized during the financial year 2007-08 itself. It was also submitted by the assessee before learned CIT(A) that interest bearing working capital loan raised by the assessee from bank were utilized for business of the assessee which could be verified from the Balance Sheet of the assessee. CIT(A) instead of adjudicating the said contentions raised by the assessee rejected the contentions of the assessee on threshold on the grounds that such arguments were not raised by the assessee before the AO. The learned CIT(A) committed an error in not considering the said contentions of the assessee on merits. The learned CIT(A) powers are co-terminus with powers of the AO . The learned CIT(A) should have forwarded the additional evidences to learned AO for seeking remand report as mandated u/r 46A of 1962 Rules for necessary examination, enquiry and verification by the AO of these additional evidences. Thus, we are inclined to set aside and restore this issue to the file of the AO for de-novo determination of the issue on merits in accordance with law.

Summary

Issues:
1. Condonation of delay in filing the appeal before the tribunal.
2. Disallowance of interest paid to the bank on term loan and working capital.
3. Rejection of explanations and evidences by the CIT(A) on the grounds that they were not raised before the AO.

Issue 1 - Condonation of Delay:
The appeal was filed late by 28 days, beyond the time prescribed under section 253(3) of the Income-tax Act, 1961. The assessee submitted an application for condonation of delay, citing the ill health of the person responsible for filing the appeal. The Tribunal, after considering the reasons provided, supported by an affidavit, and finding no mala-fide intent or negligence, decided to condone the delay and proceed with the appeal on merits.

Issue 2 - Disallowance of Interest:
The AO disallowed interest paid to the bank on term loan and working capital, alleging that interest-free loans were advanced to the director from borrowed funds. The assessee contended that the advances were in the form of loans/advances to the director for property purchase, not interest-free loans. The CIT(A) upheld the addition, stating that the arguments were not raised before the AO. The Tribunal found the rejection of contentions by the CIT(A) erroneous, as the powers of the CIT(A) are co-terminus with those of the AO. The issue was restored to the AO for de-novo determination on merits.

Issue 3 - Rejection of Explanations and Evidences:
The CIT(A) rejected the explanations and evidences provided by the assessee, stating they were not raised before the AO. The Tribunal held that the CIT(A) should have considered the submissions and, if necessary, remanded them to the AO for examination. As the CIT(A) did not provide reasons for non-consideration, the issue was set aside and restored to the AO for proper determination in accordance with the law.

In conclusion, the appeal was allowed for statistical purposes, and the issues of delay condonation, disallowance of interest, and rejection of explanations and evidences were addressed in detail, ensuring fair play and adherence to legal procedures.