2020 (10) TMI 1114 - AT - Income Tax

Rectification application u/s 254 - Disallowance u/s 36(1)(iii) - As per assessee disallowance under Sec.36(1)(iii) of the interest expenditure of ₹ 3,53,06,301/-, as had been sustained by the Tribunal, was liable to be restricted only to the extent of ₹ 6,534/- - HELD THAT - Advancing of loans to third parties and overdrawing of the capital account of the partners could safely be related to the interest bearing loans or the bank overdrafts availed by the assessee. As regards the claim of the assessee that profit of ₹ 29.73 crores generated during the year under consideration was available with it to explain the source of the interest free advances given during the year under consideration, it was observed by the Tribunal that the said profits would only go to reduce the debit balances, overdrafts etc. In fact, it was observed by the Tribunal that a perusal of records revealed that the cumulative balance in the capital accounts of the partners on 31.03.2011 after crediting the profits of ₹ 29,73,91,730/- therein stood reflected at ₹ 14,62,65,453/- (dr.) Tribunal while upholding the disallowance u/s 36(1)(iii) of ₹ 3,53,06,301/-, had taken a conscious view in the backdrop of the facts available on record. Considering the claim raised by the assessee in its aforesaid application, we find ourselves to be in agreement with the contention advanced by the ld. D.R, that the assessee in the guise of the present application is in fact seeking a review of the order that was passed by the Tribunal while disposing off the appeal is beyond the powers vested with the Tribunal under subsection (2) of Sec.254. - Decided against assessee.

Summary

Issues:
Rectification of order under Sec.254(2) of the Act based on alleged mistake in disallowance of interest expenditure u/s 36(1)(iii).

Analysis:
The applicant sought rectification under Sec.254(2) of the Act regarding the disallowance of interest expenditure of ?3,53,06,301/- u/s 36(1)(iii) upheld by the Tribunal. The applicant claimed that only ?6,534/- should have been disallowed, citing the presence of sufficient interest-free funds. The applicant relied on the judgment in CIT Vs. M/s Reliance Industries Ltd., emphasizing that if an assessee has ample interest-free funds, investments are presumed to be made from such funds. The applicant argued that the Tribunal erred in upholding the disallowance, given the availability of interest-free funds.

The Departmental Representative contended that the Tribunal's order was free from mistakes, rejecting the applicant's request for a review under Sec.254(1) of the Act. Referring to the same judgment, the Departmental Representative highlighted that the applicant lacked interest-free funds during the relevant period, distinguishing the case from the precedent. Consequently, the Departmental Representative asserted that the application lacked merit and should be dismissed.

Upon review, the Tribunal found that the applicant's claim for rectification was an attempt to seek a review of the Tribunal's order, beyond the Tribunal's jurisdiction under Sec.254(2) of the Act. The Tribunal noted that the disallowance of ?3,53,06,301/- under Sec.36(1)(iii) was a conscious decision based on the factual matrix. Aligning with the Departmental Representative's argument, the Tribunal dismissed the applicant's claim, concluding that the order did not contain any apparent mistakes justifying rectification.

In conclusion, the Tribunal dismissed the applicant's rectification application, emphasizing that seeking a review of the order was beyond the Tribunal's jurisdiction under Sec.254(2) of the Act. The Tribunal upheld its decision on the disallowance of interest expenditure, citing a conscious view based on the available facts and rejecting the applicant's claim of a mistake in the order.