2020 (11) TMI 259 - AT - Income Tax

Addition of interest finance expenses u/s 36(1)(iii) - loan advanced and availed of by the assessee company to and from its sister concern - as submitted assessee company has taken the loan from the sister concern at the low rate of 12.60% and 13.50% whereas charged the interest on the loan given to the sister concern @ 14% - HELD THAT - Case of the assessee company has not been examined in entirety. Though ld.CIT (A) has admitted the additional evidence but the same has also not been discussed as to how the same is of no support to the assessee company. Both AO as well as ld. CIT (A) have made ad hoc disallowance on the reason that the bank statement has not been furnished by the assessee company to prove the utilization of the loan on which interest has been paid for the purpose of its business. Even it is difficult to make out the nature of the additional evidence, presumably entertained by CIT (A) for the reason that it is necessary for deciding the issue, from the impugned order. Entire findings returned by CIT (A) confirming the addition are bereft of plausible reasoning. To enhance the cause of justice, the issue is required to be factually examined in entirety by the AO by examining audited financials of the assessee company and keeping in view the fact that this is a case of loan advanced and availed of by the assessee company to and from its sister concern and during the year under assessment, its turnover has gone up to ₹ 23.41 crores from ₹ 9.92 crores. AO shall provide opportunity of being heard to the assessee company to prove utilization of the loan in question from its evidence as well as from the bank statements. Appeal filed by the assessee is allowed for statistical purposes.

Summary

Issues:
Challenging addition of interest and finance expenses under section 36(1)(iii) of the Income Tax Act for Assessment Year 2011-12.

Analysis:
1. The appellant, a company, contested the addition of ?29,23,804 as 15% of the interest expenses debited to the profit & loss account under section 36(1)(iii) of the Income-tax Act. The contention was based on the lack of detailed information provided by the appellant regarding the utilization of interest and financial expenses for business purposes, resulting in the assessment of ?251,93,905 by the Assessing Officer.

2. The appellant approached the Commissioner of Income-tax (Appeals) who partially allowed the appeal but upheld the addition made by the Assessing Officer. The appellant, dissatisfied with this decision, further appealed to the Tribunal.

3. During the proceedings, the authorized representatives of both parties presented their arguments. The appellant's representative highlighted the lack of opportunity given by the Assessing Officer for proper representation, along with inconsistencies in the treatment of interest rates and turnover details. The appellant argued that the addition was made without proper examination of audited financials and past assessments.

4. On the contrary, the Revenue's representative argued that sufficient opportunities were provided to the appellant and challenged the applicability of the rule of consistency in this case.

5. The Tribunal noted that the Assessing Officer had made an ad hoc disallowance based on guesswork due to the appellant's non-appearance, without adequately considering the evidence provided. The Tribunal observed discrepancies in the treatment of interest payments and receipts, emphasizing the need for a thorough examination of the appellant's financial records.

6. In light of the above, the Tribunal concluded that the case required a detailed factual examination by the Assessing Officer. The Tribunal directed the Assessing Officer to reevaluate the case, considering the audited financial statements and the nature of the loan transactions with the sister concern. The Tribunal emphasized the importance of providing the appellant with a fair opportunity to present evidence, including bank statements, to support the utilization of the loan for business purposes.

7. Consequently, the Tribunal allowed the appeal for statistical purposes and remitted the case back to the Assessing Officer for a fresh decision after affording the appellant a proper opportunity to be heard.

This detailed analysis highlights the key arguments, observations, and the Tribunal's decision regarding the challenged addition of interest and finance expenses under section 36(1)(iii) of the Income Tax Act for the relevant assessment year.