2021 (3) TMI 622 - AT - Income Tax

Disallowance under section 36(1)(iii) - assessee has extended interest free loan to its sister concern on the secured borrowings for which the assessee has debited interest - AO worked out proportionate interest to be disallowed under section 36(1)(iii) - HELD THAT - AO gone through the orders of authorities below. On perusal of the appellate order, we find that against the transaction of ₹ 2.99 crores, by considering and agreeing the reasoning of the AR of the assessee that the transaction arose out of a family settlement/partition and no such loan was never ever given by the assessee, the ld. CIT(A) decided the issue in favour of the assessee. While doing so, the ld. CIT(A) has not given an opportunity to the Assessing Officer for filing remand report on the materials/ documentation brought on record afresh, which were considered by the ld. CIT(A). Accordingly, we set aside the order of the ld. CIT(A) on this issue and remit the matter back to the file of the Assessing Officer to verify and decide the issue afresh in accordance with law after affording an opportunity of being heard to the assessee. Thus, the ground raised by the Revenue is allowed. Addition being LTCG short reported - Non verifying whether the conditions laid down in Proviso 1 and Proviso 2 to section 50C of the Act were satisfied or not by the assessee - CIT(A) deleted the addition by following various decisions - HELD THAT - Before us, by way of paper book, the assessee has filed copy of various decisions including the recent judgement in the case of CIT v. Vummudi Amarendran 2020 (10) TMI 517 - MADRAS HIGH COURT wherein held that amendment by insertion of proviso to section 50C(1) of the Act introduced with effect from 01.04.2017 which provides that where date of agreement, fixing amount of consideration and date of registration for transfer of capital assets are not same, value adopted or assessed or assessable by stamp valuation authority on date of agreement may be taken for purpose of computing full value of consideration for such transfer seeks to relieve the assessee from undue hardship and, thus, should be taken to be retrospectively effective. Assessing Officer is directed to examine the issue in line with the above judgement and decide the issue afresh in accordance with law after affording an opportunity of being heard to the assessee. Thus, the ground raised by the Revenue is allowed for statistical purposes.

Summary

Issues:
1. Disallowance of interest under section 36(1)(iii) of the Income Tax Act, 1961
2. Addition of LTCG short reported by the assessee

Analysis:

Issue 1: Disallowance of interest under section 36(1)(iii) of the Income Tax Act, 1961
The Revenue appealed against the deletion of disallowance of interest claimed under section 36(1)(iii) for the assessment year 2013-14. The Assessing Officer found that the assessee had extended an interest-free loan to its sister concern while debiting interest on secured borrowings. The ld. CIT(A) deleted the disallowance, stating that the transaction arose from a family settlement. The Tribunal noted that the ld. CIT(A) did not allow the Assessing Officer to verify the new evidence presented. Consequently, the Tribunal set aside the ld. CIT(A)'s order and remitted the matter to the Assessing Officer for further examination.

Issue 2: Addition of LTCG short reported by the assessee
The Revenue contested the deletion of the addition of LTCG reported by the assessee without verifying compliance with Proviso 1 and Proviso 2 to section 50C of the Act. The Assessing Officer determined the capital gains based on revised guideline values, as the sale deed was not registered. The ld. CIT(A) deleted the addition, citing various decisions, including one from the Hon'ble Jurisdictional High Court. The Tribunal directed the Assessing Officer to re-examine the issue in light of the High Court's decision and provide the assessee with an opportunity to be heard. The ground raised by the Revenue was allowed for statistical purposes.

In conclusion, the appeal filed by the Revenue was partly allowed for statistical purposes, with the Tribunal addressing the issues related to the disallowance of interest and the addition of LTCG reported by the assessee. The Tribunal emphasized the importance of following legal procedures and providing opportunities for verification and hearings in such matters.