2022 (2) TMI 224 - AT - Income Tax

Disallowing the interest paid on Loan - As argued AO has not recorded satisfaction with regard to genuineness of the transactions entered by the appellant and not provided an opportunity - HELD THAT - We note that the utilisation of the loan by assessee has not been verified by the authorities below. In the submission filed by assessee dated 03.08.2021, assessee has placed summary of payments made subsequent to the loan having waived. All these details along with the balance sheet from the year in which such loan was taken needs to be looked into before coming to such conclusion. CIT(A) has not called for any details to verify the contentions of the assessee. The entire disallowance is based on surmises and conjectures and therefore cannot be appreciated. We are therefore inclined to remand this issue to the Ld. CIT(A) to carry out necessary verification in respect of the details filed by assessee. The assessee is thus directed to file all the relevant documents in support of its contention and the utilisation of the loan amount. CIT(A) is directed to pass detailed order on merits in accordance with law. Needless to say that proper opportunity of being heard must be granted to assessee. Grounds raised by assessee stands allowed for statistical purposes

Summary

Issues:
1. Disallowance of interest paid on loan by the Income Tax Officer.
2. Lack of satisfaction recorded by the Assessing Officer regarding the genuineness of transactions.
3. Verification of bank statement disbursement of loan amount.
4. Alleged error by the Commissioner of Appeal both on facts and in law.
5. Examination of the utilization of loan amount post disbursement.
6. Opportunity for adding, deleting, or amending grounds of appeal.

Issue 1: Disallowance of Interest Paid on Loan
The assessee, engaged in retail trading of petroleum products, took a loan from Standard Chartered Bank. The Assessing Officer disallowed the interest paid on the loan, questioning its relevance to the business. The assessee claimed the loan was utilized for the business, but the AO added the interest amount to the assessee's income. The CIT(A) upheld the disallowance, stating the loan was diverted to a partnership firm, not the business of the assessee. The Tribunal noted the lack of verification by the authorities regarding the loan utilization. The matter was remanded to the CIT(A) for detailed verification and a fair opportunity for the assessee to present relevant documents.

Issue 2: Lack of Satisfaction Recorded by Assessing Officer
The appellant contended that the AO did not record satisfaction regarding the genuineness of transactions, depriving the assessee of an opportunity to provide necessary explanations. The Tribunal observed that the AO's decision lacked proper verification and was based on assumptions. The matter was remanded for a thorough examination and issuance of a detailed order by the CIT(A) in line with legal requirements.

Issue 3: Verification of Bank Statement Disbursement
One of the grounds of appeal was the alleged failure of the CIT(A) to verify the bank statement disbursement of the loan amount. The Tribunal acknowledged the need for detailed scrutiny of the loan utilization and directed the CIT(A) to conduct a thorough examination based on the documents provided by the assessee.

Issue 4: Alleged Error by Commissioner of Appeal
The appellant raised concerns about errors made by the Commissioner of Appeal both on facts and in law. The Tribunal noted the importance of a fair and thorough assessment, directing the CIT(A) to reevaluate the case with proper verification and a chance for the assessee to present supporting documents.

Issue 5: Examination of Loan Utilization Post Disbursement
The appellant highlighted the necessity for the Commissioner of Appeal to examine the utilization of the loan amount post disbursement. The Tribunal emphasized the need for a detailed verification process to determine the actual utilization of the loan, directing the CIT(A) to carry out a comprehensive assessment based on the documents provided by the assessee.

Issue 6: Opportunity for Amending Grounds of Appeal
The appellant reserved the right to add, delete, or amend the grounds of appeal during the hearing. The Tribunal acknowledged this reservation, allowing the appellant the flexibility to modify the grounds of appeal as necessary.

This comprehensive analysis of the judgment highlights the key issues raised, the arguments presented by the parties, and the Tribunal's decision to remand the case for further verification and a detailed order by the Commissioner of Appeal.