2022 (7) TMI 473 - AT - Income Tax

Disallowance u/s 36(1)(iii) - loans are for capital purposes - Denial of natural justice - Admission of additional evidence - As per AR AO did not appreciate that the assessee had total interest free fund which exceeded the amount of loan granted and the disallowance made by the AO u/s 36(1)(iii) - HELD THAT - We note that the AO has disallowed u/s 36(1)(iii) of the Act which according to the assessee was made without appreciating the relevant facts which could not be provided to the AO, since assessee didn t get proper opportunity before AO. Thereafter the assessee had to file additional evidence before the Ld. CIT(A)/explaining its claim. After going through the aforesaid facts we are of the opinion that the assessee did not get proper opportunity before the AO. Since we have found in the present case that no reasonable opportunity the assessee got before the AO, we relying on the aforesaid decision of in the case of Tin Box Company ( 2001 (2) TMI 13 - SUPREME COURT set aside the impugned order of the Ld. CIT(A) and remand the issue back to the file of the AO and direct the AO to frame the assessment de--novo on the same after hearing the assessee in accordance to law. Appeal of the assessee is allowed for statistical purposes.

Summary

Issues:
Appeal against order of Commissioner of Income Tax (Appeals) for assessment year 2012-13 - Proper opportunity not given to assessee by First Appellate Authority (NFAC) and Assessing Officer (AO) - Disallowance of interest under section 36(1)(iii) of the Income Tax Act, 1961 - Request for remand back to AO for fresh assessment.

Analysis:
The appeal was filed by the assessee against the order of the Commissioner of Income Tax (Appeals) for the assessment year 2012-13, alleging that the First Appellate Authority (NFAC) passed the order without providing a proper opportunity to the assessee. The assessee contended that all required documents were submitted to the Commissioner of Income Tax (Appeals) and additional evidence was also filed, but the appeal was decided without considering any of the documents. The Assessing Officer (AO) disallowed interest under section 36(1)(iii) of the Income Tax Act, 1961, stating that the loans were for capital purposes. The assessee argued that the disallowance was unwarranted as the total interest-free funds exceeded the loan amount granted, and the AO did not correctly calculate the finance charges. The assessee requested a remand back to the AO for a fresh assessment on this issue.

The Departmental Representative (DR) acknowledged the facts presented by the assessee and suggested that the issue be remitted back to the AO for a de novo assessment, considering the reasonable cause for not presenting certain evidence before the AO and the alleged mistakes pointed out by the assessee.

After hearing both parties and examining the records, the Appellate Tribunal noted that the AO had disallowed a significant amount under section 36(1)(iii) without appreciating relevant facts that were not provided due to the lack of proper opportunity for the assessee. The Tribunal, relying on a decision of the Hon'ble Supreme Court in a similar matter, emphasized the importance of providing a reasonable opportunity for the assessee to present its case before the assessing authority. Consequently, the Tribunal set aside the order of the Commissioner of Income Tax (Appeals) and remanded the issue back to the AO for a fresh assessment, directing the AO to frame the assessment de novo after hearing the assessee in accordance with the law. The assessee was instructed to be diligent during the assessment proceedings.

In conclusion, the appeal of the assessee was allowed for statistical purposes, and the order was pronounced in open court on 31/05/2022.