2023 (8) TMI 81 - AT - Income Tax

Disallowance of interest expenses 40A(2)(b) - CIT(A) restricting the rate at 14% as against claimed by assessee at 16% - HELD THAT - As the assessee s payment of interest to Shriram Properties Ltd., on unsecured loan @ 16% is quite reasonable in view of the fact that the benchmark prime lending rate by SBI as on 01.04.2017 was at 13.85% and that also for secured loans i.e., the assessee has to mortgage certain assets. This loan taken by assessee of Shriram Properties Ltd., @ 16% is unsecured and this is for regular business commitment and completion of projects. The charging of interest @ 16% is quite reasonable and hence, we reverse the finding of CIT(A) on this issue and allow the appeal of assessee. Maintainability of Appeal against an intimation/processing of return u/s. 143(1) - Counsel stated that the order of CPC processing the return u/s. 143(1) of the Act has merged into the order passed by AO u/s. 143(3) of the Act and hence, it can be challenged at this stage only - HELD THAT - Appeal against an intimation u/s. 143(1) of the Act is provided and the second limb clearly provides that section 246A(1)(a) of the Act enables an assessee to prefer an appeal before Commissioner (Appeals) against intimation / processing done by CPC u/s 143(1) of the Act, where the assessee objects to making of an adjustment. It means that in the present case before us the assessee has not challenged the intimation/processing of return by CPC, Bangalore passed u/s. 143(1) of the Act dated 01.10.2019 and that has attained finality in the absence of any appeal or other remedy available with the assessee. Once the appeal is provided under the statute and the assessee has not availed of the right to appeal, now he cannot appeal the same while challenging the assessment order u/s. 143(3) of the Act. In term of the above, we confirm the order of CIT(A) on this issue and dismiss the appeal of assessee.

Summary

Issues Involved:
1. Disallowance of interest expenses under section 40A(2)(b) of the Income Tax Act.
2. Appealability of intimation/processing of return under section 143(1) of the Act.
Issue 1: Disallowance of Interest Expenses

The appeal pertains to the disallowance of interest expenses by the Commissioner of Income Tax (Appeals) and the subsequent appeal filed by the assessee. The Assessing Officer (AO) restricted the interest rate on a loan from a related party to 12% under section 40A(2)(b) of the Act, leading to a disallowance of Rs. 96,72,394. The Commissioner of Income Tax (Appeals) upheld the disallowance but restricted the rate to 14%, resulting in a disallowance of Rs. 38,36,197. The Tribunal, after considering arguments from both sides, found the interest rate of 16% paid by the assessee on an unsecured loan to be reasonable, reversing the decision of the Commissioner of Income Tax (Appeals) and allowing the appeal of the assessee.

Issue 2: Appealability of Intimation/Processing of Return

The second issue concerns the appealability of the intimation/processing of return under section 143(1) of the Act. The assessee challenged adjustments made in the intimation issued by the Central Processing Center (CPC) under section 143(1) in the appeal against the assessment order passed by the AO under section 143(3). The Commissioner of Income Tax (Appeals) dismissed the grounds related to the intimation as infructuous, stating that such grounds can only be addressed in an appeal against the intimation itself. The Tribunal upheld the decision, citing the provision of section 246A(1)(a) of the Act, which allows for an appeal against an intimation under section 143(1) and concludes that since the assessee did not challenge the intimation separately, it cannot do so while challenging the assessment order under section 143(3). Therefore, the Tribunal confirmed the decision of the Commissioner of Income Tax (Appeals) on this issue and dismissed the appeal of the assessee.