1995 (11) TMI 135 - AT - Income Tax

Summary

Issues:
Disallowance of interest claimed by the assessee under section 143(1)(a) of the Income Tax Act for the assessment year 1993-94.

Detailed Analysis:

1. Background:
The appeal before the Appellate Tribunal ITAT MADRAS-C relates to the assessment year 1993-94 and stems from the order of the Dy. CIT(A), Coimbatore, dated 28th June 1994. The assessee contested the appeal on the grounds that the assessment order passed under section 143(1)(a) of the Act was not justified, as per the facts of the case.

2. Disallowed Claim:
The AO disallowed the assessee's claim for deduction of Rs. 13,920 as interest on monies borrowed for the construction of a shopping complex at Hosur. The total income was fixed at Rs. 53,690, and the assessment was completed on 18th August 1993. The assessee objected to this disallowance and filed a petition under section 154 of the Act requesting rectification.

3. Appeal and Contention:
The assessee contended that disallowing interest does not fall under prima facie adjustments under section 143(1). The counsel argued that the AO should have initiated a scrutiny if there were doubts regarding the genuineness of the interest payment. It was also highlighted that the claim in previous assessment years was allowed, urging for the deletion of the addition to the returned income.

4. Appellate Order:
The Dy. CIT(A) confirmed the AO's order after hearing the counsel for the assessee. The assessee then appealed before the Tribunal against this decision.

5. Legal Arguments:
The assessee's counsel referenced Board Circular No. 689 and a Bombay High Court case to support the argument that the AO cannot make prima facie disallowances on debatable points without issuing a notice under section 143(2). It was emphasized that since the claim was allowed in earlier and subsequent assessment years, the disallowance was unjustified.

6. Tribunal Decision:
The Tribunal held that the AO was not justified in disallowing the claim of the assessee under section 143(1)(a) without issuing a notice under section 143(2) and providing an opportunity to be heard. Consequently, the appeal filed by the assessee was allowed.

This judgment underscores the importance of following due process and providing opportunities for the assessee to present their case before making disallowances under the Income Tax Act.