2015 (10) TMI 2014 - AT - Income Tax

Interest earned by the appellant during pre operation period on the grant received from government of India - Held that - Going through the serial No. 31 to 40 of the paper book and various copies of orders of Ministry of Textile about agreement of subsidy, which required to be considered before deciding the nature of interest income, therefore, we set aside this issue to the Assessing Officer and is directed to give a reasonable opportunity of being heard to the assessee. The assessee is also directed to cooperate with the Assessing Officer and furnished all required details. Accordingly, we set aside this issue to the Assessing Officer for de novo Interest disallowed against interest free loan given to the related concern - whether there was no business expediency of the assessee to give interest free advances to the sister concern? - CIT(A) allowed the claim - Held that - CIT(A) has thoroughly examined this issue on facts as well as on legal side of the case. The appellant had filed detailed information as to when the share capital was received and how the part of share capital was advanced to his sister concern on which no interest has been charged. Even in respect of credit transactions on account of sweep transfer in the bank account against which loan was advanced to M/s JTPL Texmart Pvt. Ltd. The ld CIT(A) has held that sweep transfer is the amount from FDRs, which were earlier got by the appellant when the requirement of funds was there for making such loan to M/s JTPL Texmart Pvt. Ltd., such FDR amount was automatically transferred from FDR account to current account. The assessee had not advanced interest bearing fund to its sister concern, therefore, charging of interest on advance to sister concern and reduction from the pre-operative expenses was not justified. The ld DR had not controverted the finding given by the ld CIT(A). Therefore, we uphold the order of the ld CIT(A) on this ground - Decided against revenue.

Summary

Issues:
1. Admission of additional evidences before the CIT(A)
2. Taxability of interest income earned during pre-operation period
3. Treatment of interest disallowed against interest-free loans to related concern

Issue 1: Admission of additional evidences before the CIT(A):
The cross-appeals before the ITAT Jaipur involved the admission of additional evidences submitted by the assessee during the course of hearing before the CIT(A). The assessee contended that these evidences were crucial for adjudicating on the taxation of interest earned during the pre-operation period. The CIT(A) refused to admit the additional evidences under Rule 46A of the Income Tax Rules, 1962, citing that the documents were available with the assessee before the completion of assessment and were not produced during the assessment proceedings. The CIT(A) relied on various court decisions and held that the interest income earned by the appellant from funds received as subsidy was to be taxed as income from other sources. The ITAT set aside this issue to the Assessing Officer for a fresh assessment, directing cooperation from the assessee and providing a reasonable opportunity for hearing.

Issue 2: Taxability of interest income earned during pre-operation period:
The dispute revolved around the tax treatment of interest income of Rs. 66,22,116 earned by the assessee during the pre-operation period on temporary bank deposits. The Assessing Officer treated this interest income as income from other sources, following Supreme Court decisions. The CIT(A) confirmed the Assessing Officer's order but reduced the interest income to Rs. 63,21,497. The ITAT set aside this issue to the Assessing Officer for a fresh assessment, considering various documents related to the subsidy agreement and directing a reasonable opportunity for the assessee to be heard.

Issue 3: Treatment of interest disallowed against interest-free loans to related concern:
The revenue's appeal challenged the relief granted by the CIT(A) of Rs. 11,67,000 in interest disallowed against interest-free loans given to a related concern. The Assessing Officer contended that there was no business expediency for providing interest-free advances to the sister concern. The CIT(A) analyzed the issue thoroughly, considering the business purpose behind the loans and the share capital transactions. The ITAT upheld the CIT(A)'s decision, stating that no interest-bearing funds were advanced to the sister concern, and the charging of interest on the advance was not justified. The revenue's appeal on this ground was dismissed.

In conclusion, the ITAT allowed the assessee's appeal for statistical purposes only and dismissed the revenue's appeal. The judgment emphasized the importance of proper assessment procedures, including the admission of relevant evidences and providing a fair opportunity for both parties to present their case.