2017 (9) TMI 1217 - AT - Income Tax

Disallowance of net interest paid in the regular course of business and fully allowable u/s 36(1)(iii) - Held that - Merely because the amount of ₹ 23.22 crore was shown under the head loans and advances it will not be proper to presume it to be a loan and not a contribution towards share capital without properly examining the facts and merely going by the nomenclature given in the financial statement. It is also evident from material placed before that in the past years the assessee has shown considerable interest income against which interest expenditure was set off. The assessee s claim has been accepted by the Department even in scrutiny assessments, as evident from the assessment orders passed for assessment years 2012 13 and 2013 14. Therefore, it cannot be held that the assessee has never carried out business in financing and investment. Since, these aspects have not been examined or properly looked into by the Departmental Authorities, we deem it proper to restore the issue back to the file of the Assessing Officer for fresh adjudication after due opportunity being heard to the assessee. Ground no.1 is allowed for statistical purposes. Non giving credit for TDS on interest earned - Held that - The assessee on 26th February 2014, has made a claim for allowing credit for TDS on the interest earned of ₹ 12,88,776. In this context, he has drawn our attention to the copy of the said letter placed at Page 73 of the paper book. In any case of the matter, due credit for TDS should be given to the assessee. In view of the aforesaid, we direct the Assessing Officer to examine the issue and allow credit for TDS if corresponding income has been shown by the assessee in the impugned assessment year. Ground no.2, is allowed for statistical purposes.

Summary

Issues:
1. Disallowance of net interest paid under section 36(1)(iii)
2. Non-allowance of TDS credit on interest earned

Issue 1: Disallowance of net interest paid under section 36(1)(iii)
The appellant, a partnership firm engaged in trading Stainless Steel Wire Rods, contested the disallowance of net interest of Rs. 31,51,334 by the Assessing Officer for the assessment year 2011-12. The Assessing Officer disallowed the interest paid on an amount of Rs. 23.22 crore, stating it was not for business purposes. The firm argued that the investment was towards share capital, not loans, and thus, no disallowance should be made. The Commissioner (Appeals) upheld the disallowance. The appellant contended that they were engaged in financing and investment activities as per the partnership deed, and the interest income was always shown under business income. The Departmental Representative argued against the disallowance, stating the loans were interest-free and not for business purposes. The Tribunal observed discrepancies in the treatment of interest income and expenditure by the Assessing Officer and directed a fresh adjudication, noting the lack of proper examination by the authorities. Ground no.1 was allowed for statistical purposes.

Issue 2: Non-allowance of TDS credit on interest earned
The appellant raised the issue of not being given credit for TDS on interest earned of Rs. 12,88,776. The Commissioner (Appeals) rejected the claim, stating the TDS was not claimed in the income tax return. The appellant argued that they had made a claim for TDS during the assessment proceedings. The Tribunal directed the Assessing Officer to examine the issue and allow credit for TDS if corresponding income was shown by the appellant in the assessment year. Ground no.2 was allowed for statistical purposes.

In conclusion, the Tribunal allowed the appellant's appeal for statistical purposes, directing the Assessing Officer to re-examine both issues related to the disallowance of net interest paid and the non-allowance of TDS credit on interest earned. The judgment highlighted the importance of proper examination and consideration of facts in determining the tax liability of the appellant.