GLOBAL ENTROPOLIS (VIZAG) PRIVTE LIMITED,BANGALORE vs. DCIT, CENTRAL CIRCLE-1(4) , CHENNAI

This appeal filed by the assessee is arising out of order of the Commissioner of Income Tax (Appeals)-18, Chennai in dated 30.01.2023. The assessment was framed by the National Faceless Assessment

The first issue in this appeal of assessee is as regards to the order of CIT(A) restricting the disallowance made by the AO of interest expenses restricting the rate at 14% as against claimed by assessee at 16% by invoking section 40A(2)(b) of the Act. For this, assessee has raised the following ground No.2 as an effective ground:-

The AO during the course of assessment proceedings noticed that the assessee has taken loan from others and related parties. The AO noted that the assessee has taken loan from IIFL Wealth Finance Ltd., @ 8.50% and from Aditya Birla Finance Ltd., @ 13.75%. The AO also noticed that the assessee has taken loan from related party i.e., Shriram Properties Ltd., @ 16% and accordingly, he required the assessee to explain the justification and reasonableness of payment of interest @ 16% to Shriram Properties

The CIT(A) after considering the submissions and considering the benchmark prime lending rate provided by SBI as on 01.04.2017 at 13.85%, restricted the rate of interest at 14% and according to him, the same is reasonable rate of interest which could have been paid for the borrowable of loans from Shriram Properties Ltd., by the assessee. Therefore, he sustained the disallowance of interest at RS. 38,36,197/- being 2% excess of interest. Aggrieved, now assessee is in appeal before us.

We have heard rival contentions and gone through the facts and circumstances of the case. The ld.counsel for the assessee Shri S. Anandan, first of all stated that the loans obtained by assessee from IIFL Wealth Finance Ltd., and Aditya Birla Finance Ltd., are secured loans and which are provided by these two concerns on the basis of providing security of equivalent amount of loan, whereas the loan obtained by assessee from sister concern or related parties Shriram Property Ltd., at 16% is unsecured loan. The ld.counsel stated that the secured loans for business is obtained are mortgage of certain assets and moreover beyond that, for regular business commitments and completion of projects, the assessee has to borrow amounts through unsecured loans for which no security is required and for that a little higher rate is to be paid. The ld.counsel for the assessee said the benchmarking prime lending rate by SBI as on 01.04.2017 is at 13.85% and even taking this base, the interest paid to Shriram Properties Ltd., at 16% is quite reasonable being unsecured loan. He argued that even the lending by SBI is also always against security or warranty.

We noted that 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. In view of the above, we find that 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.

Coming to second issue raised by assessee by way of Ground No.3 that the intimation/processing of return u/s.143(1) of the Act is not appealable order. For this, assessee has raised the following ground Nos.3 & 3.1:-

Brief facts are that the relevant assessment year involved is AY 2018-10 and assessee filed its return of income on 31.10.2018. The CPC, Bangalore processed the return and intimation u/s.143(1) of the Act was issued on 01.10.2019. In the mean time, before issuance of intimation u/s.143(3) of the Act, the AO issued notice u/s.143(2) of the Act dated 23.09.2019. The assessee has not carried the intimation issued u/s.143(1) of the Act dated 01.10.2019 in appeal, in which the CPC, Bangalore has made adjustment of following items:- Sl.No. Section Addition (in Rs.) 1. Section 36(1)(va) 9,927 2. Section 37 10,49,507 3. Section 43B 24,44,959 Total 35,04,393 The assessee challenged the assessment order passed by AO u/s.143(3) r.w.s. 144B of the Act dated 05.08.2021 before the CIT(A), wherein assessee has challenged even the intimation issued by CPC, Bangalore u/s.143(1) of the Act. The CIT(A) dismissed the ground of assessee as infructuous vide para 7.7 as under:- “7.7 Other grounds are taking the normal income assessed u/s 143(1) and deemed income u/s 115JB arrived u/s 143(1) as base for making addition / assessment u/s 143(3). These grounds relate to the order / intimation u/s 143(1), which can be addressed only in an appeal preferred if - 7 - 143(1) and not on the order u/s 143(3) against which the assessee filed the present appeal. Therefore, these grounds are dismissed as infructuous.”

Before us, the assessee has raised the above mentioned two grounds on the issue of whether intimation issued u/s.143(1) of the Act is appealable or not.

Now before us, the ld.counsel for the assessee took us through the assessment order computation part and stated that the AO has computed the income including the adjustment made u/s.143(1) of the Act vide order dated 01.10.2019 and he referred to the following:- “5. After verification / examination of all the details called for and submitted, the income shown by the assessee is assessee and computed as under:

On the other hand, the ld.Senior DR took us through the provisions of section 246A of the Act, wherein by virtue of provision of section 246A(1)(a) of the Act, appeal against an intimation u/s.143(1) of the Act is clearly provided w.e.f. 01.06.1999 by Finance Act, 1999.

We have heard rival contentions and gone through facts and circumstances of the case. We have gone through the main provision of section 246A of the Act and particularly clause (a) which reads as under:- 246A. Appealable orders before Commissioner (Appeals).—(1) Any assessee or any deductor or any collector aggrieved by any of the following orders (whether made before or after the appointed day) may appeal to the Commissioner (Appeals) against— (a) an order passed by a Joint Commissioner under clause (ii) of sub-section (3) of section 115VP or an order against the assessee where the assessee denies his liability to be assessed under this Act or an intimation under sub- section (1) or sub-section (1B) of section 143 or sub-section (1) of section 200A or sub-section (1) of section 206CB, where the assessee or the deductor or the collector objects to the making of adjustments, or any order of assessment under sub-section (3) of section 143 except an order passed in pursuance of directions of the Dispute Resolution Panel or an order referred to in sub-section (12) of section 144BA or section 144, to the income assessed, or to the amount of tax determined, or to the amount of loss computed, or to the status under which he is assessed; From the above provision it is clear 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 - 10 - 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.

In the result, the appeal filed by the assessee is partly-allowed.