WATSAL BUILDCON PVT LTD,NEW DELHI vs. ITO WARD - 27(2), NEW DELHI

This appeal is filed by the Assessee against the order of the Ld. Commissioner of Income Tax (Appeals)-9, New Delhi dated 27.05.2019 for the AY 2016-17. The assessee in its appeal raised the following grounds: -

In spite of issue of notice, none appeared on behalf of the assessee nor any adjournment was sought. The notice sent through speed post with acknowledgement due returned un-served with the endorsement of postal authorities with the remarks that incomplete address/adhura putta. Since notice returned un-served this appeal is disposed off on hearing the Ld. DR on merits.

The Ld. DR submits that while completing the assessment the Assessing Officer noticed that assessee was having opening and closing investment in unlisted shares amounting to Rs.1,52,98,649/- and at the same time the assessee debited interest of Rs.1,62,98,077/- on borrowed capital @12% p.a. Therefore, the Assessing Officer held that interest expenditure amounting to Rs.18,35,838/- @12% is not an allowable expenditure for the purpose of business and the same is disallowed u/s 36(1)(iii) of the Act. Ld. DR submits that on appeal the Ld. CIT(Appeals) sustained the disallowance.

Heard the Ld. DR perused the orders of the authorities below.

On perusal of the assessment order it is noticed that the Assessing Officer has given a finding that the opening and closing value of investment in unlisted shares by the assessee company is I.T.A.No.6279/Del/2019 Rs.1,52,98,649/- and, therefore, interest expenditure amounting to Rs.18,35,838/- @12% p.a. is being treated as direct expenditure incurred by the assessee company to earn exempt income from investment in shares. It is also noticed that the Assessing Officer has given a finding that interest paid on borrowed capital is not an allowable expenditure for the purpose of business and, therefore, Rs.18,35,838/- is added back u/s 36(1)(iii) of the Act. Both these findings of the AO appear to be contradictory. It is not clear as to under which provision the AO made the disallowance i.e. either u/s 36(1)(iii) or 14A of the Act especially when the finding by the AO that interest expenditure amounting to Rs.18,35,838/- @12% p.a. is treated as direct expenditure incurred by the assessee to earn exempt income. Before the Ld. CIT(Appeals) the assessee contended that AO has wrongly disallowed interest of Rs.18,35,838/- u/s 14A of the Act. However, the Ld. CIT(Appeals) after considering the submissions of the assessee came to the conclusion that disallowance was made u/s 36(1)(iii) of the Act and not u/s 14A though the assessee relied on various case laws relating to the provisions of section 14A of the Act. On plain reading of the assessment order there are two contradictory findings by the AO and there is no clarity in the approach of the AO i.e. under which I.T.A.No.6279/Del/2019 provision the disallowance was made. Therefore, I am of the opinion that this issue should go back to the file of the Assessing Officer for denovo examination in accordance with law after providing adequate opportunity of being heard to the assessee.

In the result, the appeal of the assessee is allowed for statistical purpose.