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Facts
The assessee filed its return of income and the case was selected for scrutiny. The Assessing Officer (AO) disallowed a portion of the interest claimed on loans, believing the borrowed funds were diverted for non-business purposes and interest-free loans/advances.
Held
The Tribunal held that the assessee should be given a second opportunity to present its case due to circumstances beyond its control, restoring the issues to the AO for fresh adjudication.
Key Issues
Whether the disallowance of interest on borrowed funds was justified without appreciating the facts and circumstances, and if the assessee was prevented from representing its case due to circumstances beyond control.
Sections Cited
143(3)
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Income Tax Appellate Tribunal, “F” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY, HON’BLE & SHRI NARENDRA KUMAR BILLAIYA, HON’BLE
O R D E R
PER NARENDRA KUMAR BILLAIYA, AM:
This appeal by the assessee is preferred against the order dt. 07/03/2025 by NFAC, Delhi [hereinafter “the ld. CIT(A)”] pertaining to AY 2014-15.
The grievance of the assessee reads as under:- “1. The Ld. AO and the Hon. CIT(A) ought to have appreciated the fact that the Appellant could not represent his case due to circumstances beyond his control.
2. The Ld. AO erred in disallowing and the Hon. CIT(A) erred in confirming the disallowance of interest of Rs.57,70,966/- without appreciating the facts and circumstances of the case. “ 2
Briefly stated the facts of the case are that the assessee filed its return of income on 28/11/2014 declaring total income at Rs. 7,86,940/-. The return was selected for scrutiny assessment and accordingly statutory notices were issued and served upon the assessee.
During the course of scrutiny assessment proceedings the AO noticed that the assessee has debited Rs. 1,05,05,199/- on account of interest on loans. The assessee was asked to justify it claim of interest expenses. In reply, the assessee furnished statement of utilization of borrowed funds which is as under:- Liabilities Amt. (Rs.) Assets Amt. (Rs.) Capital 4,82,877 Fixed assets 65,63,231 Loans 8,62,19,555 Investments (including 3,36,51,558 (including car loan) investments in shares)
Current liabilities 6,18,016 Current assets (including 4,71,05,660 (including loan from bank) loans & advances, sundry debtors)
Total 8,73,20,450 8,73,20,450
On perusal of the aforementioned details, the AO formed a belief that the assessee has utilized the borrowed funds for non-business purposes also. The AO observed that the assessee has not filed any documentary evidence in respect of source of acquisition of assets/investment. The AO further noticed that the assessee has given loans and advances of Rs. 85,50,654/- and came to the conclusion that the borrowed interest bearing funds have been diverted for giving interest free loans and advances. The AO accordingly computed the borrowed interest and disallowed Rs. 57,70,966/-.