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Facts
The assessee company filed its return of income for AY 2017-18. The Assessing Officer observed significant interest income and interest on HP loan (written back) and treated it as central income, disallowing 60% of it. The CIT(A) partly allowed the appeal, disallowing the interest on HP loan.
Held
The Tribunal found that the matter required detailed examination by the Assessing Officer. Therefore, it remitted the matter back to the Assessing Officer for a fresh assessment after providing an opportunity of being heard to the assessee.
Key Issues
Whether the interest income and interest on HP loan written back should be considered central income and disallowed, or if it relates to business activities eligible for Rule 8.
Sections Cited
143(2), 142(1), 250
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Income Tax Appellate Tribunal, ‘SMC’ BENCH, KOLKATA
Before: Shri Duvvuru RL Reddy, Vice-(KZ)
Appearances by: Shri Akkal Dudhewala, A.R., appeared on behalf of the assessee Shri L.N. Das, Sr. D.R., appeared on behalf of the Revenue Date of concluding the hearing: January 23, 2025 Date of pronouncing the order: March 17, 2025 O R D E R
The present appeal is directed at the instance of assessee against the order of ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi dated 11th June, 2024 passed for Assessment Year 2017-18.
(A.Y. 2017-2018) Tongani Tea Company Limited 2. Briefly stated the facts are that the assessee is a Company, which filed electronically its return of income for the assessment year 2017-18 declaring total income of Rs.58,800/- on 04.10.2017. The case was selected for scrutiny. Accordingly notice under sections 143(2) and 142(1) were issued and the same were duly served upon the assessee. In response, the assessee filed details/ documents as per requisition vide notice under section 142(1) of the proceedings. During the course of examination of details /documents filed by the assessee-Company, the ld. Assessing Officer observed that the assessee-Company had gross interest of Rs.26,78,924/- and interest on HP loan (written back) to the tune of Rs.27,34,508/-, which should be considered as central income which has no relation to the tea business profit of the assessee-Company. While computing of income from business profit, the assessee-company had claimed 60% deduction of Rs.54,13,432/- (Rs.26,78,924/- plus Rs.27,34,508/-), which is not admissible as the same is completely central income.
2.1. In view of the above, the assessee-Company was issued show- cause notice on 06.11.2019 to furnish explanation in this regard saying that “issue show-cause notice dated 06.11.2019 to the assessee with a request as to why interest income of Rs.26,78,924/- and interest on HP Loan of Rs.27,34,508/- should not be treated as exclusively Central Income and 60% of Rs.54,13,432/-, i.e. Rs.32,48,059/- should not be disallowed as you have already 40% of Rs.54,13,432/- offered for taxation”. But inspite of giving several opportunities, the assessee-Company failed to furnish any explanation in this regard. Accordingly, a sum (A.Y. 2017-2018) Tongani Tea Company Limited of Rs.32,48,059/- (60% of Rs.54,13,432/-) wrongly claimed as deduction from business profit is allowed and added back to the total income of the assessee. Accordingly, ld. Assessing Officer made an addition of Rs.32,48,059/-. Aggrieved by the order of ld. Assessing Officer, the assessee preferred an appeal before the ld. CIT(Appeals).
The assessee filed its written submission and after considering the written submission filed by the assessee, the ld. CIT(Appeals) partly allowed the appeal with regard to the addition of interest income of Rs.26,78,924/-. Since the ld. CIT(Appeals) disallowed the claim of interest on HP Loan (written back) for an amount of Rs.27,34,508/- is sustained, therefore, the assessee preferred an appeal before the Tribunal and raised the following issues:- “1. For that on the facts and circumstances of the case, the Ld. C1T(A) completely misunderstood the ground raised
in appeal regarding the addition of 60% of Rs.27,34,508/-, being the amount of interest written back in relation to HP (Hire Purchase) Loan which was no longer payable and wrongly interpreted the same to be loan availed in relation to House Property, and in the circumstances, the impugned addition in relation thereto as sustained in the appellate order passed u/s 250 of the Act deserves to be cancelled.
2. For that on the facts and circumstances of the case, the CIT(A) grossly erred on facts and in law in confirming the addition of 60% of Rs.27,34,508/- made by the AO. (b) For that on the facts and circumstances of the case, the appellant being a tea manufacturing company whose income is subjected to Rule 8, the AO ought to be directed to compute total income of the appellant considering only 40% of the Rs.27,34,508/- being the amount of interest written back in relation to the loan availed for purchasing machine for manufacturing tea on Hire Purchase basis.
(A.Y. 2017-2018) Tongani Tea Company Limited (c) For that on the facts and circumstances of the case, the CIT(A) failed to appreciate that the appellant had availed of the loan for the purposes of its tea business and as such the write back of interest of Rs.27,34,508/-, being the amount of interest written back in relation to the loan availed for purchasing machine for manufacturing tea on Hire Purchase basis was eligible for the application of Rule 8 thereupon.
I have heard both the sides. It was the submission of the ld. Counsel for the assessee that all the details filed by the assessee regarding H.P. Loan, but the ld. Assessing Officer as well as ld. CIT(Appeals) have not considered the same. However, one more set of documents was filed before the Tribunal and ld. Counsel pleaded to remit the matter back to the file of ld. Assessing Officer to examine the details afresh.
On the other hand, it was the submission of the ld. Departmental Representative that the ld. Assessing Officer has given sufficient opportunity but the assessee has not filed any documents even before the ld. CIT(Appeals). He has not filed any documents regarding the HP Loan written back. Therefore, he pleaded to uphold the orders passed by the revenue authorities.
I have perused the material available on record. I have also considered the paper book filed by the assessee, wherein the assessee has filed audited financial statement showing the details of interest, expenses claimed as allowable expenditure in earlier years, supporting documents to establish that the interest expenditure of Rs.27,34,508/- written off during the year and credited to the Profit & Loss Account, was debited to the Profit & Loss Account for earlier years and claimed as expenses while (A.Y. 2017-2018) Tongani Tea Company Limited computing the business income by applying Rule 8. After considering the documents filed by the assessee, I am of the view that it requires detailed examination by the ld. Assessing Officer and thus it is a fit case of remit the matter back to the file of ld. Assessing Officer to examine the details filed by the assessee and pass a speaking order after providing one more opportunity of being heard to the assessee. At the same breath, I also hereby caution the assessee to promptly co-operate with the proceedings before the Ld. Assessing Officer failing which the Ld. Assessing Officer shall be at liberty to pass appropriate order in accordance with law and merits of the case, based on the materials available on the record. Thus, the grounds raised by the assessee are allowed for statistical purposes.
In the result, the appeal of the assessee is allowed for statistical purposes. Order pronounced in the open Court on 17/03/2025.