SGASGWATI REALTY PVT LTD.,MUMBAI vs. ITO WARD 8(2)(1), MUMBAI

ORDER PER MANISH BORAD, A.M. The present appeal is filed by the assessee against the order of the Commissioner of Income Tax (Appeals)-14, Mumbai [in short ‘CIT(A)’] for the assessment year 2014-15 dated 26.03.2019 and arises out of assessment completed u/s 143(3) of the Income Tax Act, 1961 (in short the Act). Though the case was fixed for hearing on 03.12.2020, 12.04.2021, 21.06.2021 & 11.08.2021, neither the assessee nor his authorized representative appeared before the Bench on the above dates. As there is non- Shashwati Realty 2 compliance on the part of the assessee, we are proceeding to dispose off this appeal on merits, after examining the documents available on record.

filed by the assessee read as under :

1. Disallowance of interest expenditure by reducing Rs.30,64,193/- from work in progress u/s 36(1)(iii) of the Income Tax Act, 1961, without issuing show cause notice to appellant.

2. Disallowance of interest expenditure u/s 36(1)(iii) of the Act is bad in law as per the facts and circumstances of the case of appellant.

3. Briefly stated, the fats of the case are that the assessee is a private limited company engaged in the business of builder and developer. The assessee- company has e-fled its return of income at Rs.4,08,170/- on 29.11.2014. The case was selected for scrutiny assessment followed by serving of notices u/s 143(2) and 142(1) of the Act. Necessary information called by the Ld. AO was duly supplied by the assessee. During the assessment proceedings, the Ld. AO observed that there is an investment in the partnership firm in the name of M/s Pashmina Altius at Rs.5,67,46,272/- but the share capital of the assessee- company is Rs.1,00,000/- and reserve and surplus is in negative at Rs.3,37,841/. No disallowance u/s 14A of the Act was suo motu offered by the assessee in the income tax return. The assessee has claimed interest expenditure in the profit and loss account. The Ld. AO was of the view that disallowance u/s 14A of the Act needs to be made and he accordingly worked out the disallowance at Rs.33,47,924/- in accordance with Rule 8D of the IT Rule and assessed the income at Rs.37,56,090/-.

4. Aggrieved the assessee preferred an appeal before the Ld. CIT(A) but partly succeeded. As regards the issue of disallowance u/s 14A of the Ld. CIT(A)

Shashwati Realty 3 was of the view that since there is no exempt income earned by the assessee disallowance u/s 14A of the Act is not called for. However, the Ld. CIT(A) confirmed the disallowance applying the provisions of section 36(1)(iii) of the Act. 5. Aggrieved assessee now in appeal, the ground of appeal as under :

1. Disallowance of interest expenditure by reducing Rs.30,64,193/- from work in progress u/s 36(1)(iii) of the Income Tax Act, 1961, without issuing show cause notice to appellant.

2. Disallowance of interest expenditure u/s 36(1)(iii) of the Act is bad in law as per the facts and circumstances of the case of appellant.

6. None appeared on behalf of the assessee.

7. On the other hand, the Ld. Departmental Representative (DR) vehemently supporting the order of both the parties.

8. We have heard the rival contentions and perused the material on record. Before us, through Ground No. 1 raised assessee has stated that the Ld. CIT(A) erred in confirming the addition u/s 36(1)(iii) of the Act as against the addition made by the Ld. AO u/s 14A of the Act without issuing show cause notice to the appellant.

9. We observe that while framing the assessment, the Ld. AO calculated disallowance u/s 14A of the Act at Rs.33,47,924/-. When the matter travelled before Ld. CIT(A), firstly he held that since assessee has not earned any exempt income during the year disallowance u/s 14A of the Act is not called for. Further, since Ld. CIT(A) has power to enhance/reduce the additions made by the Assessing Officer came to the conclusion that disallowance of interest u/s