FAB TRADE PRIVATE LIMITED,MUMBAI vs. ITO, WARD 15(1)(2), M

The dispute in the present appeal is confined to disallowance of interest expenditure of Rs.33,72,240/-.

Briefly the facts are, the assessee is a resident company engaged in the business of reseller and distributor in chemicals. For the assessment year under dispute, assessee filed its return of income on 01-10-2013 declaring income of Rs.8,20,110/-. In course of assessment proceedings, the assessing officer noticed that for the year under consideration assessee has claimed interest expenditure of Rs.1,321,70,813/- on loans availed from bank. On further verification, he found that the assessee has given advances to M/s Adishank Chemicals Pvt Ltd. He, therefore, called upon the assessee to explain why notional interest income should not be estimated on the advances given to the concerned party. As alleged by the assessing officer, the assessee neither furnished any details nor a proper explanation. Stating that the assessee has incurred interest expenditure on loan availed, whereas, it has advanced money to sister concern without charging interest, the assessing officer computed notional interest on the advances given to the sister concern by applying the rate of 15.28% and disallowed an amount of Rs.33,72,240/-. Though, the assessee contested the aforesaid disallowance/addition before the first appellate authority; however, it was unsuccessful.

Re-iterating the stand taken before the departmental authorities, learned Counsel for the assessee submitted, the assessee has regular transaction with M/s Adishank Chemicals Pvt Ltd. He submitted, the assessee sells raw materials to the concerned party and purchases finished products from it. Thus, the disputed amount is only a trade advance receivable or to be adjusted against purchases made. He submitted, before the departmental authorities the assessee was unable to represent the case properly; hence, relevant facts and evidences to 3 ITA 3258/M/2019 establish that it is a trade advance, could not be brought on record. Therefore, he submitted, assessee may be permitted to furnish additional evidence to establish its claim at this stage, which could not be furnished earlier. In this context, he drew our attention to application dated 5-02-2021 seeking permission for admission of additional evidence and the evidences attached therewith in the form of paper book. Further, he submitted, the interest bearing funds on which the assessee has paid interest are availed from cash credit and over draft account and entirely used for the purpose of business. He submitted, given an opportunity, assessee can establish the link between the borrowed funds and the purpose for which such funds have been utilized. Thus, he submitted, the issue may be restored back to the assessing officer for fresh adjudication, after examining the additional evidences filed by the assessee.

The learned Departmental Representative, though, expressed reservations with regard to admission of additional evidence, however, he submitted, matter can be re-examined by the assessing officer.

We have considered rival submissions and perused materials on record. As could be seen, from the stage of assessment proceedings itself the assessee has consistently taken the stand that the so-called advance with M/s Adishank Chemicals Pvt Ltd is in the nature of a trade advance as the assessee has a running account with the said party for sale of raw-materials and purchase of finished products. However, both the assessing officer and learned Commissioner (Appeals) have rejected the aforesaid claim of the assessee on the ground that necessary evidences were not filed.

Before us, the assessee has filed certain documentary evidences by way of additional evidence to prove its claim that the advances with the concerned party are in the nature of trade advances and further, the borrowed funds on which interest has been paid are entirely used for business purpose. In our view, if the assessee for bona fide reasons was unable to bring materials on record to factually prove its claim before the departmental authorities and comes forward to file additional evidences before the Tribunal to prove such fact, the assessee should not be prevented from doing so. It is in the interest of natural justice and fairplay to allow assessee to establish its claim. When the assessee contends that the entire borrowed funds has been utilized for the purpose of business and nexus between the borrowed funds and utilization can be established through proper documentary evidences, an opportunity should be given to the assessee to do so. Moreover, no prejudice is likely to be caused to the revenue if the assessee is permitted to furnish additional evidence to establish its claim, as; the additional evidences have to be examined on their own merits. Therefore, we are inclined to admit the additional evidences filed by the assessee. However, considering the fact that these evidences have been filed for the first time before the Tribunal, the revenue should be given an opportunity to verify the correctness of assessee’s claim vis-à-vis the additional evidences filed. Accordingly, we are inclined to set aside the impugned order of learned Commissioner (Appeals) and restore the issue to the file of assessing officer for fresh adjudication after due opportunity of being heard to the assessee. The assessing officer must examine the additional evidences along with the other evidences filed by the assessee on its own merits and grant sufficient opportunity to the assessee to establish its claim. With the aforesaid observations, grounds are allowed for statistical purposes.