DEPUTY COMMISSIONER OF INCOME-TAX vs. AJANTA INFRASTRUCTURE PVT. LTD.,, AURANGABAD

That, in regard to ground No. 1 which is regarding the disallowance of interest u/s 36(1)(iii) of the Act at Rs.7,71,40,818/- which issue was one of the basis for re-opening of this case, the ld. A.O noticed that the assessee- company has shown unsecured loans and advances given to the tune of Rs. 77,73,12,616/-, the details shown at Rs. 54,34,34,520/- and Reserve and Surplus at Rs. 18,01,45,014/-. The assessee has not received any interest income on the amounts given as loans and advances. On the other hand, the assessee has shown unsecured loans and creditors against altogether at Rs. 59,20,28,982/-. It is the contention of the Department that therefore, it is clear that the assessee had utilized the funds for non-business purposes. However, the company might have earned interest income @ 12% p.a. on the amount advanced to the other entities to the tune of Rs. 64,28,40,153/- which comes to Rs. 7,71,40,818/-. Further, the assessee-company had debited in its P & L a/c

That, when the ld. A.O had issued a notice to the assessee asking to explain the business purposes for making the loans and advances the assessee had simply replied and made a statement that such loans and advances have been made for the purpose of business without substantiating through any documentary evidences as to what is the business purpose for issuing such huge amount of loans and advances. The assessee has not at all brought out any cogent and justifiable reasons explaining the business purpose for such loans and advances neither before the A.O nor before the ld. CIT(A).

On the other hand, the ld. CIT(A) while giving relief to the assessee has simply accepted the contentions of the assessee and has not at all dealt with the findings of the ld. A.O that the loans and advances were not given for any business purposes. The ld. A.O has brought out specific case against the assessee analyzing that such loans and advances were not given for any business purposes. The ld. CIT(A) has not verified or adjudicated the provisions of section 36(1)(iii) of the Act vis-à-vis the facts in the assessee‟s case as to whether the said advances were given by the assessee for business

At the time of hearing, the ld. D.R placed strong reliance on the findings of the ld. A.O and reiterated the findings in the assessment order that the assessee in this case has not been able to justify the business purposes for making such loans and advances. The ld. D.R further contended that the ld. CIT(A) should have at least called for the remand report from the ld. A.O to verify whether these loans and advances were for business purpose or not. The ld. CIT(A) should have enquired as to business expediency whether at all is there any need for giving such loans and advances. That without calling for such a remand report, the ld. CIT(A) has simply accepted the submissions of the assessee and has allowed the appeal without bringing out any specific finding.

Per contra, the ld. A.R supported the decision of the ld. CIT(A) and reiterated the submissions that the assessee company has given loans and advances for business purposes only. The ld. A.R further stated that the business purpose has been explained by the assessee at the time of original assessment proceedings concluded u/s 143(3) of the Act. However, the ld. A.R failed to demonstrate the business purpose of such loans and advances as brought out by the ld. A.O in the assessment proceedings u/s 143 r.w.s. 147 of the Act. Therefore, in the proceedings conducted u/s 143 r.w.s. 147 of the Act, the ld. A.R could not demonstrate through any evidences or documents for the purpose of giving such loans and advances and whether at all were any business need in doing so. That, even during hearing before this Bench the ld.

We have heard the rival contentions, analyzed the facts and circumstances in this case and considered the relevant documents placed on record. That on perusal of the assessment order, as evident, a notice was issued to the assessee by the ld. A.O asking the assessee to explain the business purpose for giving said loans and advances. It is seen that the assessee never established before the ld. A.O through proper documentary evidences regarding such business purposes of giving loans and advances. It is clearly brought out by the ld. A.O that such loans and advances were utilized for non-business purposes. Even before this Bench the ld. A.R could not demonstrate through proper documentation/evidences as to the business expediency for giving such advances. The ld. A.R only reiterated that such business purpose was in detail explained during the time of original assessment proceedings. However, the ld. A.R failed to establish that during the proceedings u/s 143 r.w.s. 147 of the Act how this was explained to the department regarding this issue and what are the documents that have been placed on record before the ld. A.O substantiating such business purpose for those loans and advances. We also observe that on the other hand, the ld. CIT(A) as per his order has simply accepted the submissions of the assessee without even calling for a remand report and without adequately verifying the facts in the assessee‟s case has allowed the appeal of the assessee. The power of the ld. CIT(A) being co-terminus with that of the ld. A.O., he should have dealt with findings made by the ld. A.O in the assessment order and should have examined whether the loans and advances given by the assessee was indeed for business purposes or not. In the entire order of the ld. CIT(A)

In ground No. 2, the Revenue is aggrieved by the decision of the ld. CIT(A) in restoring the issue back to the file of the ld. A.O regarding set off of brought forward losses on account of business loss and unabsorbed depreciation. The brief facts of this case are that on verification of the case records relevant to year under consideration, it was found that the assessee had filed return of income at Rs. 85,55,914/- after set off of brought forward business loss and unabsorbed depreciation amounting to Rs. 7,35,45,931/- and Rs. 1,63,767/- respectively. On this issue, the ld. CIT(A) has directed the ld. A.O that the set off of brought forward business loss and unabsorbed depreciation may be re-adjudicated after due verification of record.

At the time of hearing, the ld. D.R submitted that the matter may be restored to the file of the ld. A.O for due verification.

Having heard the submissions of the ld. D.R this ground is remanded to the file of the ld. A.O for verification on the issue. The ld. A.O shall also comply with principles of natural justice while adjudicating the matter. Ground No. 2 of revenue‟s appeal is allowed for statistical purposes.

In ground No. 3, the revenue contends that the ld. CIT(A) had erred in directing the ld. A.O to give credit on account of MAT while charging interest u/s 234B and 234C and that without also appreciating that the interest u/s 234 of the Act is to be charged before allowing MAT credit. However, this issue is no longer res integra since Hon‟ble Jurisdictional High Court in the case of CIT – III, Mumbai Vs. Apart Industries Ltd. (2010) 190 taxman 353 (Bombay) dated 06-04-2020 has held that the MAT credit to which the assessee is entitled must be given before computing interest payable u/s 234B of the Act. Therefore. The interest u/s 234 is to be charged after allowing MAT credit. Similarly, Hon‟ble Karnataka High Court in the case C.I.T. Vs. B.P.L. Ltd. (2014) 49 taxman..com 542 (Karnataka) has also held that the MAT credit should be given to the assessee before charging interest u/s 234B and 234C of the Act. The stand of the Revenue therefore that the interest u/s 234B and 234C is to be charged before allowing MAT credit is wrong. Ground No. 3 of revenue‟s appeal is dismissed.

In the result, appeal of the Revenue is partly allowed for statistical purposes.