M/S KARLE PROPERTIES,BANGALORE vs. THE ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE-6(2)(1), BANGALORE

O R D E R

Per Shri A.K. Garodia, Accountant Member

by the assessee are as under. “1. The learned Assessing Officer had erred in passing the order in the manner passed by him and the learned CIT(A) has erred in confirming the same. The orders passed are bad in law and is liable to be quashed.

2. The learned CIT(A) has erred in dismissing the appeal filed by the appellant against the order passed u/s 143(3) of the Act holding that: i) The disallowance made in the Order appealed against is only Rs. 3,357/- which was not challenged by the appellant. ii) the disputed disallowance of Rs.1,69,29,875/- was not made in the assessment order while computing the assessed income. iii) Such disallowance is made in the order passed u/s 154 of the Act iv) The order passed U/s. 154 of the I.T. Act, is a separate order by itself and separate appeal would lie against such order. The findings/conclusions drawn by the learned CIT(A) being erroneous both on facts and law are to be disregarded.

Page 2 of 4 3. The learned CIT(A) ought to have appreciated the fact that there is a clear finding in the assessment order regarding the disallowance of Rs. 1,69,29,875/- u/s 36(1)(iii) of the Act (though omitted to be added while computing the assessed income) and the appellant had rightly challenged such finding of disallowance in the appeal filed by him.

6. The appellant had rightly claimed the interest as business expenditure as all the borrowed funds were utilized for the purpose of business only. The finding of disallowance as made being erroneous is to be deleted and interest as claimed is to be allowed as deduction.

7. In any case, the advances given to sister concerns and other are out of business expediency and further there are sufficient free funds to support such advance and therefore also the finding as given by the Assessing Officer in Assessment order was erroneous.

8. In view of the above and on other grounds to be adduced at the time of hearing, it is requested that impugned order passed be quashed or at least the finding of disallowance u/s 36(1)(iii) of the Act be deleted and interest levied under various sections be also deleted.”

4. We have considered the rival submissions. First of all, we reproduce para no. 8 from the order of ld. CIT(A). This reads as under. “8. It is seen that AO in the assessment order u/s 143(3), dated 09/03/2016, made an addition of Rs.3,357/-.The appellant has not challenged the addition of Rs.3357/-. The appellant has stated that the AO has passed an order u/s 154, suo motto, rectifying the impugned order u/s 143(3) where he has made an addition of Rs.1,69,29,875/- and challenged the same in this appeal. This order u/s 154 is not brought on record. The order u/s 154 is a separate order by itself and additions therein, if challenged, has to be done so by a separate appeal. The appellant has not done this. The order u/s 143(3) stands confirmed.”

5. We have also gone through the assessment order passed by the AO u/s. 143(3) on 09.03.2016 and we find that in this order, the AO has made addition of only Rs. 3,357/- and no ground is raised by the assessee against this addition of Rs. 3,357/- before ld. CIT(A) or before us. The issue in dispute before us in this appeal is regarding addition of Rs. 1,69,29,875/- and we find that on page no. 2 of the assessment order, the AO has discussed about this claim of the assessee for deduction of Rs. 1,69,29,875/- as interest expenditure and the AO has observed on this page of the assessment order that even if the entire debit were to be considered under the above recast profit and loss account for business conducted, the entire interest will have to be capitalized along with the closing work in progress shown. Even after making such observations, no addition has been actually made by the AO in the computation of the income on this page of the assessment order. It has been stated by assessee before ld. CIT(A) and before us that subsequently, the AO passed the order u/s. 154 suo moto and in that order, this addition was actually made by the AO and the assessee has also filed an appeal against the order passed by the AO u/s. 154 and this appeal is pending before the ld. CIT(A). Considering all the facts as discussed above and particularly

Page 4 of 4 in view of this fact that the AO has discussed in the assessment order passed by him u/s 143 (3) against which the present appeal is filed, there is discussion about this issue in respect of disallowance of Rs. 1,69,29,875/- although actual addition was not made in this order but made in the order passed by the AO u/s 154, we feel it proper to restore this matter back to the file of ld. CIT(A) for a simultaneous decision along with the appeal filed by the assessee against the order passed by the AO u/s. 154 of the IT Act. We order accordingly and we do not make any comment about the merit of the case.