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Income Tax Appellate Tribunal, ‘C’ BENCH: CHENNAI
Before: SHRI GEORGE MATHAN & SHRI S. JAYARAMAN
आदेश / O R D E R PER GEORGE MATHAN, JUDICIAL MEMBER:
the Order of Commissioner of Income Tax (Appeals)-5, Chennai, in dated 20.07.2017 for the AY 2011-12 & ITA No.2392/Chny/2017 is an appeal filed by the assessee against the Order of Commissioner of Income Tax (Appeals)-5, Chennai, in ITA No.23/CIT(A)-5/2013-14 dated 20.07.2017 for the AY 2010-11.
Shri N.Madhavan, ACIT, represented on behalf of the Revenue and Shri D.Anand, Adv., represented on behalf of the assessee.
Both the appeals are delayed by one day, for which, the assessees have filed Affidavits for condonation of the delay, to which, the Revenue has not raised any serious objection. Consequently, the delay of one day in filing of the appeals stand condoned and the appeals are disposed off on merits.
As the issues in both the appeals are identical, the appeals are being disposed off by this common order.
In the assessee’s appeals, the assessees are raised the following grounds: & 2392 /Chny/2017 :- 3 -:
The order of the learned Commissioner of Income (Appeals)-3, is wrong, illegal and is opposed to law.
2. The learned CIT(A) ought to have seen that the appellant had declared interest income under the head other sources and claimed the interest paid under section 57 of the Income Tax Act. The learned CIT(A) erred in law in disallowing the appellants claim of interest expenditure made under section 57 of the Income Tax Act. 3. The learned CIT(A) ought to have seen that as per section 57(iii) any expenditure which is not capital in nature and which is expended wholly and exclusively for the purpose of earning income from other sources shall be allowed as deduction. In the instant case the expenditure of interest is expended wholly and exclusively for the purpose of earning interest and is for the purpose of earning interest income therefore is allowable under section 57(iii) of the Income Tax Act. 4. The learned CIT(AJ erred in law in levying interest under section 234B of the Income Tax Act. For these and other grounds that may be rendered at the time of hearing it is most humbly prayed that the Hon’ble Tribunal may be pleased to allow the appellants appeal and thus render justice.
It was submitted by the Ld.AR that both the assessees are doing business of construction activities. The assessees had taken loans from its sister concerns, more so, the holding company for the purpose of its business. M/s.Arohi Infrastructure Pvt. Ltd., had paid an interest of Rs.1,03,89,591/- on the loan taken and M/s.Aparti Constructions Pvt. Ltd., had paid an interest of Rs.76,88,310/- on the loan taken. As the funds were not immediately required for the business, the assessees had given the said amounts as a loan to its sister concerns and consequently, M/s.Arohi Infrastructure Pvt. Ltd., had received an interest income to an extent of Rs.1,06,80,100/- and M/s.Aparti Constructions Pvt. Ltd., had received an interest income to an extent of Rs.76,01,962/-. When filing its returns, the assessees had netted off the interest received against the interest payments and had disclosed the excess/shortfall under the head income from other sources u/s.57 of the Act. In the course of the assessment, the AO had disallowed the claim of the interest expenditure & 2392 /Chny/2017 :- 4 -:
on the ground that the assessees had not proved that the interest expenditure was laid out or expended wholly or exclusively for the purpose of making or earning the income. Consequently, the AO had brought to tax the interest expenditure claimed under the head income from other sources. It was submitted by the Ld.AR that the assessees are Pvt. Ltd. Companies and the Memorandum and Articles of Association of both the companies permitted the assessees to take loans as also to give loans. It was a submission that it is an undisputed fact that the assessees have taken the loans and have paid the interest thereon. The only dispute raised by the AO was whether the expenditure representing the interest payments on the loans taken were liable to be treated as the expenditure laid out or expended wholly or exclusively for the purpose of making or earning the income. It was a submission that the loans taken by the assessees which have been used for giving the loans to the sister concerns being undisputed, the interest expenditure on the loans taken were liable to be allowed u/s.57(iii) against interest income earned. It was an alternate prayer that the AO having accepted that the assessees have taken loans from the sister concerns, more so, the holding company being M/s.Marg Ltd., for the business purpose of the assessees, the interest payment to M/s.Marg Ltd., on the said loans taken by the assessee were liable to be allowed as an expenditure when computing the business income of the assessees. This obviously would result in the income under the head business of the assessees being reduced by the amount of the interest payment which would result in the income under the head & 2392 /Chny/2017 :- 5 -: business being loss which would automatically be available for set off against the income under the head income from other sources representing interest income earned and the net result would be the same. It was a submission that the AO may be directed to allow the assessees the benefit of the expenditure representing the interest payments on the loans taken by the assessee.
In reply, the Ld.DR submitted that the assessees have not represented before the Ld.CIT(A) even though adequate opportunity has been granted. It was a submission that he has no objection if the issue is restored to the file of the Ld.CIT(A) for re-adjudication as the said facts had not been placed before the Ld.CIT(A).
We have considered the rival submissions.
A perusal of the order of the Ld.CIT(A) shows that though opportunities had been granted to the assessees, the assessees have not represented its case before the Ld.CIT(A). The reason for non- representation before the Ld.CIT(A) has been clarified by the Ld.AR stating that the Managing Director of the assessees company was in substantial problems which had resulted in him not being able to give adequate attention. Considering the fact that all the details in respect of the issue have not been considered by the AO and the fact that the assessees have not represented before the Ld.CIT(A) by restoring the & 2392 /Chny/2017 :- 6 -:
issue to the file of the Ld.CIT(A), it would not serve any purpose in so far as any evidence produced before the Ld.CIT(A) on this issue would have to be sent to the AO for his Remand Report. This being so, we are of the view that the issue in this appeal is liable to be restored to the file of the AO for re-adjudication. The AO is to verify whether the loan has actually been taken from the holding company and whether the interest has been paid to such holding company. If the loan has been taken by the assessees from any source and the assessees have paid interest on such loans taken clearly, if the assessees have used such loans for the purpose of giving further loans then the interest paid is liable to be allowed and it is only the net of the interest which is liable to be assessed as the income of the assessees. The AO shall also verify as to whether the Memorandum and Articles of Association of the assessees company permit the assessees company to give loans. The AO shall, after verifying the same, re- adjudicate the issue in accordance with law.
In the result, the appeals filed by the assessees in & 2392/Chny/2017 are partly allowed for statistical purposes.
Order pronounced in the Open Court on May 03, 2018, at Chennai.