SUNANDA INDUSTRIAL MACHINERY LTD,MUMBAI vs. DCIT 1(3), MUMBAI

Order u/s.254(1)of the Income-tax Act,1961(Act) लेखा सदस्य, राजेन्द्र के अन सार/ PER RAJENDRA, AM- Challenging order dated 25.12.2012 of CIT(A)-7,Mumbaithe assessee has filed the present appeal.Assessee-company,engaged in the business of trading of industrial machinery,filed its return on 29.02.2008,declaring loss of Rs.15.36 lakhs.The Assessing Officer (AO)completed the assessment 03.10.2010, u/s 143(3) of the Act,determining its income at Rs.43.29 lakhs. 2.Effective ground of appeal is about disallowance of interest expenditure of Rs.58.66 lakhs. During the assessment proceedings,the AO found that the assessee had taken unsecured loan of Rs.21.38 crores from M/s.Navin Flourin International Ltd(NFIL),that it paid interest of Rs.58, 66,689/-for the year under consideration.He directed it to file details in that regard.On verifica - tion of the details,he observed that the assessee had shown, receivable from Mafatlal Industries Ltd.(MIL)an amount of Rs.21.38 crores on account of difference between management fees and value of TDR,that it had,at behast of its holding company namely MIL,taken an assignment of debt from State Bank of India,alongwith underlying securities,all other rights/titles and entitle- ment pertaining to MIL for a total cost of Rs.6548.49 lakhs. He directed the assessee to furnish a copy of the ledger account of MIL-receivable account.After verifying the same,he held that the assessee had paid to SBI for repayment of loan to MIL,that it had paid for difference between management fees and value of TDR by NFIL for MIL-account and for the balance amount of TDR /MIL-account as well as for debentures issued to SBI-MIL account.Considering these facts, he held that the assessee had not taken any loan from NFIL,that the entries passed in the books were only journal entries.that adjustment entries were in respect of receivables from MIL,that MIL had passed on its liability to the assessee,that the interest paid by it could not be said to have been incurred wholly and exclusively for the purpose of assessee’s business.Finally,he made a disallowance of Rs.58.66 lakhs and added it to the total income of the assessee.

3.Aggrieved by the order of the AO the assessee preferred an appeal before the First Appellate Authority(FAA)and made elaborate submissions, he held that claim made by the assessee was completely untenable,that the AO had rightly held that liability of interest had not been incurred wholly and exclusive for the purpose of the business of the assessee, that the reference to the case of Nagri Mills Co. Ltd (36 ITR 81) was of no help to the assessee, that the question before him was not only collection of tax, that it was a statutory obligation of the assessee to filed its return of income in true and correct manner, that making claim of expenses which did not belong to it clearly amounted to making bogus claim,that the claim made by the assessee was not allowable u/s.36 or 37 of the Act.Finally,he upheld the order of the AO.

4.Before us the Authorised Representative(AR)referred to the page no 68 of the paper book where the total income of the AY.2009-10 had been calculated.The assessee had added Rs.58.66 lakhs to its income shown for that AY.and in the statement the assessee has mentioned “provision no longer required return back (interest 2007-08)”.The AR also referred to the order passed by the AO u/s.154 of the Act,dated 13/03/2013.He further argued that during the year under consideration the assessee has debited the disputed amount towards interest payable to NFIL,that in the subsequent AY.was debited to MIL account in terms of provision of modified scheme of MIL sanctioned by BIFR,that Rs.67 crores were recovered from MIL, that there was no difference in the rate of tax,that the controversy about the year of assessability was unnecessary. He made reference to case of Nagri Mills Co. Ltd (supra) along with the other case laws of the Tribunal,that there was no loss to Revenue in respect of above transactions.The Departmental Representative(DR)supported the order of the FAA and stated the expenditure was not allowable during the year under consideration,that the expenditure belonged to the sister concern.

5.We have heard the rival submissions and perused the material before us.We find that the FAA had not passed a speaking and reasoned order.The assessee had relied upon certain case laws decided by the Tribunal,wherein identical issue was deliberated upon.He had not considered the facts of those cases before adjudicating the appeal.The purpose of creating provision and offering the same in subsequent year was not looked in to by him while deciding the appeal.The agreements dealing with the transaction were made available to him.He is silent about those documents.In our opinion,matter needs further verification and investigation at the level of the FAA.Therefore,in the interest of justice,we restore back the matter to the file of the FAA for fresh adjudication.He is directed to afford a reasonable opportunity of hearing to the assessee. Effective ground of appeal is decided in favour of the assessee,in part.