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Income Tax Appellate Tribunal, MUMBAI BENCH “G”, MUMBAI
(A.Y : 2010-11) M/s Manekchand Panachand Trading Vs. The ITO 5 (2) (3) Investment Co. ltd 5th Floor, Aayakar Bhavan Hira Baug, C.P. Tank Road M.K.Marg Churni Road (E) Mumbai – 400 020 Mumbai – 400 004 PAN : AAACM4147P (अपीलार्थी / Appellant) (प्रत्यर्थी / Respondent) अपीलार्थी की ओर से / Appellant by : None प्रत्यर्थी की ओर से Respondent by : Mrs Beena Santosh सुनवाई की तारीख / Date of Hearing : 13/02/2017 घोषणा की तारीख Date of Pronouncement : 22/02/2017 आदेश / O R D E R PER C.N.PRASAD (J.M.) : This appeal is filed by the assessee against the order of the Ld. CIT (Appeals)-10, Mumbai dated 10.06.2016 for the assessment year 2010-11. The assessee has raised the following grounds :
“1. On the facts and in the circumstances of the case the learned CIT(A) erred in holding that interest paid is disallowable u/s.36(1)(iii) of the Act in the hands of the appellant company.
2 M/s Manekchand Panachand Trading Investment Co. P.Ltd. 2. (i) On the facts and in the circumstances of the case, the learned CIT(A) erred in holding that interest paid of Rs.63.14 lakhs to be disallowed u/s.36(1)(iii) of the Act. (ii) The CIT(A) erred in replacing the disallowance made u/s.14A with section 36(1)(iii) without issuing any notice including notice u/s.251(1)(a) of the Act, when no such disallowance is made u/s.36(1)(iii) of the Act by the Assessing Officer in the order under appeal.
The appellant prays that the addition of Rs.63.14 Lakhs directed to be added to be deleted.”
Inspite of issue of notice, none appeared on behalf of the assessee nor any adjournment petition is moved on behalf of the assessee. We dispose of this appeal on hearing the ld. DR.
3. The ld.DR submits that the Assessing Officer while completing the assessment u/s 143(3) of the Act on 26.03.2013 disallowed Rs.86,89,339/- by invoking the provisions of section 14A of the Act. On appeal by the assessee, the ld. CIT (Appeals) held that disallowance of interest u/s 36(1)(iii) is required to be made but the Assessing Officer made disallowance u/s 14A r.w. Rule 8D is not in order. Therefore he directed the Assessing Officer to replace the disallowance made u/s 14A with 36(1)(iii) of the Act. The ld. DR supported the orders of the ld. CIT (Appeals).
We have perused the orders of the authorities below. The Assessing Officer by invoking provisions of section 14A r.w. Rule 8D made disallowance of Rs.86,89,339/-. However, the ld. CIT (Appeals) on analyzing the amounts
3 M/s Manekchand Panachand Trading Investment Co. P.Ltd. Assessee and the amounts lent by the Assessee to its sister concerns came to the conclusion that the Assessing Officer should have made disallowance u/s 36(1)(iii) but not u/s 14A r.w. Rule 8D. He also came to the conclusion that the disallowance made by the assessing officer u/s 14A r.w. Rule 8D is not in order as according to the ld. CIT(Appeals), Assessing Officer has not properly appreciated the said section in the given circumstances. The ld. CIT (Appeals) observed that there is a direct nexus between the funds borrowed by the assessee and lent to the sister concerns. He also observed that on borrowed funds, Assessee is paying interest @14% and only a meagre interest was charged from the funds given to the sister concerns. Therefore, he was of the view that the disallowance should be made u/s 36(1)(iii), but not u/s 14A r.w. Rule 8D of the Act. It is also observed by the ld.CIT(Appeals) that even presuming that Assessee being a holding company has made investments in the sister concerns to promote their business, no evidence has been furnished to show that there is existence of business expediency in such transactions. Therefore, he directed the Assessing Officer to disallow interest u/s 36(1)(iii) by replacing the provisions of Section 14A and worked out such disallowance to be made at Rs.63.14 lakhs.
On perusal of the order of ld. CIT (Appeals), we find that the ld. CIT (Appeals) never asked the assessee to explain as to why the provisions of section 36(1)(iii) should not be invoked in its case or the provisions of section 14A should be replaced with 36(1)(iii) of the Act. On perusal of ld. CIT (Appeals) order, we also find that at no point of time, the ld.CIT(Appeals) asked assessee to file the evidences to show that the amounts given to the sister
4 M/s Manekchand Panachand Trading Investment Co. P.Ltd. concerns were for the business expediency. Ld. CIT (Appeals) also observed that the assessee has not filed any details that the funds borrowed were utilized only for the business of the assessee. In the absence of the ld. CIT (Appeals) giving an opportunity to the assessee calling for any explanation from the assessee, the decision taken by the ld. CIT (Appeals) to replace the provisions of section 14A with 36(1)(iii) is in violation of principles of natural justice. The ld. CIT (Appeals) should have proposed in the course of the proceedings before him and asked the assessee to explain as to why the provisions u/s 36(1)(iii) should not be invoked in place of section 14A r.w.Rule 8D which was invoked by the Assessing Officer. In the absence of any such action by the ld.CIT(Appeals), the decision of the ld.CIT (Appeals) violates principles of natural justice, therefore, we are of the considered view that this matter should go back to ld.CIT (Appeals) for proper opportunity of being heard to the assessee. Thus we restore this appeal to the file of ld.CIT (Appeals) who shall decide the issue afresh after providing adequate opportunity of being heard to the assessee.
In the result, Appeal of the assessee is allowed for statistical purpose.
Order pronounced in the open court on the 22nd day of February 2017.