HIRANANDANI HEALTHCARE P. LTD,NAVI MUMBAI vs. DCIT 10(3), MUMBAI

The two interconnected issues in this appeal of assessee are against the order of CIT (A) confirming action of the AO i.e. (i) disallowance of interests of Rs. 3,97,999/- by adding to current work-in-progress and (ii) disallowance of expenses amount to Rs. 3,67,783/- u/s 37(1) of the Act.

We have heard the rival contentions and gone through the facts and circumstances of the case. The assessee is engaged in the business of providing healthcare services. During the course of the assessment proceedings, the AO disallowed interest of amount to Rs. 3,97,999/- and added to capital work-in-progress. The assessee had disclosed capital work-in-progress amounting to Rs. 46,82,492/- during the year and also debited interest to the P&L account amount to Rs. 7,81,30,306/-. The AO was of the view that assessee is not able to establish direct nexus vis-a-vis utilization of funds for the purpose of capital work-in-progress and accordingly he calculated proportion disallowance to be capitalized to capital work-in-progress on the basis of available material on record. He

Aggrieved assessee preferred before CIT (A), who also confirmed the action of the AO only on the reason that the assessee could not filed complete details with documentary evidences as to how the borrowed funds have been utilized. In the absence of details, the AO made addition of proportionate disallowance of utilization of borrowed funds for the project and not accepted contentions of the assessee. The assessee before CIT(A) contended that the Assessing Officer computed the disallowance of interest and added to capital work-in-progress on a pro-rata calculation without calling for the purpose of utilization of borrowed funds to identify whether the same has been utilized towards capital work-in-progress. Since these details were not available with the lower authorities and both the authorities below have made this addition and confirmed the same. In view the facts and circumstances, we are of the view that let one more opportunity be provided to assessee to file the details and purposes of utilization of borrowed funds to identify whether any part of the same has been utilized towards capital work in progress. Accordingly, this issue of the assessee is set aside to file AO re- adjudication after allowing opportunity of being heard to the assessee.

As regards to disallowance of expenses related to services provided to employees of various companies amounted to Rs. 3,67,783/-, we find that the CIT(A) has recorded a finding of fact that the assessee could not file the documentary evidence in the regard to extra services provided by assessee in the agreement separately for employees of the company. In this aspect also, we are of the view let this issue be re-adjudicated by the AO after allowing reasonably opportunity of being heard to the assessee. Hence both the issues of the appeals are restored back to the file of Assessing Officer and allowed for statistical purpose.

In the result, the appeal of the assessee is allowed for statistical purpose. Order pronounced in the open court on 02 -11-2016.