M/S PRAKASH DISTILLERY & CHEMICAL CO PVT LTD,SILIGURI vs. D.C.I.T.CIR - 1,SILIGURI, SILIGURI

The issue involved in Grounds No. 1 & 2 of this appeal relates to the disallowance of Rs.5,88,061/- made by the Assessing Officer and confirmed by the ld. CIT(Appeals) under section 14A of the Act on account of interest paid by the assessee on the borrowed funds.

The assessee in the present case is a Company, which is engaged in the business of manufacturing and reselling of Rectified Country Spirit. The return of income for the year under consideration was filed by it on ./2013 Assessment Year: 2008-2009 Page 2 of 5 07.11.2008 declaring total income of Rs.3,42,455/-. In the said return, deduction of Rs.31,48,756/- was claimed by the assessee on account of interest paid on secured loans. During the course of assessment proceedings, the assessee was called upon by the Assessing Officer to establish the usage of the said loans in its regular business and since the assessee failed to establish such usage to the satisfaction of the Assessing Officer, the later held that proportionate disallowance out of interest expenditure claimed by the assessee was required to be made as per the provisions of section 14A of the Act to the extent it was attributable to the corresponding investment made by the assessee in shares, the dividend income of which was exempt from tax. Accordingly, such interest attributable to the investment made in shares was worked out by the Assessing Officer at Rs.5,88,011/- by applying Rule 8D and disallowance to that extent was made by him under section 14A of the Act. On appeal, the ld. CIT(Appeals) confirmed the said disallowance made by the Assessing Officer by observing that in the absence of satisfactory explanation offered by the assessee regarding actual usage of these secured loans for the purpose of its regular business, the Assessing Officer was fully justified in making proportionate disallowance out of interest expenditure by invoking the provisions of section 14A.

We have heard the arguments of both the sides on this issue and also perused the relevant material available on record. As pointed out by the ld. counsel for the assessee from the copy of balance-sheet of the assessee-company as on 31.03.2008 placed at page no. 6 of the paper book, sufficient own funds of Rs.6.09 crores in the form of Share Capital and Reserves were available with the assessee-company at the relevant point and since the same were sufficient to cover corresponding investment of Rs.1.50 crores in shares, it can safely be presumed that the investment in shares was made by the assessee out of its own funds. There was thus no diversion of funds borrowed by the assessee-company on interest for making investment in shares and disallowance on account of interest under section 14A was not called for as no expenditure on ./2013 Assessment Year: 2008-2009 Page 3 of 5 account of interest was incurred by the assessee in relation to the earning of any exempt income. We, therefore, find merit in the contention of the ld. counsel for the assessee that there was no justification in the disallowance made by the Assessing Officer under section 14A and confirmed by the ld. CIT(Appeals) on account of interest and deleting the same, we allow Grounds No. 1 & 2 of the assessee’s appeal.

The issue raised in Ground No. 3 relates to the disallowance of Rs.24,641/- made by the Assessing Officer and confirmed by the ld. CIT(Appeals) under section 40(a)(ia) for the failure of the assessee to deduct tax at source from the interest paid on unsecured loans.

During the course of assessment proceedings, it was noticed by the Assessing Officer that the assessee has not deducted tax at source from the interest of Rs.24,641/- paid on unsecured loans as required by the relevant provisions of the Act. Since no satisfactory explanation in this regard could be offered by the assessee, the Assessing Officer invoked the provisions of section 40(a)(ia) and made a disallowance of Rs.24,641/- on account of interest. On appeal, the ld. CIT(Appeals) confirmed the said disallowance after having found that no documentary evidence was filed by the assessee to show that tax at source was deducted from the payment of interest as required by the relevant provisions of the Act.

We have heard the arguments of both the sides on this issue and also perused the relevant material available on record. Even before us, the ld. counsel for the assessee has not been able to explain satisfactorily the reason for the failure of the assessee to deduct tax at source from the interest in question paid on unsecured loans. He has also failed to file any documentary evidence to show that such TDS was made as per requirement of the relevant provision. We, therefore, find no justifiable reason to interfere with the impugned order of the ld. CIT(Appeals) confirming the disallowance made by the Assessing Officer on account of ./2013 Assessment Year: 2008-2009 Page 4 of 5 interest amounting to Rs.24,641/- under section 40(a)(ia) of the Act and upholding the same, we dismiss Ground No. 3 of the assessee’s appeal.

The issue raised in Ground No. 4 relates to the assessee’s claim for carry forward of earlier years loss, which has been disallowed by the Assessing Officer and confirmed by the ld. CIT(Appeals).

In the return of income filed for the year under consideration, brought forward loss of Rs.7,66,939/- from the earlier years was set off by the assessee against the income for the year under consideration. From the return of income filed electronically by the assessee for A.Y. 2007-08, it was noticed by the Assessing Officer that no such carry forward of loss was mentioned by the assessee. He, therefore, disallowed the claim of the assessee for the set off of such brought forward loss. On appeal, the ld. CIT(Appeals) upheld the action of the Assessing Officer on this issue after having found from the assessment order passed under section 143(3) for A.Y. 2007-08 that no such carry forward of loss was allowed by the Assessing Officer.

We have heard the arguments of both the sides on this issue and also perused the relevant material available on record. The ld. counsel for the assessee has placed on record before us a copy of Schedule CFL filed along with the return of income for A.Y. 2007-08 to show that the loss to the extent of Rs.7,66,939/- pertaining to the earlier years was carried forward by the assessee. He has submitted that although such loss was not indicated by the Assessing Officer in the assessment order passed for A.Y. 2007-08, the fact that there was such a carry forward loss, can be verified by the Assessing Officer from the relevant record before allowing the claim of the assessee for set off of the same against the income of the year under consideration. Accordingly, we restore this issue to the file of the Assessing Officer for verifying the claim of the assessee from the relevant record and allowing appropriate relief to the assessee on such ./2013 Assessment Year: 2008-2009 Page 5 of 5 verification. Ground No. 4 of the assessee’s appeal is accordingly treated as allowed for statistical purposes.

In the result, the appeal filed by the assesese is allowed in part as indicated above. Order pronounced in the open Court on January 06, 2017.