M/S SHREEJI CONSTRUCTION CO.,RAJKOT vs. THE INCOME TAX OFFICER, WARD-2(1) (1), RAJKOT

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ITA 378/RJT/2017Status: HeardITAT Rajkot01 July 2022AY 2010-115 pages
AI SummaryRemanded

What did the Tribunal hold?

The Tribunal restored the matter to the Assessing Officer to verify the factual inaccuracies regarding the nature of interest payments and to give the assessee an opportunity to be heard. The AO was also directed to check if the payees had declared the interest income.

What were the facts?

The Assessing Officer disallowed interest expenses of Rs. 8,06,835/- for non-deduction of TDS on payments made to NBFCs. The assessee contended that a significant portion of the interest was not paid to NBFCs, but this claim was not substantiated before the lower authorities.

What were the issues?

Whether the disallowance of interest expenses under Section 40(a)(ia) was justified, and whether the assessee was denied a proper opportunity to present its case.

Which sections of the Income-tax Act were involved?

Section 40(a)(ia),Section 143(3),Section 147

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, RAJKOT BENCH, RAJKOT

Before: Shri Waseem Ahmed & Shri Siddhartha Nautiyal

For Respondent: Shri B.D. Gupta, Sr. D.R

आदेश/ORDER

PER BENCH:- This assessee’s appeal, arises from order of the ld. Commissioner of Income Tax (2), Rajkot dated 09-08-2017, in proceedings under section 143(3) r.w.s. 147 of the Income Tax Act, 1961; in short “the Act”.

Page No. 2 M/s. Shreeji Construction Co. vs. ITO

2.

The assessee has raised the following grounds of appeal:- “1. The re-assessment order passed u/s. 143(3) r.w.s. 147 is bad in law.

1.

2. The A.O. has erred in law as well as on facts in reopening the assessment as well as in passing the assessment order without giving opportunity of hearing.

3. The A.O. has erred in law as well as on facts in making the disallowance of Rs. 8,06,835/- by holding that the appellant is not eligible for the claim of the interest expense paid to NBSC without deducting TDS. The ld. CIT(A) has erred in law as well as on facts in confirming disallowance of Rs. 8,06,835/-.

The appellant craves leave add, alter, amend, delete or withdraw one or more grounds of appeal.”

3. Briefly stated the relevant facts are that the assessee’s case was reopened under section 147 of the Act for the reason that the assessee had debited interest expense of ₹ 8,06,835/- and the total outstanding amount of loan was ₹ 24,45,805/-, of which an amount of ₹ 24,26,402/- (about 99%) was taken from non-banking financial company Kotak Mahindra Captive Loan. The Ld. Assessing Officer noted that TDS was not deducted by the assessee on the above-mentioned interest payments. The Assessing officer, therefore, invoked the provisions u/s. 40(a)(ia) of the Act and disallowed the above interest expenses of Rs. 8,06,835/-. Before the Ld. CIT(A), the assessee contended that the interest expenses of Rs. 8,06,835/- do not pertain to interest payments to NBFC and only small amount of Rs. 1,87,292/- was the interest payment to NBFC and therefore, the disallowance of entire interest expenses was factually incorrect. The assessee contended that the Page No. 3 M/s. Shreeji Construction Co. vs. ITO loan from Kotak Mahindra Bank and Magma Fincorp Ltd. was acquired at the year end and only the interest of Rs. 31,616/- was paid to these two NBFC and the balance interest of Rs. 1,55,676/- was paid to TATA Motors Finance. Accordingly, only an amount of ₹ 1,87,292/- was paid to NBFC and hence the entire disallowance of interest was uncalled for in the instant set of facts. However, the Ld. CIT(A) dismissed the assessee’s appeal with the following observations:

Having considered facts and circumstances of the case I find that the assessee had not taken any plea before AO that the interest does not pertain to NBFC'. The claim therefore is an additional evidence. Besides, even this claim is not substantiated by any plausible evidence. No bank statement has been filed to evidence that the impugned interest was bank interest. Moreover, the interest of Rs. 31,616/- claimed to have been paid to Kotak Mahindra Bank and Magma Fincorp Ltd. is in fact not part of Rs. 8,06,835/-. Therefore, no credence can be given to the claim of assessee that interest expenses pertained to bank loan. The claim that Tata Motors Finance must have included impugned amounts in its return of income is a mere surmise which is not tenable and can not take the assessee out of ambit of section 40(a)(ia).

In view of the above discussion, the disallowance is confirmed and ground of appeal is rejected.

Page No. 4 M/s. Shreeji Construction Co. vs. ITO

10.

For statistical purpose, the appeal of the assessee is to be treated as dismissed.”

4.

Before us, none appeared on behalf of the assessee. We note that the assessee has contended that there were factual inaccuracies in the order passed by the revenue authorities since the interest payments did not pertain to NBFC’s as stated in the assessment order, and therefore no disallowance of interest is called for under section 40(a)(ia) of the Act. Therefore, in the instant facts, in the interests of justice, we are hereby restoring the matter to the file of the Ld. Assessing Officer to verify the precise facts after giving due opportunity to the assessee of being heard. The Ld. Assessing Officer is also directed to verify whether the payees have declared the aforesaid amounts of interest in their return of income, and whether the assessee was an assessee-in-default so as to justify disallowance under section 40(a)(ia) of the Act. In the result, the case is being restored to the file of the Ld. Assessing Officer with the above directions.

5.

In the result, the appeal of the assessee is allowed for statistical purposes.

Order pronounced in the open court on 01-07-2022

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