SRINIVASA FERRO ALLOYS LIMITED,SAMALKOTA vs. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-4(1), VISAKHAPATNAM

This appeal filed by the assessee against the order of the Ld. CIT (A), National Faceless Appeal Centre (NFAC) vide order DIN No. ITBA/NFAC/S/250/2020-21/1031134295(1), dated 02/03/2021 passed U/s. 143(3) r.w.s 250(6) of the Act for the AY 2017-18.

The order of the Hon’ble Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi U/s. 250 has failed to appreciate the facts of the case before passing the order and did not consider that there is no basis for the addition of Rs. 2,22,54,745/- towards interest paid to M/s. Shri Girija Alloy & Power (I) Private Limited.

The appellant pleads for permission to add/amend/modify/withdraw any of the above grounds at the time of hearing.

Before us, at the outset, the Ld. AR submitted that the assessee- company has paid interest at a reasonable rate of 12% per annum on the balance outstanding at the end of the year. However, the Ld. AR accepted the fact that there is no agreement between the assessee company and SGAPPL and no TDS was deducted on the said interest payment. The Ld. AR also submitted that subsequently in response to the order U/s. 201(1) /201(1A), the assessee company has paid TDS on interest along with the interest demand raised by the ACIT (TDS), Circle- 4, Durgapur.

The Ld. AR also argued that the amount of Rs.2,22,54,745/- was shown as other income while filing the return of income by SGAPPL. Further, the Ld. AR invited our attention to page 120 of the paper book showing computation of SGAPPL.

Per contra, the Ld. DR strongly argued that the interest payment was not made in the earlier years or in the subsequent years. The Ld. DR also invited our attention to page 53 of the paper book wherein an amount of Rs. 18,00,000/- was only paid towards outstanding balance during the current year to SGAPPL. The Ld. DR vehemently opposed to the argument of the Ld. AR that it is a business decision of the assessee. The Ld. AR countering the arguments of the Ld. DR submitted that Rs. 18,00,000/- was paid against the trade payables and not against the loan account. The Ld. AR further submitted that in the books of account of SGAPPL there is a reduction in the loss and carry forward loss is also getting reduced consequently.

We have heard both sides and perused the material available on record as well as the orders of the authorities below. Admitted facts are that the assessee company has not entered into a written agreement with SGAPPL regarding the provision of funds and payment of interest including the rate of interest. We find from the financial statement submitted by the assessee company that there exists a long term borrowing of loan from financial institutions to the extent of Rs. 20.60 Crs. We find that the assessee company has utilized the borrowed funds for payment of interest to its sister concerns without entering into any proper or written or formal agreement with SGAPPL. The Ld. CIT(A) in para 8.2 of his order found that the assessee has not provided any documentary evidence to substantiate that these amounts are used exclusively for the purpose of business of the assessee company. In the absence of an agreement between parties, the purpose of payment of interest during the FY 2016-17, could not be established by the assessee. Further we find force in the argument of Ld.DR that the interest payment was not made in the earlier years or in the subsequent years. In view of the above discussions, we concur with the finding of the Ld. CIT(A), NFAC, Delhi and find no infirmity in the order of the Ld. CIT (A) and therefore no interference is required.

In the result, appeal of the assessee is dismissed.