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

The assessee has raised four ground in its appeal and they are extracted herein below for reference:

Brief facts of the case are that the assessee is a limited company engaged in manufacturing of ferro alloys. The assessee has filed its return of income for the AY 2017-18 and later revised return was filed on 31/3/2019 declaring loss of Rs. 16,96,50,304/-. The case was selected for scrutiny under CASS and statutory notices U/s. 143(2) and 142(1) were served on the assessee through ITBA module. In response to the notices the assessee filed various submissions before the Ld. AO. The Ld. AO after considering the submissions disallowed the interest paid to Shri Girija Alloys & Power (I) Pvt Ltd., (SGAPPL) for Rs.2,22,54,745/-. In the absence of any formal agreement between the assessee company and SGAPPL the Ld. AO made disallowance of Rs. 2,22,54,745/- in his assessment order. The Ld. AO also disallowed an amount of

Before the Ld. CIT (A), the assessee filed written submissions against the additions made by the Ld. AO. After considering the written submissions made by the assessee company and relying on various case laws as discussed in his order, the Ld. CIT(A) allowed the sum of Rs. 2,25,500/- which was disallowed by the Ld. AO U/s. 14A of the Act. However, the Ld. CIT(A) concurred with the Ld. AO on the issue with respect to disallowance of interest of Rs. 2,22,54,745/- and upheld the order of the Ld. AO. Aggrieved by the order of the Ld. CIT (A), NFAC, Delhi the assessee is in appeal before us.

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

In the result, appeal of the assessee is dismissed.