2021 (4) TMI 345 - AT - Income Tax

Disallowance of interest u/s 36(1)(iii) - AR submitted that the assessee has given details of interest expenses as debited in the profit and loss account in respect of interest on loan from PNB and interest on car loan- HELD THAT - CIT(A) has observed that no documentary evidence in support of the value of the machinery was produced before the Assessing Officer as well as before the Appellate Authority i.e. CIT(A). CIT(A) further observed that no proof of creation of charge of machinery in favour of bank was filed. AR submitted that all the relevant documents were submitted before the Assessing Officer as well as before the CIT(A), but the same was not verified by the Assessing Officer as well as by the CIT(A). Therefore, it will be appropriate to remand back the issue to the file of the Assessing Officer for proper adjudication in respect of the evidences produced by the assessee and thereafter pass an appropriate order in accordance with law. Needless to say, the assessee be given opportunity of hearing by following principles of natural justice. Appeal of the assessee is partly allowed for statistical purpose.

Summary

Issues:
- Disallowance of interest under proviso to Section 36(1)(iii) of the Income Tax Act, 1961.

Analysis:
The appeal was filed against an order passed by CIT(A)-Meerut for the assessment year 2012-13. The assessee, engaged in manufacturing and sale of Duplex Board, debited interest expenses on a term loan amounting to ?99,14,425 in the profit and loss account, claiming deduction under Section 36(1)(iii) of the Income Tax Act, 1961. The Assessing Officer disallowed the interest expenses, stating that they were wrongly debited as per the proviso to Section 36(1)(iii) since the installation of plant and machinery, for which the loan was taken, was completed by February 2012.

The CIT(A) partly allowed the appeal, and during the proceedings, the assessee provided details of the interest expenses debited in the profit and loss account. The assessee had taken loans from a bank, utilized for additions to plant and machinery, leading to increased production levels. The bank disbursed loans for machinery purchases during the relevant period. The assessee submitted evidence, including a certificate from the bank regarding project completion by September 2011 and details of machinery purchased. However, the CIT(A) noted the absence of documentary evidence supporting the machinery's value and the creation of a charge in favor of the bank.

After hearing both parties, it was decided to remand the issue back to the Assessing Officer for proper adjudication based on the evidence submitted by the assessee. The order highlighted the need for verification of documents and the opportunity for the assessee to be heard following the principles of natural justice. Consequently, the appeal was partly allowed for statistical purposes.

This judgment underscores the importance of substantiating claims with documentary evidence and the significance of proper verification by tax authorities. The decision to remand the issue for further assessment emphasizes the procedural fairness and adherence to legal principles in tax matters.