The Chennai bench of the Income Tax Appellate Tribunal (ITAT) directed readjudication on grounds of non verification of additional evidence by the assessing Officer (AO).
The assessee filed its return of income for the assessment year 2015-16 on 30.11.2015 admitting NIL income and current year loss of ₹.7,87,45,865/-.
The Assessing Officer noted that the assessee claimed a sum of ₹.8,59,47,532/- as finance cost for the year under consideration. The interest bearing funds borrowed by the assessee as on 31.03.2015 amounted to ₹.52,10,71,285/-. Also, the assessee incurred interest expenses to the tune of ₹.8,59,47,532/- as finance cost.
The AO also noted that the assessee had advanced a sum of ₹.15,00,00,000/- as advance for purchase of land for which an agreement has been entered into but no registration has been taken place and therefore, not put to use by the assessee.
It was also observed by the AO that the assessee has disguised an interest free loan to fellow subsidiary as an advance for purchase of land. As per section 36(1)(iii) of the Income Tax Act, 1961, the amount of the interest paid in respect of capital borrowed for the purpose of the business or professional one shall be allowed as a deduction.
However, since the assessee had claimed interest on sums advanced to fellow subsidiary which has no connection with the business of the assessee, as per section 36(1)(iii) of the Income Tax Act, the Assessing Officer disallowed the sum of ₹.2,47,41,586/-
Aggrieved by the decision, the Revenue appealed. It was submitted that, the CIT(A) deleted the disallowance made under section 36(1)(iii) of the Income Tax Act without affording an opportunity to the Assessing Officer to verify the additional evidences (violation Rule 46A of the Income Tax Rules).
The next ground in the appeal of the Revenue related to deletion of addition of income received in advance. The assessee reported a sum of ₹.10,15,70,004/- as on 31.03.2015 as income received in advance under Current Liabilities.
The Assessing Officer noted that the opening & closing stock has not undergone any change during the year. It was also noted that the assessee debited all expenses during the year while corresponding revenue had not been recognized. Thus, the Assessing Officer observed that the assessee cannot claim that the assessee is following percentage completion method.
The assessee was asked to explain the same. After considering the submissions of the assessee, by elaborately discussing the observations, the Assessing Officer has held that the sum of ₹.10,15,70,004/- was deemed to be the income of the assessee for the assessment year 2015-16 and added back to the total income returned. The CIT(A) held that section 41(1) of the Income Tax Act cannot be invoked in this case.
The Department Representative submitted that the CIT(A) deleted the addition of income received in advance.
Further submitted that the assessee has not furnished any details regarding billing, work progress, receipts of Nagai Project and also not explained the matching concept regarding ₹.1.5 crores of income as against ₹.17.31 crores of expenses and hence, the Assessing Officer has rightly treated the advance outstanding for more than 3 years as income of the assessee.
Furthermore, no documentary evidences was submitted by the assessee either before the Assessing Officer or before the CIT(A) with regard to its claim of arbitration.
The two bench member comprising of Durga Rao and G. Manjunatha observed that the matter pending before the Indian Council of Arbitration had not attained its finality as the hearing of the case had been fixed as 31t January, 2023 and 1st February, 2023.
Thus the tribunal remitted the matter back to the file of the Assessing Officer to decide the issue afresh in accordance with law after considering the submissions made before the CIT(A).
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