2017 (3) TMI 1854 - AT - Income Tax

Tribunal remits interest & business expenses disallowance, emphasizes merit-based adjudication & natural justice

Krishna B. Agarwal Versus Income Tax Officer, Ward – 7 (2), Ahmedabad

The Tribunal allowed the appeal for statistical purposes, remitting the disallowance of interest expenditure and business expenses back to the Assessing ... Disallowing interest expenditure - as argued lower authorities have passed the orders without properly appreciating the fact and that they further erred in grossly ignoring various submissions, explanations and information submitted by the appellant from time to time which ought to have been considered before passing the impugned order - HELD THAT:- In case the assessee has given a concession, based on mistaken assumption of facts of law, such a concession cannot come in the way of assessee’s statutory right for assessment of income in accordance with the law. Therefore, the matter should be remitted to the file of the Assessing Officer for adjudication on merits in accordance with the law, by way of a speaking order and after giving yet another opportunity of hearing - As this issue regarding disallowance of interest is being remitted to the file of the Assessing Officer anyway, I also deem it appropriate to remit the matter regarding disallowance of business expenses to the file of the Assessing Officer as well, for fresh adjudication. The matter regarding both the above disallowances thus stands restored to the file of the Assessing Officer. Issues:1. Disallowance of interest expenditure2. Disallowance of business expenditure for want of verification3. Charging of interest under section 234B/C/D of the Act4. Initiation of penalty proceedings under section 271(l)(c) of the ActAnalysis:1. Disallowance of Interest Expenditure:The appellant challenged the correctness of the CIT(A)'s order confirming the disallowance of interest expenditure. The appellant argued that the interest-free advances were business advances and thus no disallowance should be made. The accountant of the appellant had signed the order sheet entry agreeing to the disallowance, but clarified later that it was done under a mistaken impression and that the right to challenge the disallowance was not waived. The Tribunal held that an agreement based on a mistaken assumption cannot prevent the appellant from seeking adjudication on merits. The matter was remitted to the Assessing Officer for fresh adjudication on merits.2. Disallowance of Business Expenditure for Want of Verification:The appellant contested the disallowance of a portion of business expenditure for want of verification. The appellant argued that the lower authorities did not consider the submissions and explanations provided. The Tribunal noted that the matter was not examined on merits and remitted it to the Assessing Officer for fresh adjudication, emphasizing the importance of following principles of natural justice.3. Charging of Interest under Section 234B/C/D of the Act:The appellant challenged the charging of interest under sections 234B/C/D of the Act. The Tribunal did not provide detailed analysis in the judgment regarding this issue.4. Initiation of Penalty Proceedings under Section 271(l)(c) of the Act:The appellant disputed the initiation of penalty proceedings under section 271(l)(c) of the Act. The Tribunal did not delve into this issue in the judgment.In conclusion, the Tribunal allowed the appeal for statistical purposes, remitting both the disallowance of interest expenditure and business expenses back to the Assessing Officer for fresh adjudication on merits. The Tribunal emphasized the importance of adjudicating matters on merits and following principles of natural justice.