Tribunal dismisses jurisdictional challenge, allows interest disallowance appeal citing business purpose.

The Tribunal dismissed the jurisdictional challenge based on previous acceptance of similar assessments by the assessee without challenge. Regarding the disallowance of interest under section 36(1)(iii) of the Act, the Tribunal directed the Assessing Officer to delete the disallowance for both assessment years, citing utilization of funds by subsidiary companies for business purposes as per judicial precedents. The appeals were allowed in favor of the assessee, with the orders pronounced on 14.06.2019.

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Issues:
Validity of assessment under section 153A r.w.s 143(3) of the Income-tax Act, 1961
Disallowance of interest under section 36(1)(iii) of the Act

Validity of assessment under section 153A r.w.s 143(3) of the Income-tax Act, 1961:
The appeals were against two separate orders of the Commissioner of Income Tax [Appeals] for assessment years 2015-16 and 2016-17. The jurisdictional challenge was based on the premise that the premises were not searched during the search and seizure operation under section 132 of the Act. However, since the assessee had accepted similar assessments in earlier years without challenging jurisdiction, the challenge for the current year was dismissed. The Tribunal held that once the search and seizure operation was accepted in previous years, challenging it in subsequent years is not permissible.

Disallowance of interest under section 36(1)(iii) of the Act:
Regarding the disallowance of interest under section 36(1)(iii) of the Act, the Assessing Officer questioned the increase in finance charges without a corresponding increase in business activity. The assessee explained the utilization of funds, stating that loans were used for business advances and provided documentary evidence. The Assessing Officer, however, disallowed a portion of the claimed interest, citing lack of fund flow statement to justify the utilization of interest-bearing loans for business purposes. The CIT(A) upheld the disallowance.

The Tribunal considered the fund flow statement and the utilization of funds by the subsidiary companies. Referring to judicial precedents, including the cases of Hero Cycles Ltd. and Reliance Industries, the Tribunal held that if funds were utilized for subsidiary companies' businesses, interest paid on borrowed money cannot be disallowed. It was noted that the subsidiary companies had utilized the borrowed money for their businesses in the past without disallowance. Consequently, the Tribunal directed the Assessing Officer to delete the disallowance of interest under section 36(1)(iii) of the Act for both assessment years.

In conclusion, the Tribunal allowed both appeals filed by the assessee, considering the facts of the assessment year 2015-16. The orders were pronounced on 14.06.2019.

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