Taxability on Interest Account under provisions of Sec. 36(1)(iii) of the Income Tax Act

IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH “A”, CHANDIGARH
(VIRTUAL COURT) 

BEFORE: SHRI. N.K.SAINI, VP & SHRI , R.L. NEGI, JM

ITA NO. 1419/Chd/2019
Assessment Year : 2011-12

M/s IOL Chemicals and
Pharmaceuticals Ltd.
Industrial Area-A, Ludhiana
PAN NO: AABCI1842A
Appellant 

Vs.

Addl. CIT
Range-7, Ludhiana
Respondent

Assessee by : Shri Ashwani Kumar, CA
Shri Aditya Kumar,CA
Shri Bhavesh Jindal, CA
Revenue by : Smt. C. Chandrakanta, CIT

Date of Hearing : 15/04/2021
Date of Pronouncement : 21/06/2021

Order

PER N.K. SAINI, VICE PRESIDENT

This is an appeal by the assessee against the order dt. 13/08/2019 of the Ld. CIT(A)-3 Ludhiana.

2. Following grounds have been raised in this appeal:

1. That order passed u/s 250(6) of the Income Tax Act, 1961 by the Ld. Commissioner of Income Tax (Appeals)-3, Ludhiana is against law and facts on the file in as much as she was not justified to arbitrarily uphold a disallowance of Rs. 26,81,157/- made by the Ld. Assessing Officer out of Interest Account by resort to provisions of Sec. 36(1)(iii).

2. That she was further not justified to arbitrarily uphold that a sum of Rs. 51,14,705/- (Actual figure is Rs. 51,41,705/-) and Rs. 1,80,694/- out of InterestAccount deserves to be capitalized without giving any benefit of depreciation. 

3. That she was further not justified to arbitrarily uphold the addition of Rs. 35,60,870/- made by the Ld. Assessing Officer by resort to provisions of Sec. 41(1) on account of outstanding balances of sundry creditors for a period of more than three years.

3. Vide ground no. 1 the grievance of the assessee relates to the sustenance of disallowance of Rs. 26,81,157/- made by the A.O. under section 36(1)(iii) of the Income Tax Act, 1961 (hereinafter referred to as ‘Act’).

4. Facts of the case in brief are that the assessee filed its return of income on 29/09/2011 declaring loss of Rs. 26,41,16,886/- under the normal provisions of the Act and the income was shown at Rs. 7,92,46,075/- under section 115JB of the Act, thereafter the assessee filed revised return on 29/09/2011 showing a net loss of Rs. 26,41,16,886/- and income under section 115JB of the Act was revised to Rs. 9,04,31,275/- Later on the case was selected for scrutiny.

4.1 During the course of assessment proceedings the A.O. noticed that the assessee had given funds to M/s G. Drugs and Pharmaceuticals Ltd. (GDPL) its associated concern, the balance on the last date was Rs. 2,06,24,284/- which was shown in other debtors. The A.O. asked the assessee to explain as to whether any interest had been charged on the funds given out and that as to why the interest on funds diverted for non business purpose should not be disallowed. In response the assessee submitted as under:

“ Regarding your query about disallowance of interest on loan to G Drugs and pharmaceutical Limited (GDPL), it is submitted that GDPL has been merged with the assessee company with retrospective effect from 01.04.2010 as per BIFR order dated 15.03.2012. Hence, question of disallowance of interest on loan to GDPL does not arise. Copy of order is enclosed for your kind reference.”

4.2 The A.O. after considering the submissions of the assessee observed that only copy of order of BIFR was furnished and no copy of amalgamation order from the Hon'ble Punjab & Haryana High Court had been furnished, therefore the submission of the assessee were not acceptable. Accordingly the disallowance of Rs. 26,81,157/- was made under section 36(1)(iii) of the Act which was worked out @13% on Rs. 2,06,24,284/-  

To know more in details find the attachment file