LAWS(GJH)-2014-3-63

N.K. INDUSTRIES LTD. Vs. INCOME TAX OFFICER

Decided On March 11, 2014
N.K. Industries Ltd. Appellant
V/S
Income Tax Officer (Osd) Respondents

JUDGEMENT

(1.) Petitioner has challenged a notice dated 16th January 2006, as annexed at AnnexureB to the petition, issued by the respondentAssessing Officer under Section 148 of the Incometax Act, 1961 {"the Act" for short]. Vide such notice, she proposed to reopen assessment of the petitioner for the Assessment Year 20012002. Such assessment was originally framed after scrutiny. At the request of the petitioner, the Assessing Officer supplied the reasons recorded for issuing such notice. Such reasons read as under :"

(2.) On perusal of audit report furnished alongwith the return of income it was noticed at Sr. 12B that "the company had given loan amounting to Rs. 660.62 lakhs and the same is considered doubtful and therefore, interest was not charged". As per the mercantile accounting system accrued interest has to be considered as income. The interest worked out at the rate of 18% on Rs. 660.62 lacs comes to Rs. 1,18,91,160/=. The Company has failed to disclose the said income amounting to Rs. 1,18,91,160/=. This has resulted in under assessment of Rs. 92,67,322/= [Rs. 1,18,91,160 Rs. 26,23,838 loss determined u/s. 143 (3)].

(3.) It is seen from the P&L account for F.Y 200001 attached with the return that the company had paid interest to others of Rs. 2,10,876/= and to bank and financial institution Rs. 7,14,237/=. After adjustment of interest received of Rs. 5,27,260/= net interest paid on loan borrowed debited to P&L account of Rs. 3,97,853/=. On the other hand, it had granted interest free unsecured loan of Rs. 652.63 lacs to the company under the same management. The loanee company's net worth was negative and there was no stipulation of repayment. Since, the company had obtained interest bearing loan and given interest free loan to another company under the same management which cannot be said to have been used for business purpose of the assessee. Therefore, interest of Rs. 3,97,853/= debited to the P&L account requires to be disallowed u/s. 36 [1](iii).