2002 (11) TMI 75 - HC - Income Tax

Interest On Borrowed Capital - (a) Whether, on the facts and in the circumstances of the case, the Tribunal was incorrect, both on facts and in law, in holding that the interest paid by the assessee to the SBI was admissible deduction and no part of it could be disallowed? - (b) Whether the learned Income-tax Appellate tribunal was correct in law and on the facts of the case in concluding that no interest paid to the State Bank of India can be disallowed because of interest-free loans advanced to the sister concern, free of interest? - (c) Whether the order passed by the learned Income-tax Appellate Tribunal is perverse in facts and in law? - Tribunal has also noted that the Departmental Representative could not point out any specific interest bearing borrowed funds, which had been diverted by the assessee to its sister concern. - The aforenoted findings of the Tribunal being based on the relevant evidence on record, no question of law, much less a substantial question of law, arises from the orders of the Tribunal. It is not shown to us as to which finding of the Tribunal is either without any evidence or material or it is contrary to the evidence, to term it as perverse

Summary

Issues Involved:
- Disallowance of interest paid to State Bank of India claimed as business expenditure.
- Admissibility of deduction for interest paid to SBI.
- Nexus between borrowed funds and interest-free advances.
- Whether the Tribunal's order is perverse in facts and law.

Analysis:
1. The appeals by the Revenue under section 260A of the Income-tax Act, 1961 challenged a consolidated order passed by the Income-tax Appellate Tribunal regarding the disallowance of interest paid by the assessee to the State Bank of India. The issue revolved around the deduction claimed by the assessee as a business expenditure for the interest paid.

2. The Tribunal, in its order, deleted the disallowance made by the Assessing Officer. The questions formulated for adjudication included the correctness of the Tribunal's decision on the admissibility of the interest paid to SBI and the nexus between interest-free loans advanced to a sister concern and the interest paid to the bank.

3. The Revenue contended that the onus was on the assessee to prove that the interest-free advances to the sister concern were not from borrowed funds. They argued that the Tribunal overlooked crucial aspects and relied on a court decision to support their stance.

4. On the other hand, the assessee argued that the interest-free advances were from their own resources, supported by facts and figures in the orders. They emphasized that the Revenue cannot dictate how a business should be run, citing a court decision in their favor.

5. The Tribunal found that the assessee had substantial capital and interest-free funds exceeding the advances to the sister concern. It noted the lack of evidence of diversion of interest-bearing borrowed funds and concluded that no substantial question of law arose from the case.

6. The Tribunal's findings were based on the evidence on record, and no interference was warranted by the court. The orders were upheld, dismissing the appeals as lacking merit. The judgment emphasized the absence of evidence to term the Tribunal's findings as perverse, indicating no grounds for intervention.

7. In conclusion, the court dismissed all appeals, highlighting the importance of factual evidence and lack of substantial legal questions arising from the case.