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Issues:
1. Refusal by the Income-tax Appellate Tribunal to refer questions under section 256(1) of the Income-tax Act, 1961. 2. Disallowance of interest in respect of gold loans. 3. Validity of the method of computation of interest. 4. Bona fide nature of the agreement affecting commercial profits. Analysis: Issue 1: The Income-tax Appellate Tribunal's refusal to refer questions under section 256(1) of the Income-tax Act, 1961 led to the filing of the original petitions. The questions raised pertained to the correctness of the Tribunal's decision regarding the deletion of the disallowance of interest in respect of gold loans. The dispute centered around the interpretation of the law and factual circumstances of the case. Issue 2: The Assessing Officer disallowed the claim of interest in relation to gold loans for the assessment years 1988-89, 1989-90, and 1990-91, amounting to significant sums. The disagreement arose due to the method of computation of interest applied by the assessee, which the Assessing Officer deemed detrimental to the business. The Commissioner of Income-tax (Appeals) and subsequently the Tribunal overturned the disallowance, emphasizing that the method of interest calculation did not warrant disallowance. Issue 3: The method of computation of interest on gold loans was a crucial point of contention. The assessee's approach, based on mutual agreement with the lenders, involved using year-end rates for interest calculation, differing from the original loan rates. The Assessing Officer contended that this method led to a reduction in the assessee's commercial profits. However, the Commissioner of Income-tax (Appeals) and the Tribunal found the method acceptable, leading to the deletion of the disallowance. Issue 4: The core issue revolved around the bona fide nature of the agreement and its impact on commercial profits. The Revenue argued that the agreement was not genuine and aimed at reducing commercial profits, justifying the disallowance of interest. Conversely, the assessee maintained that the agreement was valid and in its best interest, with no adverse effects on the business. Both the first appellate authority and the Tribunal upheld the genuineness of the agreement, emphasizing that the method chosen by the assessee did not indicate any intention to diminish commercial profits. As the conclusion was factual, the court found no legal question to address and dismissed the original petitions. In conclusion, the High Court of Kerala upheld the decisions of the lower authorities, dismissing the original petitions and affirming the validity of the method of interest computation adopted by the assessee in the context of gold loans.
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