1998 (4) TMI 124 - HC - Income Tax

Summary

Issues:
1. Disallowance of interest on borrowings from financial institutions.
2. Validity of invoking section 154 of the Income-tax Act.
3. Interpretation of circulars issued by the Central Board of Direct Taxes.

Analysis:

1. The Assessing Officer disallowed a sum claimed as interest on borrowings from financial institutions for the assessment year 1989-90. The total interest outstanding was found to be Rs. 5,94,81,774, out of which a portion was funded before the due date for filing the return of income under section 43B. The issue arose when the Assessing Officer disallowed the outstanding interest as of March 31, 1989, for loans not paid and funded before the due date. The Commissioner of Income-tax confirmed the addition, but the Income-tax Appellate Tribunal canceled the order under section 154, deeming it debatable.

2. The Tribunal refused to refer the questions raised by the Revenue regarding the correctness of canceling the Assessing Officer's order under section 154. Evidence was presented before the Tribunal showing the funding of the balance amount of interest. The Tribunal held that since the balance amount was funded, the deduction regarding interest should not be disallowed. The Tribunal considered the circular issued by the Central Board of Direct Taxes, emphasizing the importance of furnishing evidence for payments made before due dates.

3. The Tribunal's decision to consider the subsequent evidence produced before it and to dismiss the income-tax case was based on the interpretation of circulars issued by the Central Board of Direct Taxes. Circular No. 669, dated 25th October, 1993, modified Circular No. 581, dated 28th September, 1990, regarding the rectification of intimation under section 143(1)(a) or orders under section 143(3) when evidence of payments made before due dates is furnished later. The Tribunal found that the Assessing Officer was not justified in invoking the power under section 154 of the Income-tax Act based on the evidence presented.

This judgment highlights the importance of timely evidence submission and the interpretation of tax laws and circulars to determine the validity of disallowances and rectifications under the Income-tax Act.