2011 (3) TMI 25 - HC - Income Tax

Disallowance of interest - The assessee advanced a sum of Rs. 1,09,94,298/- by way of unsecured loan to M/s. Hamlet for which the assessee neither received any interest nor accrued any interest in the P & L account - The Assessing Officer calculated the interest @ 13% on the sum of Rs. 1,09,94,298/- which came to Rs. 16,49,145/- and treated as deemed interest accrued to the assessee in the Assessment year - Tribunal was of the view that as the loan was not for business consideration because of the fact that there was no business connection between the assessee and the borrower, the assessee was not entitled to any deduction - Supreme Court in the case of CIT vs. Shiv Prakash Janakraj & Co. Pvt. Ltd., reported in 1996 -TMI - 5537 - SUPREME Court The law is equally settled that if a Tribunal records a wrong finding that there was a concession on an issue of fact, a litigant is not remediless - The Tribunal, however, did not enter into such question and dismissed the application for review on the sole ground that the same was not maintainable Accordingly it was held that the Tribunal erred in law in setting aside the order of CIT (Appeals) on the alleged ground of concession which itself was incorrect Appeal is partly allowed

Summary

Issues:
- Whether the Tribunal exceeded its jurisdiction in deciding on the allowability of interest paid by the appellant.
- Whether the Tribunal's findings regarding the business connection between the appellant and a firm, and the disallowance of interest, are arbitrary.

Analysis:
1. Issue 1 - Tribunal's Jurisdiction:
- The Tribunal's decision was questioned regarding the allowability of interest paid by the appellant. The appellant argued that the Tribunal erred in allowing the appeal of the Revenue based on an alleged admission of no business connection between the appellant and a firm. The appellant contended that no such admission was made, and a review application was filed to assert this. The Tribunal dismissed the review application on grounds of maintainability, without addressing the substance of the alleged concession. The Court held that a concession on a question of fact is binding, but the appellant disputed making such a concession. As the Tribunal did not dispute this assertion, it was presumed that no such concession was made.

2. Issue 2 - Business Connection and Disallowance of Interest:
- The Tribunal's findings regarding the business connection between the appellant and a firm, and the subsequent disallowance of interest, were challenged as arbitrary and unreasonable. The Tribunal had based its decision on the alleged statement by the appellant's representative that there was no business connection with the borrower. However, the appellant denied making such a statement and filed a review application immediately after the Tribunal's decision. The Court emphasized that the Tribunal should have focused on the appeal's scope and the materials on record. It was noted that the Tribunal accepted the waiver of interest on commercial grounds and agreed with the CIT (Appeals) that the appellant had shown sufficient cause for non-production of the agreement before the Assessing Officer.

3. Conclusion:
- The Court, considering the legal position established by the Supreme Court, found that the Tribunal erred in setting aside the CIT (Appeals) order based on an incorrect alleged concession. The Court set aside the Tribunal's order and upheld the CIT (Appeals) decision. The Tribunal's decision was deemed incorrect, and the order was affirmed. No costs were awarded in the circumstances.