2010 (1) TMI 794 - AT - Income Tax

Disallowance of application of funds under section 11(1)(a) - Disallowance on account of claim of interest on unsecured loan on the ground that said claim was not justified before the authorities - As per the assessee, such interest payment on these very loans was allowed in assessment year 2003-04 and in that year the assessment order was passed u/.s 143(3) - Held that - matter remanded to CIT(A) for fresh decision.

Summary

Issues:
1. Disallowance of application of funds under section 11(1)(a)
2. Claim of application of funds u/s 11(10)(a) on account of interest on unsecured loan
3. Addition u/s 68 of the IT Act, 1961 on account of sale of coupons
4. Levy of interest u/s 234B

Analysis:

1. The appellant challenged the order of Ld. CIT(A) confirming the disallowance of application of funds under section 11(1)(a) for the assessment year 2005-06. The appellant argued that there was a repayment of loans amounting to Rs.4,25,800, which should be considered as application of income for the trust. The appellant cited Circular No.100 dated 24.1.1973 and referred to relevant case laws to support their claim. The Tribunal found that the issue was not adequately examined by Ld. CIT(A) and ordered a fresh decision after examining the evidence of loan repayment and its relation to the trust's objectives.

2. The claim of application of funds u/s 11(10)(a) on account of interest on unsecured loans was also disputed by the appellant. They pointed out that similar interest deductions were allowed in previous assessment years. The Tribunal noted that the authorities had not examined whether the loans were obtained to fulfill the trust's objectives. As such, the matter was remanded to Ld. CIT(A) for a fresh decision after verifying the purpose of the loans and the interest paid on them.

3. The addition u/s 68 of the IT Act, 1961 on account of the sale of coupons was another issue raised by the appellant. They argued that a similar issue was decided in their favor in a previous assessment year. The Tribunal directed Ld. CIT(A) to re-examine this issue, considering whether the revenue had filed an appeal in the previous year and if the facts were similar, providing an opportunity for both parties to be heard.

4. Lastly, the appellant contested the levy of interest u/s 234B, claiming it was arbitrary and lacked a basis in the assessment order. They also alleged no opportunity was given before the interest was levied. The Tribunal considered this issue as consequential and did not require a separate decision. The appeal was allowed for statistical purposes.

In conclusion, the Tribunal remanded all the issues back to Ld. CIT(A) for a fresh decision, emphasizing the need for a thorough examination of the evidence and legal aspects involved in each matter.