2011 (3) TMI 1357 - HC - Income Tax

Interest levied under Section 234A, B and C - retrospective amendment to the Sections justifying the levy, assessment was completed prior to the amendment and none of the authorities had occasion to consider the amendment, we set aside the order of the Tribunal and that of the appellate authority on this issue and remand the matter to the officer to consider the issue with reference to the amended provisions after giving opportunity to the assessee Disallowance of interest on diversion of borrowed funds for non-business purposes - Held that - counsel for the assessee opposed stating that the Tribunal s findings are sustainable, appeals allowed on this issue also by setting aside the orders of the Tribunal and that of the first appellate authority and remand the matter to the officer to reconsider the disallowance of proportionate interest on borrowed funds diverted for non-business purpose

Summary

Issues involved:
1. Entitlement of the respondent-assessee for exemption under Section 80HHC of the Income Tax Act on export house premium.
2. Levying of interest under Sections 234A, B, and C.
3. Disallowance of interest on diversion of borrowed funds for non-business purposes.

Analysis:
1. The High Court addressed the issue of the respondent-assessee's entitlement for exemption under Section 80HHC of the Income Tax Act on the export house premium. Referring to a previous Supreme Court judgment, the Court concluded that the respondent was entitled to the exemption and dismissed the appeals on this issue.

2. Regarding the interest levied under Sections 234A, B, and C, the Court noted a retrospective amendment to the Sections justifying the levy. The Court emphasized that if an amendment made retrospectively is not declared invalid, it binds statutory authorities, including the Tribunal. Since the assessment was completed before the amendment and the authorities had not considered it, the Court set aside the Tribunal's order and remanded the matter to the officer to reconsider the issue with reference to the amended provisions after giving the assessee an opportunity.

3. The Court also considered the proportionate disallowance of interest on the diversion of borrowed funds for non-business purposes. Citing a Division Bench judgment, the Standing Counsel argued that the issue was covered by the said judgment. The Court agreed and set aside the orders of the Tribunal and the first appellate authority. The matter was remanded to the officer to reconsider the disallowance of interest on borrowed funds diverted for non-business purposes in light of the previous judgment and the facts of the case, after providing an opportunity to the assessee for their submissions.