2014 (5) TMI 232 - HC - Income Tax

Expenses on payment of lease rental incurred Disallowance of interest expenses Held that - The Tribunal rightly held that disallowance of interest expenditure was not justified - the assessee had sufficient interest free funds available - Merely giving advances at the rate lower than the rate on which borrowings are made, cannot justify disallowance thus, no substantial question of law arises for consideration Decided against Revenue.

Summary

Issues:
1. Disallowance of expenditure on lease rental.
2. Disallowance of interest expenditure.
3. Applicability of Section 41(1) to loan reduction.

Issue 1: The High Court addressed the disallowance of expenditure on lease rental made by the Assessing Officer. The Court noted the transaction history of a windmill asset and found it to be a sham and bogus transaction. The Assessing Officer disallowed the claim, which was upheld by the Tribunal. However, the Court disagreed, stating that the disallowance was not justified as the assessee had sufficient interest-free funds available. The Court ruled that giving advances at a lower rate than the borrowing rate does not justify disallowance. Consequently, the Court held that this issue did not raise a substantial question of law.

Issue 2: The Court also examined the disallowance of interest expenditure by the Assessing Officer. The Commissioner of Income Tax (Appeals) had allowed the claim of the assessee, finding that there was no dispute regarding the availability of interest-free funds. The Court agreed with the Commissioner's decision, stating that the disallowance was not justified. The Court concluded that the findings of fact were consistent with the evidence on record, and therefore, this issue did not raise a substantial question of law.

Issue 3: Regarding the applicability of Section 41(1) to loan reduction, the Court considered the argument made by the assessee that the section should not apply. The Court referred to a judgment of the Division Bench in a similar case and found that the assessee's contention was erroneously accepted by the Assessing Officer. However, the Court held that this issue did not raise a substantial question of law as the controversy had been concluded in previous cases. The Court dismissed the appeal, stating that it was not possible to take a different view than that taken by earlier Division Benches. The Court refused to consider a different opinion from another High Court, emphasizing the binding nature of previous orders.