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2014 (5) TMI 807 - AT - Income TaxDisallowance of broken period interest Held that - The Tribunal has reversed the finding of the CIT(A) - the AO is directed to delete the addition made on account of broken period interest Decided in favour of Assessee. Disallowance of depreciation on leased assets Held that - The entire claim has been declined solely on the basis of the statement recorded at the time of the search - the Assessee was never allowed any opportunity of cross-examination - right to cross-examine the witness who made adverse report, is not an invariable attribute of the requirement of the dictum, audi alteram partem - The principles of natural justice do not require formal cross-examination - Formal cross examination is a part of procedural justice - It is governed by the rules of evidence, and is the creation of Court - It is part of legal and statutory justice, and not a part of natural justice - it cannot be laid down as a general proposition of law that the revenue cannot rely on any evidence which has not been subjected to cross-examination - if a witness has given directly incriminating statement and the addition in the assessment is based solely or mainly on the basis of such statement, in that eventuality it is incumbent on the Assessing Officer to allow cross-examination - The finding of CIT(A) is based on incorrect understanding of the law - the issue needs to be decided in the light of the principles of natural justice thus, the matter relating to the transactions with M/s. Rajendra Steels Ltd. is remitted back to the AO Decided in favour of Assessee.
Issues Involved:
1. Disallowance of deduction on account of broken period interest. 2. Disallowance of depreciation on leased assets. 3. Charging of interest under Section 234B of the Income Tax Act. 4. Initiation of penalty proceedings under Section 271(1)(c) of the Income Tax Act. Issue-wise Detailed Analysis: 1. Disallowance of Deduction on Account of Broken Period Interest: The Assessee, a domestic company engaged in banking operations, claimed broken period interest of Rs. 9,49,66,036/- as revenue expenditure. The Assessing Officer (AO) disallowed this claim, drawing support from the findings in the Assessee's case for A.Y. 1995-96. The CIT(A) upheld the AO's decision. The Assessee appealed, citing the Tribunal's decision in their favor for A.Y. 1995-96. The Tribunal found that the lower authorities had followed the previous year's findings and, respecting the decision of the co-ordinate bench, directed the AO to delete the addition made on account of broken period interest. Therefore, Ground (A) with sub-grounds was allowed. 2. Disallowance of Depreciation on Leased Assets: The AO disallowed the Assessee's claim of Rs. 11,86,54,437/- for depreciation on leased assets, treating the transactions as finance transactions rather than lease transactions. The AO argued that the Assessee did not assume any risk of ownership, and the transactions were essentially loans. The CIT(A) confirmed the AO's decision, particularly highlighting a transaction with M/s. Rajendra Steels Ltd., where assets were found non-existent during a search operation. The Tribunal, however, found that the issue of depreciation on leased assets had been settled in favor of the Assessee by the Supreme Court and various High Courts. The Tribunal directed the AO to allow depreciation except for the transaction with M/s. Rajendra Steels Ltd., which was restored to the AO for verification and cross-examination of the deponent. Thus, Ground (B) with its sub-grounds was allowed in part for statistical purposes. 3. Charging of Interest under Section 234B: The Tribunal noted that the levy of interest under Section 234B is mandatory but would be consequential in this case. The AO was directed to re-compute the interest as per the provisions of law. Therefore, Ground (C) with its sub-grounds was allowed for statistical purposes. 4. Initiation of Penalty Proceedings under Section 271(1)(c): The Tribunal found that this ground was premature and accordingly dismissed it. Therefore, Ground (D) was dismissed. Conclusion: In ITA No. 3643/Mum/2001, the appeal filed by the Assessee was partly allowed for statistical purposes. In ITA No. 3644/Mum/2001, the claims of broken period interest and depreciation on leased assets were allowed for similar reasons. The appeal was partly allowed for statistical purposes. In Interest Tax Appeal No. 39/Mum/2001, the appeal was restored to the AO to re-compute the Interest Tax liability in light of the findings given in ITA No. 3643/Mum/2001 for A.Y. 1996-97. The appeal was allowed for statistical purposes. The order was pronounced in the open court on 02.05.2014.
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