1985 (2) TMI 4 - HC - Income Tax

Summary

Issues Involved:
1. Whether certain questions of law arise from the Tribunal's order.
2. Treatment of legal expenses and interest on loans for setting up acrylic and cement plants.
3. Justification for the addition of Rs. 64,92,710 due to alleged excessive wastage in the manufacture of nylon yarn.

Issue-wise Detailed Analysis:

1. Whether certain questions of law arise from the Tribunal's order:
The court determined that questions Nos. 14 to 20, 23, and 24 were not questions of law arising out of the Tribunal's order and were concluded by the findings of fact recorded by the Tribunal. Questions Nos. 4, 6, and 10 were found to raise disputes already covered by questions Nos. 1, 2, 3, 5, 7, 8, 9, 11, 12, and 13. Therefore, the court did not require the Tribunal to refer questions Nos. 4, 6, and 10 to the court.

2. Treatment of legal expenses and interest on loans for setting up acrylic and cement plants:
Questions Nos. 21 and 22 related to the assessee's claim for legal expenses and interest on loans obtained from the Government of Rajasthan. The loans were for setting up acrylic and cement plants. The Income-tax Officer disallowed the claim, and the Appellate Assistant Commissioner affirmed this decision. However, the Tribunal allowed the claim based on the decision in Prem Spinning and Weaving Mills Company Ltd. v. CIT [1975] 98 ITR 20 and India Cements Ltd. v. CIT [1966] 60 ITR 52. The Supreme Court in India Cements Ltd. held that the act of borrowing money was incidental to the carrying on of business, and the loan obtained was not an asset or an advantage of enduring nature. The Tribunal dismissed the application of the Commissioner of Income-tax for referring these questions to the court, considering them of academic value. The court found no cogent reason to take a different view.

3. Justification for the addition of Rs. 64,92,710 due to alleged excessive wastage in the manufacture of nylon yarn:
Questions Nos. 1, 2, 3, 5, 7, 8, 9, 11, 12, and 13 pertained to the addition of Rs. 64,92,710 made by the Income-tax Officer due to alleged excessive wastage in the manufacture of nylon yarn, which was confirmed by the Appellate Assistant Commissioner. The Tribunal reversed these findings without addressing the detailed reasons recorded by the Income-tax Officer and the Appellate Assistant Commissioner. The court noted that the Tribunal failed to meet the reasons recorded by the authorities below and did not provide sufficient reasons for its reversal. The Tribunal's order lacked the necessary consideration of the material and reasons provided by the subordinate authorities. The court referred to the principles established in T. D. Gopalan v. Commissioner of Hindu Religious and Charitable Endowments, Siemens Engineering and Manufacturing Co. of India Ltd. v. Union of India, and Union of India v. M. L. Capoor to emphasize the requirement for quasi-judicial orders to be supported by reasons.

The court found the Tribunal's order deficient in addressing the discrepancies and material presented by the authorities below. The Tribunal's reliance on a letter dated March 21, 1975, from BASF, which was not produced before the lower authorities, was particularly noted. The court directed the Tribunal to draw up a statement of case and refer questions Nos. 1, 2, 3, 5, 7, 8, 9, 11, 12, and 13 to the court for its opinion.

Conclusion:
The application was dismissed concerning questions Nos. 4, 6, 10, and 14 to 24 and allowed concerning questions Nos. 1, 2, 3, 5, 7, 8, 9, 11, 12, and 13. The Tribunal was directed to refer these questions of law to the court for its opinion. The parties were directed to bear their own costs.