2015 (1) TMI 242 - HC - Income Tax

Confirmation of allowance of interest Held that - The Tribunal was rightly in observing that the FAA after examining the facts of the case came to the conclusion that the advances were given by the assessee for the purpose of business - the nexus was not established by the revenue to the effect that the interest bearing fund was diverted for non-business purpose - in similar circumstances, disallowance of interest was deleted by the FAA in the subsequent years thus, the order of the Tribunal is upheld Decided against revenue.

Summary

Issues:
Challenge to order dated 1.5.2000 by Income Tax Appellate Tribunal for Assessment Year 1991-92 regarding allowance of interest of Rs. 4,22,557.

Analysis:
1. The appellant-Revenue challenged the order of the Income Tax Appellate Tribunal concerning the allowance of interest of Rs. 4,22,557 for Assessment Year 1991-92. The substantial question of law framed by the court was whether the Tribunal erred in confirming this allowance.

2. The appellant, a private limited company, was engaged in developing land for a cooperative housing society. The company sold development rights to another entity and claimed expenses of Rs. 4,22,557 as financial charges, including interest paid to a bank. The Revenue contended that these expenses were not for business purposes and should not be deductible. The company argued that the expenses were related to advancing loans for business purposes, as per the agreement with the housing society.

3. The CIT(A) allowed the company's appeal, stating that the advances were given for business purposes and were in accordance with the contract terms. The Tribunal upheld this decision, emphasizing that the company's arrangement with the housing society was part of a business proposition to earn profits. The Tribunal noted similar findings in a related case and confirmed the CIT(A)'s order.

4. The court upheld the Tribunal's decision, stating that the Revenue failed to establish that the interest-bearing funds were diverted for non-business purposes. The court found no evidence of collusive arrangements to reduce profits. The Tribunal's decision was supported by the facts and previous case precedents. Consequently, the court dismissed the Tax Appeal, ruling in favor of the assessee.