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2015 (1) TMI 243 - HC - Income TaxDisallowance u/s 57 - Principle of consistency - Whether the interest was rightly disallowed u/s 57(iii) even when the interest on the same borrowing had been allowed as a deduction in the immediately preceding AY Held that - Similar issue has been decided in Commissioner Of Income-Tax Versus Sridev Enterprises 1991 (1) TMI 52 - KARNATAKA High Court wherein it has been held that it would not be equitable to permit the revenue to take a different stand subsequently in respect of the amounts which were the subject matter of previous years assessment - once the interest is allowed in the previous year and if there is no change in the condition then it can be disallowed in the current years assessment thus, the order of the Tribunal is set aside Decided in favour of assessee.
Issues:
Challenge to order passed by Income Tax Appellate Tribunal regarding disallowance of interest under Section 57(iii) of the Income Tax Act. Analysis: The appellant-assessee challenged the order passed by the Income Tax Appellate Tribunal (ITAT) regarding the disallowance of interest under Section 57(iii) of the Income Tax Act. The appellant, a director in two companies, initially filed a return of income showing a loss, which was later revised to declare a total income. The Assessing Officer subsequently determined the total income of the assessee. The Commissioner of Income-Tax (Appeals) partly allowed the appeal, leading to the appellant filing an appeal before the ITAT. The Tribunal partly allowed the appeal, prompting the appellant to file the current appeal. The central question formulated by the Court was whether the disallowance of interest under Section 57(iii) of the Income Tax Act was justified, considering that the interest on the same borrowing had been allowed as a deduction in the previous assessment year. The appellant argued that the Tribunal erred in upholding the disallowance of interest and emphasized that all income and expenditure were managed through one common account. The appellant cited Section 57(iii) of the Income Tax Act and relied on decisions from the Karnataka High Court and the Supreme Court to support their position. On the other hand, the respondent contended that each assessment year is independent under the Income Tax Act, and past assessments cannot serve as res judicata. The respondent cited decisions from the Madras High Court and the Bombay High Court to support this argument. After considering the arguments and reviewing the relevant legal precedents, the Court found that the issue was already settled by a previous decision of the Karnataka High Court. The Court emphasized the importance of consistency in the Revenue's approach and held that once interest is allowed in a previous year without any change in conditions, it cannot be disallowed in the current year. Therefore, the Court ruled in favor of the assessee and allowed the appeal. The Court distinguished the decisions relied upon by the respondent, stating that they were not applicable to the facts of the present case. In conclusion, the Court allowed the appeal, answering the question in favor of the assessee and against the revenue.
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