1988 (9) TMI 365 - AT - Income Tax

Summary

Issues:
1. Admissibility of additional ground in the appeal.
2. Disallowance of deduction claimed for interest on loans.

Analysis:

1. The appellant sought to introduce an additional ground related to the inclusion of a specific sum as income liable for tax. The contention was that the amount written off as income in the profit and loss account did not represent actual income. The Tribunal rejected this application, stating that the matter required factual investigation and could not be decided based on admitted facts at a belated stage in the appeal.

2. The main issue in the appeal was the disallowance of a deduction claimed by the assessee for interest on loans. The assessee argued that the interest amount was not debited to the profit and loss account as negotiations were ongoing with the bank for waiver or reduction of interest. The Income Tax Officer (ITO) disallowed the deduction, asserting that the bank had effectively written off the amounts, and the assessee had not debited the amount in its accounts despite maintaining it on a mercantile basis. The Commissioner upheld this decision, emphasizing the understanding between the bank and the company regarding interest payments.

3. The Commissioner noted that the bank had not given up its claim for interest, and the assessee's request for waiver or reduction was considered due to adverse circumstances. The Tribunal found that the liability for interest was ascertained based on legal agreements with the bank, not contingent. Citing relevant case law, including the Supreme Court's decision in Kedarnath Jute Mfg. Co. Ltd. v. CIT, the Tribunal held that the assessee was entitled to the deduction for interest payable to the bank. The Tribunal directed the allowance of the deduction for the interest amount claimed by the assessee.

4. The Tribunal emphasized that maintaining accounts on a mercantile basis was crucial in determining the deductibility of expenses. Referring to precedents and legal principles, the Tribunal concluded that the assessee's claim for deduction of interest payable to the bank was valid and should be allowed. The decision favored the assessee, directing the deduction of the interest amount in question.

This detailed analysis of the judgment highlights the issues raised, the arguments presented, and the Tribunal's reasoning leading to the decision in favor of the assessee regarding the deduction claimed for interest on loans.