2009 (3) TMI 1077 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of interest paid.
2. Disallowance of legal expenses.
3. Validity of scrutiny assessment beyond stipulated time.

Summary of Judgment:

Disallowance of Interest Paid:
The Revenue appealed against the deletion of disallowances of Rs. 17,66,956 and Rs. 21,51,448 on account of interest paid. The learned Departmental Representative argued that the interest on borrowed capital could not be allowed as the funds were utilized for non-business purposes, such as investment in shares. The assessee contended that the loans were taken for business purposes, specifically for the Haryana State Lottery business, and the interest expenses were incidental to the business. The Tribunal found that the Assessing Officer (AO) failed to prove the nexus between the borrowed funds and their utilization for non-business purposes. The Tribunal upheld the orders of the CIT(A), dismissing the Revenue's appeals.

Disallowance of Legal Expenses:
The assessees, Sri Om Prakash Chirania and Sri Rajib Chirania, appealed against the disallowance of legal expenses of Rs. 3,28,500 each, claimed as business expenditure. The Tribunal noted that the assessees failed to provide complete details and concrete evidence regarding the litigation expenses before the Revenue authorities. However, the Tribunal restored the issue to the file of the AO for re-examination, allowing the assessees to submit necessary details in support of their claims. The appeals were allowed for statistical purposes.

Validity of Scrutiny Assessment Beyond Stipulated Time:
The assessees raised an additional ground that the scrutiny assessment was made beyond the time stipulated in Instruction No. 10 of 2004 and CBDT instructions. The Tribunal noted that the facts of the cases did not show whether the notice was issued beyond the time limits of the instructions. In the case of Sri Rajib Chirania, the return was selected for scrutiny by CASS, making the instruction inapplicable. The Tribunal found no merit in the additional ground and dismissed it as unadmitted. Consequently, the cross-objections were also dismissed.

Conclusion:
The appeals of the assessees were allowed for statistical purposes, while the cross-objections of the assessees and the Revenue's appeals were dismissed.