2016 (8) TMI 516 - HC - Income Tax

Interest disallowed under section 57(iii) - interest for the same borrowing has been allowed in the immediately preceding year - 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. In our view, 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. Accordingly, the question which is posed in this appeal requires to be answered in favour of the assessee and against the department. Therefore, the present appeal deserves to be allowed in favour of the assessee

Summary

Issues:
Challenge to judgment and order of Income Tax Appellate Tribunal regarding disallowed interest under section 57(iii) of the Income Tax Act, 1961 for the assessment year 1996-97.

Analysis:
The appellant challenged the Tribunal's order disallowing interest of ?10,08,191 under section 57(iii) of the Income Tax Act, 1961, despite the interest being allowed in the previous year. The issue was framed around the correctness of this disallowance. The appellant relied on a previous decision in favor of the assessee in a similar case, arguing that the issue was already decided in their favor. The respondent did not contest this position.

The High Court referred to a previous judgment involving the same assessee, where a similar issue was addressed. The Court examined the provisions of section 57(iii) of the Income Tax Act, which allows for deductions of expenditure laid out for earning income. The appellant argued that the Tribunal erred in disallowing the interest, emphasizing the common account maintained by the appellant for all income and expenses. The appellant cited relevant case law to support their position.

The respondent contended that each assessment year is independent under the Income Tax Act and previous assessments cannot be treated as res judicata. The respondent relied on case law to support their argument. However, the Court found the Karnataka High Court's decision in Sridev Enterprises directly relevant to the issue at hand. The Court emphasized the need for consistency in the Revenue's approach to maintain the integrity of past assessments.

Based on the above analysis, the Court held that the issue was already settled in favor of the assessee in a previous decision. The Court found that once interest is allowed in a previous year without any change in conditions, it cannot be disallowed in the current year. The Court concluded that the Tribunal erred in disallowing the interest and allowed the appeal in favor of the assessee. The Court distinguished the decisions relied upon by the respondent, stating they were not applicable to the present case.

In conclusion, the High Court allowed the appeal, holding that the Tribunal's decision to disallow the interest under section 57(iii) of the Income Tax Act, 1961 was erroneous, especially when the interest had been allowed in the preceding year. The Court's decision was based on the principle of consistency in assessing income and expenses over multiple years.