2016 (12) TMI 361 - HC - Income Tax

Interest on borrowed funds - disallowance of interest - Held that - The respondent placed reliance upon the decision of this Court in Commissioner of Income Tax Vs. Reliance Utilities and Powers Ltd. 2009 (1) TMI 4 - BOMBAY HIGH COURT wherein this Court has held that where the assessee has its own interest free funds available then it should be presumed that the investment has been first made out of interest free funds. This submission of the respondent assessee has been recorded in the impugned order of the Tribunal. However, we find that the same has not been considered while dismissing the respondent assessee s appeal. This non-dealing with the decision of this Court in Reliance Utilities and Power Ltd. (supra) by the Tribunal even after recording the reliance upon the same by the respondent assessee would make the impugned order suspect. Ex facie, it is a breach of principles of natural justice. Thus, the question is answered in the negative i.e. in favour of the appellant assessee and against the Revenue. The impugned order dated 19th July, 2013 is set aside and the entire appeal is restored to the Tribunal for fresh disposal in accordance with law.

Summary

Issues:
Challenge to order of Income Tax Appellate Tribunal for Assessment Year 2008-09.

Analysis:
The appeal under Section 260A of the Income Tax Act, 1961 challenges the order dated 19th July, 2013 passed by the Income Tax Appellate Tribunal (the Tribunal) for Assessment Year 2008-09. The appellant's counsel raised a question of law regarding the Tribunal's justification in ignoring the appellant's submission relying on a previous court decision. The appeal was admitted on the substantial question of law reframed by the appellant's counsel. Due to the narrow controversy, the appeal was taken up for final disposal at the request of the counsel.

During the subject assessment year, the respondent assessee earned dividend income claimed to be exempt under Section 10 of the Act. The respondent offered disallowance of expenditure under Section 14A of the Act, which the Assessing Officer did not accept. The total disallowance was worked out by the Assessing Officer in terms of Rule 8D of the Income Tax Rule. The respondent relied on a decision of the Court regarding the presumption of investment from interest-free funds when the assessee has such funds available. This submission was recorded in the impugned order of the Tribunal, but the Tribunal did not consider it while dismissing the appeal.

The High Court found the Tribunal's failure to deal with the decision of the Court, despite recording the reliance placed upon it by the respondent assessee, to be a breach of natural justice. Consequently, the High Court answered the question in favor of the appellant assessee and against the Revenue. The impugned order dated 19th July, 2013 was set aside, and the entire appeal was restored to the Tribunal for fresh disposal in accordance with the law. The appeal was disposed of with all contentions of both parties left open for further consideration.