2016 (12) TMI 362 - HC - Income Tax

Disallowance being interest paid to the bank u/s 36(1)(iii) read with Sec.37(1) - Held that - It is clear that the CIT (Appeals) has on the basis of factual matrix found that the loan was taken. However, by way of subsequent repayment, actual interest was paid as ₹ 5,92,840/-. Therefore, the addition made by the Assessing Officer was deducted. However, the Tribunal in para 15 has gone on a different point which was never germane in the order of the Assessing Officer or the order of CIT (Appeals) and, therefore, on the premise that the loan which was advanced was not a loan but investment. In our considered opinion, that was not the foundation of the reasoning adopted by the Assessing Officer, therefore, the reasoning adopted by the Tribunal in para 15 is not permissible in law. The above finding given by the Tribunal is clearly contrary to material available on record and perverse and hence the order impugned passed by the Income Tax Appellate Tribunal is set aside. We restore the order of CIT(Appeals) and hold that in the facts of the present case, the addition made by the Assessing Officer requires to be deleted and the payment made to the bank by way of interest on loan is required to be allowed as provided under section 36(1)(iii) read with Section 37(1) of the Income Tax Act. - Decided in favour of assessee

Summary

Issues:
Challenge to Tribunal's judgment on interest paid to the bank under Sec. 36(1)(iii) & Sec. 37(1) - Whether finding is perverse? Failure to give specific finding on carry forward of unabsorbed business loss and depreciation.

Analysis:

Interest Paid to Bank Issue:
The appellant challenged the Tribunal's decision reversing the CIT (Appeals) findings and allowing the department's appeal regarding the disallowance of interest paid to the bank under Sec. 36(1)(iii) and Sec. 37(1). The appellant provided evidence that the loan was taken and subsequently repaid through another party, justifying the non-appearance of the loan in the balance sheet. The CIT (Appeals) found the disallowance unjust and deleted the addition of ?5,82,840. However, the Tribunal reversed this decision, claiming that the loan was not a loan but an investment. The High Court held that the Tribunal's reasoning was not based on the Assessing Officer's or CIT (Appeals) orders and was thus impermissible in law. The Court reinstated the CIT (Appeals) decision, stating that the interest payment on the loan should be allowed under Sec. 36(1)(iii) and Sec. 37(1) of the Income Tax Act.

Failure to Determine Carry Forward Issue:
The appellant also raised a concern about the lack of a specific finding on the carry forward of unabsorbed business loss and depreciation in the assessment order. The CIT (Appeals) did not address this issue, leading to the appellant's grievance. The High Court noted that the absence of a specific finding on this matter was unfair and directed the concerned authority to provide a clear determination regarding the carry forward of business loss and unabsorbed depreciation. This issue was separate from the interest payment dispute but was crucial for the appellant's tax assessment.

In conclusion, the High Court allowed the appeal in favor of the assessee, setting aside the Tribunal's decision and reinstating the CIT (Appeals) order regarding the interest payment to the bank. Additionally, the Court directed the concerned authority to address the carry forward issue to ensure a fair assessment for the appellant.