2017 (5) TMI 307 - HC - Income Tax

Deduction u/s 36(1)(viii) computation - loan was assigned transferred before 5 years from the date of sanction - Held that - It cannot be said that the learned ITAT has committed any error in holding that while working out the deduction under Section 36(1) (viii) of the IT Act, the loan portfolio / loan was assigned / transferred before 5 years from the date of sanction is not material. Under the circumstances, no error has been committed by the learned ITAT on the aforesaid proposed question of law. The direction issued by the learned ITAT is very clear and seems to be absolutely in consonance with the explanation (h) to Section 36(1)(viii) of the IT Act. Under the circumstances, when the entire issue is at large and the direction issued by the learned ITAT is very clear while remitting the matter back to the learned Assessing Officer, we see no reason to interfere with the same. It goes without saying that the learned Assessing Officer after giving an opportunity to the assessee shall consider the entire issue with respect to the working out deduction under Section 36(1)(viii) more particularly explanation (h) to Section 36(1)(viii) of the IT Act.

Summary

Issues:
1. Interpretation of Section 36(1)(viii) of the Income Tax Act for deduction claim.
2. Whether the ITAT erred in remitting back the issue of working out deduction u/s.36(1)(viii) of the Act.

Analysis:
1. The judgment involves a common question of law and facts from two Tax Appeals concerning the deduction under Section 36(1)(viii) of the Income Tax Act for different Assessment Years. The Assessing Officer partially allowed the deduction claim based on the terms of the loan. The CIT(A) confirmed the disallowances, leading to an appeal before the ITAT. The ITAT, while considering the issue of deduction despite loan transfer before 5 years from sanction, remitted the matter back to the Assessing Officer for verification of finance accounts and directed that interest income may qualify for deduction if certain conditions are met, without allowing double deduction by the assessee and the transferee.

2. The appellant argued that the ITAT misdirected itself by remanding the matter to the Assessing Officer. However, the High Court found that the ITAT's decision was justified as it correctly interpreted Section 36(1)(viii) by stating that the timing of loan assignment before 5 years from sanction is not material for working out the deduction. The High Court held that the ITAT's direction to the Assessing Officer was clear and in line with the law, specifically explanation (h) to Section 36(1)(viii). As no error was found in the ITAT's decision, the High Court dismissed the Tax Appeals.

3. The judgment emphasizes the importance of interpreting tax laws accurately and ensuring proper application of provisions like Section 36(1)(viii) to determine deductions. It highlights the role of appellate authorities in clarifying issues and providing clear directions for further assessment by the tax authorities. The decision underscores the need for thorough examination of facts and adherence to legal principles in tax matters to avoid potential double deductions and ensure compliance with the Income Tax Act.