9911796707
|
Home
Issues Involved:
1. Disallowance of interest related to advances given to M.P. Spinning & Weaving Mills P. Ltd. 2. Deduction under Section 80J of the IT Act. 3. Levy of interest under Section 215 of the IT Act. Issue 1: Disallowance of Interest Related to Advances Given to M.P. Spinning & Weaving Mills P. Ltd. The assessee appealed against the disallowance of Rs. 58,663 for the assessment year 1977-78 and Rs. 28,055 for the assessment year 1978-79. The ITO found that the assessee had paid interest amounting to Rs. 5,59,897 on borrowed funds, part of which were advanced to M.P. Spinning & Weaving Mills P. Ltd. without charging interest. The ITO estimated the interest at 15.5% and added it back to the income, treating the advances as not utilized for business purposes. The CIT(A) upheld this disallowance, referencing the Mysore High Court decision in CIT vs. United Breweries (1973) 89 ITR 17 (Mys), which held that interest on advances to a subsidiary concern free of interest could not be for the business purposes unless the businesses were one and the same. The Tribunal considered the arguments and found that the advances were made from the overdraft account directly to M.P. Spinning & Weaving Mills P. Ltd., indicating the funds were not required for the assessee's business. The Tribunal upheld the CIT(A)'s decision but directed the ITO to re-examine the overdraft account and restrict the disallowance to the actual interest for the period the account remained overdrawn. Issue 2: Deduction Under Section 80J of the IT Act The assessee claimed relief under Section 80J based on Calcutta High Court decisions in Century Enka Ltd. vs. ITO (1977) 107 ITR 123 (Cal) and 1977 CTR (Cal) 433: (1977) 107 ITR 909 (Cal). However, the ITO calculated the relief based on net assets (gross assets less debts and borrowings) as on the first day of the computation period, which the CIT(A) upheld in light of the amendment to Section 80J by the Finance (No. 2) Act of 1980. The Tribunal found the CIT(A)'s order in conformity with the law and saw no reason to interfere. Issue 3: Levy of Interest Under Section 215 of the IT Act The ITO raised a demand for advance tax under Section 210, which the assessee contested by filing a "Nil" estimate, denying liability for advance tax and consequent interest under Section 215. The ITO overruled the objection and levied interest, which the CIT(A) declined to entertain, stating no appeal was provided against the levy of interest under Section 215. The Tribunal, referencing CIT vs. Daimler Benz, A.G. 1977 CTR (Bom) 568 (FB): (1977) 108 ITR 961 (Bom) (FB), held that the assessee could agitate the issue before the CIT(A) and restored the ground for re-examination on merits. Conclusion: The appeals were partly allowed, with specific directions for re-examination of the overdraft account interest and restoration of the ground concerning the levy of interest under Section 215 for re-examination on merits by the CIT(A).
|
