2019 (1) TMI 805 - HC - Income Tax

Disallowance of interest expenditure claimed by the assessee u/s 36(1)(iii) - Held that - In the present case, therefore, we are not inclined to examine the correctness of the Tribunal refusing to exercise its jurisdictional powers. However, we have serious doubt whether the Tribunal should have at the very outset given a direction to invoke the Transfer Pricing mechanism while in the appeal filed by the assessee on the issue at hand, the sole question was whether the disallowance of interest expenditure claimed by the assessee under Section 36(1)(iii) of the Act was correctly made. Under the circumstances, while disposing of this petition we observe that none of the pending proceedings of the petitioner assessee, be at any stage of assessment, first appellate or second appellate stage, would be influenced by the observations and directions of the Tribunal in this respect, in the context of the issue similar to the present one.

Summary

Issues:
Challenge to order by Income Tax Appellate Tribunal on rectification application filed by petitioner regarding disallowance of interest expenditure under Section 36(1)(iii) of the Income Tax Act, 1961.

Analysis:
The petitioner challenged an order by the Income Tax Appellate Tribunal (the Tribunal) regarding the disallowance of interest expenditure claimed under Section 36(1)(iii) of the Income Tax Act, 1961. The Tribunal remanded the issue back to the Assessment Officer for fresh adjudication, directing examination of Transfer Pricing Mechanism. The petitioner filed an application for rectification limited to this aspect, arguing that Transfer Pricing Mechanism was not invoked by the Assessing Officer. The Tribunal dismissed this application, leading to the current petition.

Important Developments:
Two significant developments were noted. Firstly, the petitioner filed an independent Tax Appeal challenging the Tribunal's judgment, including the correctness of the remand and directions for Transfer Pricing examination. Secondly, the Assessing Officer passed a consequential order accepting the assessee's contention on the interest expenditure, deleting the previously made addition.

Court's Observations:
The High Court observed that due to the Assessing Officer's order giving effect to the Tribunal's remand directions, the issue had become academic. The Court expressed doubt on the Tribunal's direction to invoke Transfer Pricing mechanism when the sole question raised was the correctness of the disallowance of interest expenditure. The Court clarified that its decision would not influence any pending proceedings of the petitioner, emphasizing that authorities should decide issues in accordance with the law.

In conclusion, the petition was disposed of accordingly, with the Court emphasizing that its order should not hinder the authorities from deciding similar issues in accordance with the law.