2022 (4) TMI 975 - HC - Income Tax

Disallowance of interest expenditure u/s 36(1)(iii) - Whether ITAT has failed to appreciate that the assessing company had used the borrowed funds for non-business purposes and states that the Company earned interest income at an average rate of 7.6% while on loans the assessee company paid interest at an average rate of 12.1% ? - HELD THAT - An admitted position that the facts and circumstances in the present appeals (for the Assessment Years 2013-14 and 2014-15) are similar to the facts and circumstances for the Assessment Years 2007-08, 2010-11 and 2012-13 to which the aforesaid orders dated 21st December, 2018 and 08th February, 2019 pertain. It is pertinent to mention that no appeal has been filed under Section 260A of the Act till date challenging the orders dated 21st December, 2018 and 08th February, 2019. Undoubtedly, the principles of res-judicata and estoppel are not applicable in taxation matters. However, it has been held that a departure from a finding during the past years would result in a contradictory finding. ( See Commissioner of Income Tax vs. Sridev Enterprises 1991 (1) TMI 52 - KARNATAKA HIGH COURT . In fact, in Commissioner of Income Tax vs Excel Industries Ltd 2013 (10) TMI 324 - SUPREME COURT the Court had observed that it was not appropriate to allow reconsideration of an issue for a subsequent assessment year if the same fundamental aspect permeates in different assessment years. This Court is of the view that all similar matters should receive similar treatment except where factual differences require a different treatment so that there is assurance of consistency, uniformity, predictability and certainty of judicial approach. Applying the said principles, this Court is of the opinion that no question of law arises for consideration in the present appeals and the same are dismissed.

Summary

Issues:
Challenge to deletion of addition under Section 36(1)(iii) of the Income Tax Act for interest expenditure. Application of res judicata principle in tax matters. Importance of consistency and certainty in tax litigation.

Analysis:
1. The appellant challenged the deletion of the addition of a specific amount made by the Assessing Officer under Section 36(1)(iii) of the Income Tax Act for interest expenditure. The appellant argued that the borrowed funds were used for non-business purposes, leading to a higher interest rate paid compared to the interest income earned. The appellant contended that the Assessing Officer correctly invoked Section 36(1)(iii) of the Act to disallow the proportionate interest expenditure not utilized for business purposes.

2. The appellant further argued that the ITAT erred in dismissing the appeals based on the Assessee's own case for previous assessment years. However, the court noted that each year's assessment is final only for that specific year and does not govern later years, emphasizing the principle that there is no issue of res judicata in tax matters.

3. The court observed that the issue in dispute in the present appeals was covered by decisions of co-ordinate Benches of the ITAT in previous assessment years of the Assessee's own case. The Tribunal had previously held that due to contractual restrictions and liquidation damages, it was not prudent for the Assessee to divert borrowed funds for non-business purposes or make early loan repayments, even with interest-free funds.

4. While acknowledging that the principles of res judicata and estoppel do not directly apply in taxation matters, the court highlighted the importance of consistency and certainty in tax litigation. Citing previous judgments, the court emphasized the value of promoting consistency in tax matters to maintain predictability and uniformity in judicial decisions.

5. The court, following the principle of consistency and certainty in tax matters, concluded that all similar matters should receive similar treatment unless factual differences necessitate a different approach. Therefore, the court dismissed the appeals, stating that no question of law arose for consideration, ensuring consistency, uniformity, and predictability in judicial decisions.