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TMI Blog2004 (11) TMI 43X X X X Extracts X X X X X X X X Extracts X X X X ..... nt in question and the findings recorded by it are based on relevant material and evidence. Consequently, we answer the above questions referred to us in the affirmative, i.e., in favour of the assessee - - - - - Dated:- 10-11-2004 - Judge(s) : R. K. AGARWAL., PRAKASH KRISHNA. JUDGMENT The judgment of the court was delivered by R.K. Agarwal J.- The Income-tax Appellate Tribunal, Allahabad, has referred the following questions of law under section 256(1) of the Income-tax Act, 1961, hereinafter referred to as "the Act", for opinion to this court for the assessment year 1978-79: "1. Whether, on the facts of the case, there was material before the Tribunal to hold that the financial position of the debtors had deteriorated and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,07,700. Assessment year 1979-80 Rs. 60,000 The addition was made on the ground that the respondent had borrowed money and had paid interest on its borrowing but had not charged interest from the aforesaid two firms in respect of the loans advanced to them. In appeal, however, the Commissioner of Income-tax (Appeals) reduced the addition to Rs. 4,500 for the assessment year 1978-79 and to Rs. 10,500 for the assessment year 1979-80. On further appeal the Income-tax Appellate Tribunal found that the facts were not clear and hence restored the matter to the Commissioner of Income-tax (Appeals) to be decided afresh in accordance with law. It may be mentioned here that in the assessment year 1978-79 addition of Rs. 4,500 was not challenged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... categorical finding of fact that the financial position of the debtors was certainly not good. It had examined the accounts of the debtors for the two years and had found that apart from the outstanding loan advances of small amounts in cash and by cheque have been made during the assessment years in question in order to enable the debtor to clear off its taxes and its liabilities as the respondent wanted to take over this cold storage in satisfaction of its debt. In this view of the matter the Tribunal had held that the financial position of the debtors had deteriorated to such an extent that even the recovery of the principal amount was in doubt and further that the respondents board of directors had considered the proposal of taking ove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reinbefore the Tribunal from the evidence and material on record had found that the financial position of the debtors had deteriorated to such an extent that even the chance of the principal amount being recovered was very dim. If in these circumstances, it had not charged any interest from its debtors it cannot be said that it had not acted as a prudent businessman. Recently, this court in Income Tax Reference No. 196 of 1985 (CIT v. Dhampur Sugar Mills Ltd. (No. 2) [2005] 274 ITR 370, decided on September 30, 2004, has held that where on account of commercial expediency and on account of continued losses suffered by the subsidiary the interest was not charged, the Tribunal was justified in deleting the amount towards interest disallowed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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