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TMI Blog1992 (11) TMI 86X X X X Extracts X X X X X X X X Extracts X X X X ..... nal was justified in upholding the action of the Inspecting Assistant Commissioner (Assessment) in including the interest on notional basis on interest-free advances made by the assessee to the managing director and others for the assessment years 1978-79 and 1979-80 ? Question No. (i) refers to a dispute in regard to the assessment years 1973-74 and 1974-75. Question No. (ii) refers to a dispute regarding assessment years 1978-79 and 1979-80. The assessee, a private limited company, was engaged in the business of building construction as a contractor under M. E. S. The Incometax Officer, in his assessment orders for the assessment years 1973-74 and 1974-75, disallowed the assessee's claim for deduction of interest of Rs. 32,934 and Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r shows that the assessee explained that the borrowing had to be made on different dates, considering the voluminous contracts in hand and the probable financial requirements for the business purposes of the company. The Income-tax Officer rejected this explanation and disallowed the interest paid. The Income-tax Officer, under similar circumstances, disallowed the interest paid during the next assessment year. On appeal by the assessee, the Commissioner of Income-tax, considering that the amount of Rs. 5,00,000 was advanced to the managing director on April 5, 1972, while the borrowings were made during the period between May 1, 1972, and March 17, 1973, came to the conclusion that the borrowings had not been utilised in making advance t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irector as also certain other parties and, having regard to the facts and circumstances of the case as discussed in the assessment order for the earlier year, " added back Rs. 50,000 only as before, being the amount of interest the assessee-company ought to have charged in its business interest ". On appeal by the assessee, the Commissioner of Income-tax (Appeals) referred to the argument of the assessee that it cannot be forced to earn and, in view of the fact that borrowed funds had not been diverted for non-business purposes, the Assessing Officer was not justified in charging notional interest, and also to his own order in the appeal for the assessment year 1977-78 that the Assessing Officer should not charge deemed interest, deleted th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at by the Income-tax Officer are that there were rotational loans and fresh loans were taken for the purpose of granting loan free of interest to the managing director. The Income-tax Officer also rejected the explanation that borrowing had to be made considering the voluminous contracts in hand and the probable financial requirements for the purpose of business. It is on the basis of these findings of fact that the Income-tax Officer arrived at a negative decision on the question of law whether capital was borrowed for the purpose of business. The assessee sought reference only on the question of law whether disallowance of interest was on any valid ground. He did not seek reference of the question whether the findings of fact are unreason ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as to whether the reference to earlier years in the order is a reference to the assessment years 1975-76 to 1977-78, or to the assessment years 1973-74 and 1974-75. Paragraph 8 of the statement of facts specifically refers to paragraphs 16 and 19 of the order of the Tribunal. In paragraph 16, the Tribunal confirmed the decision of the Income-tax Officer disallowing interest and, in paragraph 19, the Tribunal confirmed the decision of the Income-tax Officer adding interest. It is, therefore, clear that the reference in paragraph 19 to "what we have decided for the earlier years " is to the decision in paragraph 16 regarding the deletion of interest for the years 1973-74 and 1974-75. In other words, the Tribunal officer in adding interest on ..... X X X X Extracts X X X X X X X X Extracts X X X X
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