C.I.T.JALANDHAR vs. M/S KAKKAR COMPLEX & STEELS

ITR/24/2000HC Punjab & HaryanaPHHC01036438200020 December 2013Author: MR. JUSTICE RAJIVE BHALLA,MR. JUSTICE DR. BHARAT BHUSHAN PARSOON6 pages
AI SummaryAllowed

What were the facts?

The assessee, M/s Kakkar Complex & Steels Pvt. Ltd., for Assessment Year 1985-86, declared a loss. The Assessing Officer (AO) disallowed Rs. 80,915/- as interest paid on an advance of Rs. 12.25 lacs given to M/s Hindustan Brown Boveri Limited for an electric furnace. The furnace was ultimately purchased and utilized by M/s Seth Hari Chand & Sons Private Limited, not the assessee. The Commissioner of Income Tax (Appeals) upheld the disallowance. The Income Tax Appellate Tribunal reversed this, holding the disallowance unjustified. The Revenue filed a reference application to the High Court, which was accepted. The High Court also considered an appeal by the Revenue for Assessment Year 1987-88 concerning a similar issue.

What did the High Court hold?

The High Court held that the Tribunal was wrong in allowing the deduction of Rs. 80,915/- as interest. The Court found that it was an admitted fact that the assessee had paid Rs. 12.25 lacs to M/s Hindustan Brown Boveri Limited for an electric furnace and paid Rs. 80,915/- as interest to the bank on this advance. However, the furnace was neither purchased nor utilized by the assessee for its business; it was purchased and utilized by M/s Seth Hari Chand & Sons Private Limited. The Court applied the test laid down in Deputy Commissioner of Income Tax Versus Core Health Care Limited, requiring borrowed capital to be for the purpose of business and interest to be paid thereon. Since the advance was not for the assessee's business purpose, the disallowance was justified. The Tribunal's findings that the amount was advanced for business purposes and no interest was paid were held to be perverse, being against the facts and the assessee's own admission of claiming the interest deduction. Consequently, the disallowance was upheld, and the Revenue's appeal was allowed.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in allowing the deduction of interest of Rs. 80,915/- relating to the advance of Rs. 12.25 lacs? (Question of law) 2. Whether, on the facts and in the circumstances of the case and the material on record, the findings of the Tribunal that the amount of Rs. 12.25 lacs had been advanced by the assessee for its business purpose and that no interest on that amount was paid to the bank are perverse? (Question of mixed law and fact) Assessee's Contentions: The assessee argued that no loan was taken for the furnace, no interest was paid to the bank on this specific count, and the interest paid was on a cash credit account which was a running account used for business purposes. Revenue's Contentions: The Revenue contended that the deletion of the disallowance of Rs. 80,915/- by the Tribunal was unsustainable as the interest was paid on an advance given for a furnace that was neither purchased nor utilized for the assessee's business. The Revenue argued that the Tribunal's order was perverse and lacked proper appreciation of facts and evidence.

Which sections of the Income-tax Act were involved?

Section 143(3),Section 256(1),Section 256(2),Section 36,Section 43

AI-generated summary — verify with the full judgment below

-1- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH

(1)

I.T.R. No.24 of 2000. Assessment Year:-1985-86. Decided on:-December 20, 2013. The Commissioner of Income Tax, Jalandhar.

.........Applicant.

Versus M/s Kakker Complex & Steels Pvt. Ltd., Jalandhar. .........Respondent.

(2)

I.T.A. No.251 of 2003 (O&M).

Assessment Year:-1987-88. The Commissioner of Income Tax, Jalandhar-II, Jalandhar. .........Appellant.

Versus M/s Kakkar Complex Steels (P) Ltd., Jalandhar. .........Respondent. CORAM: Hon'ble Mr. Justice Rajive Bhalla Hon'ble Mr. Justice Dr. Bharat Bhushan Parsoon.

***** Argued by:- Mr. Vivek Sethi, Advocate

for the applicant-appellant. Mr. Pankaj Jain, Advocate and Mr. Divya Suri, Advocate for the respondent. Dr. Bharat Bhushan Parsoon, J This Income Tax Reference No.24 of 2000 is pursuant to judgment dated 28.5.1996 of this Court. Following questions of law are Yag Dutt 2013.12.24 13:52 I attest to the accuracy and integrity of this document -2- required to be answered:

“(i) Whether, on the facts and in the circumstances of the case, the Tribunal was right in allowing t

The order continues below.

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