C.I.T LUDHIANA vs. PANKAJ MUNJAL

ITR/63/1994HC Punjab & HaryanaPHHC01024721199412 March 2007Author: MR. JUSTICE RAJESH BINDAL,MR. JUSTICE M.M. KUMAR2 pages
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What did the High Court hold?

The High Court answered the question of law against the revenue and in favour of the assessee. The Court respectfully followed the view taken by the Delhi High Court in Madan Lal Jain's case and the Madhya Pradesh High Court in Raja Vikramaditya Singh's case. The reasoning was based on the existence of divergent opinions from different High Courts, with the Tribunal having followed the one favorable to the assessee. The Court also noted that the Revenue had not challenged a similar order for a previous assessment year where the assessee received similar relief. The fact that the provision was subsequently deleted and the small amount involved were also considered as justifications for not disturbing the Tribunal's order. The operative direction was to dispose of the reference accordingly.

What were the facts?

The assessee, Sh. Pankaj Munjal, proprietor of Rockman Cycle Industries, claimed a deduction of Rs. 16,450/- as interest paid on borrowed funds invested in a firm. The Assessing Officer disallowed a portion of this claim, stating the assessee did not derive income from the borrowed funds. This was upheld by the Commissioner of Income-Tax (Appeals). The Income Tax Appellate Tribunal, however, allowed the deduction, citing divergent High Court views and accepting the one favorable to the assessee. The assessment year in question is 1983-84. The High Court was considering a reference from the Tribunal regarding the correctness of its order.

What were the issues?

1. Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in holding that interest paid on borrowed funds invested in a firm is deductible under Section 67(3) of the Income-Tax Act, even when the firm has not done any business during the year and there was no share income/loss? Assessee's Contentions: - The Tribunal was correct in allowing the deduction, as there were divergent High Court opinions on the issue, and it chose the one favorable to the assessee. - For a previous assessment year, a similar claim of Rs. 6,752/- for interest paid to M/s Brij Mohan Lal Om Parkash was accepted by the Assessing Officer without challenge from the Revenue. - The provision (Section 67(3)) has since been deleted from the statute. - The amount involved in the dispute is small. - Relied on the views of Delhi High Court in Commissioner of Income-Tax, Delhi Vs. Madan Lal Jain (1982) 136 ITR 409 and Madhya Pradesh High Court in Commissioner of Income-Tax Vs. Raja Vikramaditya Singh (1988) 169 ITR 60. Revenue's Contentions: - The judgment records no specific contentions for the Revenue beyond what is implied by their appeal against the Tribunal's order.

Which sections of the Income-tax Act were involved?

Section 67(3)

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I.T.R.

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IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH I.T.R.

Date of decision: 12.03.2007 Commissioner of Income-Tax (Central), Ludhiana ...Petitioner Versus Sh.Pankaj Munjal, Rockman Cycle Industries, Ludhiana ...Respondent CORAM: HON'BLE MR.JUSTICE M.M.KUMAR HON'BLE MR.JUSTICE RAJESH BINDAL Present: Mr.Yogesh Putney, Advocate for Mr.S.K.Garg Narwana, Advocate for the Revenue. Mr.Akshay Bhan, Advocate for the Assessee. **** RAJESH BINDAL, J. Following question of law has been referred for opinion of this Court by the Income Tax Appellate Tribunal, Chandigarh Bench, Chandigarh (for short, ‘the Tribunal) arising out of its order dated 27.4.1993 in ITA No.765/Chandi/88 for the assessment year 1983-84:- “Whether on the facts and in the circumstances of the case, the I.T.A.T. was right in law in holding that interest paid on borrowed funds invested in a firm is deductible U/S 67(3) of the Income-Tax Act even when the firm has not done any business during the year and there was no share income/loss? Briefly the facts, as evident from the statement of case are that the

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