VALLABH YARNS, LUDHIANA THRU VIJAY JAIN vs. COMMISSIONER OF INCOME TAX, LUDHIANA

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ITA/155/2012HC Punjab & HaryanaPHHC01099222201212 July 2016Author: MR. JUSTICE M.M. AGGARWAL,MR. JUSTICE AVNEESH JHINGAN4 pages
AI SummaryRemanded

What did the High Court hold?

The High Court set aside the impugned order of the Tribunal and remanded the matter back to the Tribunal. The court explicitly stated it would not express an opinion on the correctness or effect of the Section 154 orders or departmental communications at that stage. However, it emphasized that these orders and documents ought to have been considered by the CIT(A) and the Tribunal. The court suggested that the assessee might contend that the appeals before the CIT(A) and Tribunal should be allowed to be withdrawn or dismissed as infructuous in light of the Section 154 orders, and it would be for the Tribunal to decide such an application. All contentions of the parties on merit were kept open. The court did not decide the substantive issues raised in questions (2) and (3).

What were the facts?

The appellant, Vallabh Yarns, is an assessee challenging an order of the Income Tax Appellate Tribunal (ITAT) for assessment year 2007-08. The ITAT had dismissed the assessee's appeal against the order of the Commissioner of Income Tax (Appeals) [CIT(A)], which in turn upheld the Assessing Officer's (AO) refusal to grant a deduction under Section 36(1)(iii) of the Income Tax Act, 1961. The assessee had secured loans for building and machinery and claimed interest deduction. Procedural history involves rectification orders under Section 154 passed by the AO, which purportedly reduced the assessed income and demand, and which the assessee contends were not considered by the CIT(A) and the ITAT. The High Court noted that these orders and communications from the department ought to have been considered.

What were the issues?

The High Court was to decide substantial questions of law, but focused on the first: (1) Whether the Tribunal's order was perverse in accepting the assessee's claim for interest deduction on unsecured loans against income under the head 'income from other sources', contrary to the respondent department's stand. The court also noted two other questions: (2) Whether netting off interest income against interest expenses could be declined under Section 57(iii), and (3) Whether direct expenses attributable to earning 'income from other sources' could be declined under Section 57(iii). The assessee argued that the Tribunal's order was perverse and that the department's own subsequent actions (rectification orders) supported its claim. The judgment does not record specific arguments from the revenue on these points, but notes that the department's stand was contrary to the assessee's claim regarding the initial disallowance.

Which sections of the Income-tax Act were involved?

Section 36(1)(iii),Section 57(iii),Section 154

AI-generated summary — verify with the full judgment below

ITA-155-2012 [ 1 ] IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH

Sr. No.203 ITA-155-2012 (O&M)

Decided on : 12.07.2016 Vallabh Yarns, Sunder Nagar, Ludhiana ..... Appellant

VERSUS Commissioner of Income Tax, Ludhiana ..... Respondent CORAM: HON'BLE MR. JUSTICE S.J. VAZIFDAR, ACTING CHIEF JUSTICE HON'BLE MR. JUSTICE DEEPAK SIBAL Present: Mr.Pankaj Jain, Senior Advocate, with Mr.Divya Suri, Advocate, and Mr.Sachin Bhardwaj, Advocate, for the appellant. Mr.Rajesh Katoch, Advocate, for the respondent.

******* S.J. VAZIFDAR, A.C.J. (Oral) This is an appeal against the order of the Tribunal, dismissing the appellant/assessee's appeal against the order of the CIT (Appeals) which in turn dismissed the appellant's appeal against the assessment order to the extent that the same refused a deduction under Section 36(1) (iii) of the Income Tax Act, 1961. The appeal pertains to the assessment year 2007-08. 2. The appellant has raised the following substantial questions of law: - (i) Whether under the facts and circumstances of the case, the Tribunal's order is perverse while recording findings contrary to the respondent department's stand for accepting the claim of the appellant qua the allowance SHAMSHER SINGH 2016.07.15 16:13 authenticity of this document Chandigarh

ITA-155-2012 [ 2 ] of deduction for interest on unsecured loans against the income under head 'income from other sources? (ii) Whether under the facts and circumstances of the case, the 'Netting Off' of the interest income against interest expenses can be declined on the true and correct interpretation of the provisions of Section 57(iii) of the Income Tax Act, 1961? (iii) Whether under the facts and circumstances of the case, the claim for allowance of the 'direct expenses' attributable to earning of the 'income from other sources' can be declined on the true and correct interpretation of the provisions of section 57(iii) of the Income Tax Act, 1961?”

3.

It is sufficient to consider this appeal only with respect to the first question.

4.

The assessee claims to have secured loans for the purchase of building and machinery. The assessee further claims to have given the said building and machinery on rent. The assessee claimed a deduction under Section 36(1)(iii) of the Act in respect of the loans availed by it.

5.

The assessment order was passed on 18.12.2009 against which the appellant filed an appeal to the CIT (Appeals). During the pendency of this appeal on 21.01.2010 the appellant filed an application under Section 154 of the Act for rectification. The assessment order was rectified by reducing the assesssed income to Rs.46,11,250/-. Consequently, the demand was also reduced to Rs.18,33,054. Thereafter the assessee moved another application under Section 154 dated 10.08.2010. This application was disposed of by an order dated SHAMSHER SINGH 2016.07.15 16:13 authenticity of this document Chandigarh

ITA-155-2012 [ 3 ] 12.08.2010. The Assessing Officer upheld the appellant's contention. The Assessing Officer observed that the disallowance to the extent of Rs.22,77,739/- was not called for. The balance taxable income was assessed at Rs.22,96,464/-.

6.

The CIT (Appeals) dismissed the appellant's appeal against assessment order dated 18.12.2009 on 30.09.2011. The Tribunal dismissed the appeal against that order on 08.02.2012. 7. The order of the Tribunal as well as the order of the CIT (Appeals) have not considered the said orders passed under Section 154. The Income Tax Officer by a letter dated 04.01.2011 brought the order dated 12.08.2010 under Section 154 to the attention of the CIT (Appeals). Mr.Pankaj Jain, the learned senior counsel appearing on behalf of the appellant referred to various other letters also addressed to the CIT (Appeals) in support of his contention that even the Department had supported the appellant.

8.

We do not wish to express any opinion at this stage in respect of either the correctness or the effect of the orders under Section 154 or the communications addressed by the Department to the CIT (Appeals). It is possible that at the hearing itself the same may not have been brought to the attention of the CIT (Appeals) or the Tribunal. Suffice it to state that these are orders and documents which ought to have been taken into consideration by the CIT (Appeals) as well as by the Tribunal. Be that as it may. The orders, the documents and the effect thereto ought to have been taken into consideration.

9.

For instance, it would be open for the appellant to contend SHAMSHER SINGH 2016.07.15 16:13 authenticity of this document Chandigarh

ITA-155-2012 [ 4 ] that the appeals before the CIT (Appeals) and the Tribunal ought to be allowed to be withdrawn or dismissed as infructuous in view of the orders passed under Section 154. In the event of the appellant's being satisfied and accepting the revisional orders under Section 154, they may well not be interested in pursuing the appeal. If such an application is made it is for the Tribunal to decide the same.

10.

The appeal is, therefore, disposed of by setting aside the impugned order and remanding the matter to the Tribunal. All the contentions of the parties on merit are kept open.

[ S.J. VAZIFDAR ] ACTING CHIEF JUSTICE 12.07.2016

[ DEEPAK SIBAL ] shamsher JUDGE SHAMSHER SINGH 2016.07.15 16:13 authenticity of this document Chandigarh

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