Commissioner Of Income Tax v. Jind Co-Op. Sugar Mills Ltd

IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH. I.T.A. No.694 of 2010 (O&M)Date of decision: 14.12.2010 Commissioner of Income Tax. Vs. Jind Co-op. Sugar Mills Ltd. -----Appellant. -----Respondent CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOELHON'BLE MR. JUSTICE AJAY KUMAR MITTAL Present:-Mr. Yogesh Putney, Sr.Standing counselfor the Revenue. --- ADARSH KUMAR GOEL, J. 1.This appeal has been preferred by the revenue underSection 260-A of the Income Tax Act, 1961 (for short, “the Act”)against the order of the Income Tax Appellate Tribunal, NewDelhi dated 19.6.2009 in I.T.A. No.583/DEL/2009 claimingfollowing substantial question of law:- “Whether on the facts and in the circumstances of thecase, the learned ITAT was right in confirming thereduction of disallowance of Rs.74,98,294/- toRs.10,87,177/- made on account of interest oninterest free loans without appreciating the facts thatmoney to the extent of interest free loan has not beenutilized by the assessee society for its own businesspurposes.” 2. The assessee is a cooperative society engaged inmanufacture and sale of sugar. It claimed deduction in respect ofinterest payment on the loans. The Assessing Officer disallowedthe deduction on the ground that the assessee had itselfadvanced loans to other cooperative societies and to that extent,payment of interest could not be treated to be for businesspurposes. On appeal, the CIT(A) partly allowed the appeal of theassessee holding that loan advanced to one of the cooperativesugar mills had already been received back and the saidcooperative sugar mill was under winding up. The Tribunalupheld the said finding as follows:- “4. ......... However, in this year it emerges out that asettlement has arrived between the assessee and M/sBhuna Coop. Sugar Mills wherein the loanee has paida sum of Rs.1,49,51,081/- towards full and finalsettlement of the principle amount. It would show thatno amount remained with the M/s Bhuna Co-op SugarMills which can be said as paid out of interest bearingfunds by the assessee and in view of that no interestcan be disallowed to the assessee. On dueconsideration of the CIT(A)’s order we do not find anymerit in the appeal of the revenue. It is dismissed.” 3. We have heard learned counsel for the appellant. 4. Learned counsel for the appellant submits that in viewof judgment of this Court inCITv. Abhishek Industries Ltd.286ITR 1, interest on borrowed capital could not be allowed as deduction if the assessee had itself advanced loan to its sisterconcern. 5. We are unable to accept the submission. Thejudgment relied upon is distinguishable. Therein the case was ofadvancing loan to a sister concern and not where a bonafide loanwas advanced for business purposes. In that judgment, theprinciple laid down in Mcdowell & Co. Ltd.v. CTO[1985] 154ITR 148 (SC) was followed that where an assessee avoids taxliability by manipulation, the device so adopted can be checked totax real income. 6. Having regard to the finding in the present case,which is not shown to be perverse, we do not find any error in theview taken by the Tribunal. 7. No substantial question of law arises. 8. The appeal is dismissed. (ADARSH KUMAR GOEL) JUDGE December 14, 2010ashwani ( AJAY KUMAR MITTAL ) JUDGE