Interest Paid On Borrowals For Previous Yearsrs.8,20,028/-" v. Settlement Commission

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR WEDNESDAY, THE 29TH JULY 2009 / 7TH SRAVANA 1931 OP.No. 14856 of 2002(R) ----------------------- PETITIONER(S): --------------- THE COMMISSIONER OF INCOME TAX,CALICUT. BY ADV. SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) SRI. JOSE JOSEPH, SC FOR IT RESPONDENT(S): --------------- 1. SETTLEMENT COMMISSION (IT & WT) ADDITONAL BENCH,488-489,ANNASALAI,CHENNAI-600 035. 2. SRI.P.MOHAMMED ALIAS MANU,PALANTHODI HOUSE,KARUVAMBARAM,MANJERI,MALAPPURAM DISTRICT. ADV. SRI.P.BALAKRISHNAN (E) FOR R2 THIS ORIGINAL PETITION HAVING BEEN FINALLY HEARD ON 29/07/2009, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: PETITIONER'S EXHIBITS: P1: TRUE COPY OF ORDER OF THE SETTLEMENT COMMISSION DT.30.8.2001. TRUE COPY PA TO JUDGE C.N.RAMACHANDRAN NAIR, J. .................................................................... O.P. No.14856 of 2002....................................................................Dated this the 29th day of July, 2009. C.R. JUDGMENT This O.P. is filed by the Revenue challenging Ext.P1 order issued bythe Settlement Commission settling the block assessment of the assessee forthe assessment years 1986-87 to 1996-97. A search was made in theresidential and business premises of the assessee on 1.2.1996. Pursuant tosearch, assessee filed a return and revised return. However, pendingassessment under Section 158BC of the Income Tax Act, assessee filedapplication before the Settlement Commission. The Settlement Commissiondetermined the income of the assessee at Rs.79,68,412/-, the break updetails of which are available in the Annexure to the SettlementCommission's order produced as Ext.P1. The department's objection isagainst the set off granted to the assessee of carried forward loss in thecomputation of long term capital gains for the year 1996-97. TheSettlement Commission, though computed long term capital gains atRs.59,57,984, allowed two items of deductions which were claimed by theassessee under the following heads "Loss from house property carried forwardRs.5,15,389/- Interest paid on borrowals for previous yearsRs.8,20,028/-" The Settlement Commission allowed both the above items claimed by theassessee in the computation of long term capital gains. It is against thisorder of the Settlement Commission, the department has filed this appeal. Ihave heard Standing Counsel for the petitioner and Sri.P.Balakrishnan,appearing for the respondent-assessee. 2. Counsel appearing for the respondent submitted that jurisdiction ofthe High Court is extremely limited and the limitations are contained in theKarnataka High Court's judgment in N.KRISHNAN V. SETTLEMENTCOMMISSION (1980) 180 ITR 585. Counsel also relied on decision of theSupreme Court in NIRMAL AND NAVIN (P) LTD. AND OTHERS V.D.RAVINDRAN (255 ITR 514) wherein the Supreme Court has held thatthe jurisdiction of the High Court is extremely limited and once theSettlement Commission grants immunity from prosecution, the same shouldnot be reversed by High Court. However, I do not think the decisions citedstand in the way of this court interfering with the impugned order in thiscase because Settlement Commission has allowed set off of carried forward 2. Counsel appearing for the respondent submitted that jurisdiction ofthe High Court is extremely limited and the limitations are contained in theKarnataka High Court's judgment in N.KRISHNAN V. SETTLEMENTCOMMISSION (1980) 180 ITR 585. Counsel also relied on decision of theSupreme Court in NIRMAL AND NAVIN (P) LTD. AND OTHERS V.D.RAVINDRAN (255 ITR 514) wherein the Supreme Court has held thatthe jurisdiction of the High Court is extremely limited and once theSettlement Commission grants immunity from prosecution, the same shouldnot be reversed by High Court. However, I do not think the decisions citedstand in the way of this court interfering with the impugned order in thiscase because Settlement Commission has allowed set off of carried forward loss from house property which is impermissible under Section 158BB(4) ofthe Income Tax Act. Though Settlement Commission enjoys widediscretion in settlement of income tax cases taken by it, it is bound by thestatutory provisions and once there is an express bar, SettlementCommission cannot get over it. In fact, the Settlement Commission itselfhas computed the profit on sale of long term capital asset and furtherdeductions from that could be granted only in accordance with the statutoryprovisions. Since there is express bar against granting of carried forwardloss, except in the case of regular assessment under Section 158BB(4) of theAct, the Settlement Commission should not have allowed deduction ofRs.5,15,389/- claimed by the assessee. Therefore, the SettlementCommission's order is modified disallowing the deduction of Rs.5,15,389/-granted by it from the long term capital gains computed by it. Even thoughStanding Counsel for the petitioner challenged the order of the SettlementCommission in regard to deduction of Rs.8,20,208/- granted, I find frompara 24.2 of the order that assessee furnished details of borrowals from aCo-operative Bank and interest thereon. Though interest on borrowals cannot be strictly set off against long term capital gains, the SettlementCommission could reduce it in the total income computed as if it is foundthat assessee has really incurred so much of the expenditure on borrowals.In this view of the matter I uphold the order of the Settlement Commissionon this issue. The O.P. is, therefore, allowed in part directing the AssessingOfficer to treat the Settlement Commission's order modified to the extentindicated above, demand tax, interest etc. thereon. pms C.N.RAMACHANDRAN NAIRJudge