Itxa/2421/2009 Of The Commissioner Of Income Tax-1 Mumbai v. Internatinal Fisheries Ltd

IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO.2421 OF 2009 The Commissioner of Income TaxAayakar Bhavan, Mumbai - 400 020. ))..Appellant. V/s. International Fisheries Ltd., 165/166, Backbay Reclamation,Mumbai - 400 020. )))..Respondent. Mr. Vimal Gupta for appellant. Mr. Pecy J. Pardiwala, senior Advocate with Nishant N. Thakkar and Rajesh Poojari i/b. M/s. Mulla & Mulla C. B. & C. for respondent. CORAM : DR. D.Y.CHANDRACHUD AND J.P.DEVADHAR, JJ. DATED : 12 MARCH, 2010 ORAL JUDGMENT (PER DR. D.Y.CHANDRACHUD. J.) 1)The appeal by the Revenue against the order of the I.T.A.T. dated 24th October, 2008 raises the following questions of law:- A)Whether on the facts and in the circumstance of the case and in law the Tribunal was justified in allowing the claim of the assessee Company of interest amounting to Rs.26,80,942/- even though such interest was paid by the assessee company on borrowings used for payment of outstanding sales tax liability of earlier years ?case and in law the Tribunal was justified in allowing the claim of the assessee Company of interest amounting to Rs.26,80,942/- even though such interest was paid by the assessee company on borrowings used for payment of outstanding sales tax liability of earlier years ? B)Whether on the facts and in the circumstance of the case and in law the Tribunal was justified in allowing the claim of the assessee Company for a deduction of interest amounting to Rs.10,08,179/- paid by the assessee Company on borrowings used for payment of outstanding sales tax penalty ?case and in law the Tribunal was justified in allowing the claim of the assessee Company for a deduction of interest amounting to Rs.10,08,179/- paid by the assessee Company on borrowings used for payment of outstanding sales tax penalty ? C)Whether on the facts and in the circumstance of the case and in law the Tribunal was justified in holding that interest paid on borrowed money used for payment of penalty sales tax is allowable as a deduction ? case and in law the Tribunal was justified in holding that interest paid on borrowed money used for payment of penalty sales tax is allowable as a deduction ? 2)Briefly stated, the facts are that during the course of the previous year relevant to assessment year 2001-01 the assessee took an unsecured loan of Rs.2.89 crores from Hindustan Lever Ltd. The loan was utilized for discharging the sales tax liability for an earlier assessment year, 1997-1998. The Tribunal noted that the Assessing Officer computed the income of the assessee under the head of business income and the loan was taken for making payment of sales tax due by the assessee on account of the business activity. Consequently, the Tribunal held that the CIT(A) was justified in deleting the disallowance of Rs.26.80 crores. The CIT(A) however, sustained an addition of Rs.10.08 crores which was paid on account of a sales tax penalty. From the reasons recorded by the Tribunal, it appears to be an undisputed position that the amount paid by way of penalty during the course of assessment years 1991-92, 1992-93, 1993-94, 1994-95 and 1995-96 was allowed as a deduction while completing the assessment. Interest was paid on borrowed funds which were used for payment of the penalty towards delayed sales tax payments. There was no breach of the provisions of the Sales Tax Act as such and it was justifiably held to be eligible for deduction. In that view of the matter, no substantial question of law arises in the appeal. The appeal is accordingly dismissed. There shall be no order as to costs. (J.P.DEVADHAR, J.) (DR. D.Y.CHANDRACHUD, J.)