Sri. Surbsh v. Shbjiwadkamadhura Plazanbar Janata Bazar

: 1 : IN THE HIGH COURT OF KARNATAKA,DHARWAD BENCH DATED THIS THE 19 DAY OF JUNE 2014 PRESENT THE HON’‘BLE DR.JUSTICE K.BHAKTHAVATSAL AND THE HON'BLE MR.JUSTICE PRADEEP D.WAINGANKARI ITA NO.699/2007 BETWEEN7 1.THERE COMMISSIONER OF INCOME-TC.R.BUILDING, NAVANAGARHUBLI. a2THR INCOME TAX OFFICERWARD-1(3)C.R.BUILDING, NAVANAGARWARD-1(3)C.R.BUILDING, NAVANAGAR HUBLI ... APPELLANTS (BY SRI Y.V. RAVIRAJ ADV. FOR SRI K.V. ARAVINDAND M.V. SESHACHALA ADVS.) AND: SRI. SURBSH V. SHBJIWADKAMADHURA PLAZANBAR JANATA BAZAR HUBLI. .. RESPONDENT (BY SRI P. DINESH, ADV. FOR SRI 5S. PARTHASARATIADV.) This ITA having been posted before the Hon’bleCourt for non-compliance of office objections, the Hon’bieCourt by its order dated 20.12.2007 was pleased to grant4 weeks time as a last chance to comply with the officeobjections. If the needful is not done within the stipulatedtime, the appeal stands dismissed without reference to theCourt. This ITA coming on for final hearing this day,Dr. K.Bnakthavatsala, J,delivered the following: JUDGMENT Tne revenue Is pefore this Court under Section 260 Aof the Income Tax Act 1961, praying to set aside the orderdated 21/12/2006 made in ITA No.3812/Bang/2014 on thefile of the Income Tax Appellate Tribunal, Bangalore,confirming the order of the Appellate Commissioner andtne order of the I.T.0O. Ward No.1 (3) Bangalore 2.The substantial questions of law that arise for ourconsideration is: i) Whether the Income Tax Appellate TribdunalBangalore, is justified in holding that a sum ofRs.34,/78,969/- paid by the assesse during the yea2000-01 towards interest on the money borrowedand paid to M/s.Suresh Enterprise Pvt.Ltd., isentitled for deduction?. 3.Tne assessee claims that it is a Proprietaryconcern of Suesh V.Shejwadkar, carrying on business incement and steal. Tne assessee filed returns of income fortne Accounting Year 2000-01 (Assessment Year 2001-02)declaring his income of Rs.2,88,850/-. But on 18.10.2002,during the course of scrutiny, notice under Section 143(2)of the Income Tax Act was issued to the assessee. Theassessee produced books of accounts. As per the books ofaccounts during year 2000-01 the assessee paid a sum ofRs.1.83 crores, out of Rs.1.83 crores, a sum _ Rs.1,59,29,000/- was borrowed on the basis of the fixeddeposit to M/s Suresh Enterprises Pvt. Ltd., and paidinterest of Rs.34,78,969/- on Rs.1,59,29,000/-. Since theamount.OT|Rs.1,59,29,000/- WadaborrowedDY/$,assessee, but, not used for the purpose of businesses ofthe assessee, put, diverted the same to some othercompany, the assessing authority disallowed _ intereamount of Rs.34,78,969/-. The assessee preferred anappealbeforethe.Income.TaxAct.(Appeal),/$, Commissioner of Income Tax. The appellate authority bynis order dated 21/10/2004, allowed the appea! and theorder of the assessing authority disallowing the interestamount of Rs.34,/78,969/- was set aside. Feelingaggrieved by the order made by the Commissioner ofIncome Tax (appeals) at Annexure-B, tne Revenuepreferred an appeal before the Income tax AppellateTribunal in ITA No.3812/Bang/2004. Tne Income TaxAppellate Tribunal rejected the appeal confirming tne orderof the Commissioner of Income Tax (appeals). Therefore,tne revenue Is before tnis Court. 4Learned Counsel appearing for the appellantRevenue submits that according to Section 36 of theIncome Tax Act, the amount of interest paid in respect ofcapital borrowed for the purpose of business or professioncan be allowed, but, in the instant case, the moneyborrowed by the assessee was not for the purpose ofbusinesses of the assessee and therefore, the assessingauthority was justified in disallowing the interest amount of Rs.34,78,969/- paid on the borrowal, but, the IncomeTax Commissioner (Appeals) as well as the Income TaxAppellate Tribunal erred in not accepting the contention ofthe revenue. He submits that the order of the Assessingautnority may be restored by setting aside the impugnedorders. 4Learned Counsel appearing for the appellantRevenue submits that according to Section 36 of theIncome Tax Act, the amount of interest paid in respect ofcapital borrowed for the purpose of business or professioncan be allowed, but, in the instant case, the moneyborrowed by the assessee was not for the purpose ofbusinesses of the assessee and therefore, the assessingauthority was justified in disallowing the interest amount of Rs.34,78,969/- paid on the borrowal, but, the IncomeTax Commissioner (Appeals) as well as the Income TaxAppellate Tribunal erred in not accepting the contention ofthe revenue. He submits that the order of the Assessingautnority may be restored by setting aside the impugnedorders. 5 Learned Counsel appearing for the respondentassessee submits that the respondent is the promoter ofthe Company, namely, M/s. Suresn Enterprises Pvt. Ltd.and no opportunity was given to produce tne books ofaccounts of that company. He further submits a sum ofRs.1.83 crores was paid to the Private Limited Companyfor the purpose of its businesses and there is no illegalityor infirmity in the impugned orders. He also submits thatif the matter were to be remanded, the assesee wouldproduce the books of accounts of the private limitedcompany to establish that the assessee is the promoter ofthe company and therefore, the payment of the money ofRs.1.83 crores by the assessee to Company would not disentitle the assessee from claiming deduction of interestpaid on the borrowal. 6.Learned Counsel for the revenue submits that henas no objection to set aside the impugned orders, andremand tne matter to the assessing authority witn libertyto the respondent assessee to prove that the money paidto the Private Company was to support as a promoter ofthe company. 7 The order of the assessing authority does notreveal tnat tne assessee was given an opportunity toproduce the books of accounts of the said Private CompanyLtd. for verification. Hence, it is a fit case to set aside allthe orders and remand the matter to tne I.T.O. 8.In view of tne above, we pass the following.20,2<5 All impugned orders including the order of the I.T.O.are set aside and the matter is remitted to the AssessingAuthority with a direction to afford an opportunity to the Assessee for production of the books of accounts and othernecessary documents of M/s Suresn Enterprises Pvt. Ltd.,for the accounting year 2000-01 and ascertain whether theamount of Rs.1.83 crores paid by tne Assessee as apromoter of the said Private Limited Company and theSame is for the purpose of business or otherwise and passappropriate order in accordance with law. Sd/-JUDGESd/-JUDGEVmb