HIGH COURT OF ALLAHABAD
Commissioner of Income-tax
versus
Sahu Enterprise (P.) Ltd.
Income Tax Appeal Nos. 43 of 2006 AND 55 & 112 of 2005
Date of Pronouncement – 20.02.2013
JUDGMENT
Dr. Satish Chandra, J.
All the appeals have been preferred by the department under Section 260-A of the Income Tax Act against the judgment and orders dated 10.11.2004; 28.02.2005; and 27.05.2005 passed by the Income Tax Appellate Tribunal, Lucknow Bench, Lucknow in ITA Nos 1446/All./1998 (A.Y. 1995-96); 258/All./2000 (A.Y. 1995-960); and ITA No.176/Luc./2001 (A.Y. 1997-98).
2. Income Tax Appeal No.55 of 2005 was admitted by this Court vide its order dated 04.07.2005 on the following substantial questions of law framed at Sl. No. 1 to 4:
1. Whether on the facts and in the circumstances of the cases, the leaned Income Tax Appellate Tribunal was justified in deleting the disallowance of equivalent of interest on borrowed capital which was debit balances existing in the names of directors and their family members, on the ground that no such disallowance was made by the assessing officer in the assessment years 1991-92 & 1992-93 while ignoring that the omission on the part of the assessing officer to add back the same in the preceding year will not preclude the assessing officer to add back the same on the basis material available on record.
2. Whether the learned Income Tax Appellate Tribunal was justified in deleting the disallowance of interest on borrowed capital by the assessing officer on the basis of material available on record merely because the same was not added back to the income of the assessee by the assessing officer in the preceding years.
3. Whether on the facts and in the circumstances of the cases, the ITAT was justified in confirming the order of the CIT (A) in allowing the interest of Rs. 8,11,335/- claimed by the assessee on the borrowed funds even though there is strong evidence of linking these funds with withdrawals for non-business purposes.
4. Whether on the facts and in the circumstances of the cases, the ITAT was justified in holding that the heavy personal withdrawals made by the lineal ascendent of the directors in the past will not be construed as adverse evidence for the purposes of disallowance of proportionate interest on borrowed funds merely because the erstwhile proprietorship of such lineal ascendant has since been converted to a private limited company and the said debit balance of such lineal ascendants have got split in the names of various legal heirs.
3. Income Tax Appeal No. 112 of 2005 has been admitted vide order dated 28.09.2005 on the following substantial questions of law:
1. Whether on the facts and in the circumstances of the case, the leaned Income Tax Appellate Tribunal was justified in confirming the order of the CIT (Appeals) in allowing the interest payments totalling Rs. 12,67,462/- claimed by the assessee on the borrowed funds even though there is evidence of linking funds with withdrawals for non-business purposes.
2. Whether on the facts and in the circumstances of the case, the leaned Income Tax Appellate Tribunal was justified in deleting the disallowance of equivalent of interest on borrowed capital to the debit balances existing in the names of directors on the ground that no disallowance was made in the assessment year 1991-92 & 1992-93 ignoring the fact that omission on the part of the assessing officer in particular years will alone not become ground for relief in a case where Assessing Officer has given concrete material to make the disallowance.
3. Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was justified in holding that the heavy personal withdrawals made by the lineal ascendent of the directors in the past will not be construed as adverse evidence for the purposes of disallowance of proportionate interest on borrowed funds merely because the erstwhile proprietorship of such lineal ascendant has since been converted to a private limited company and the said debit balance of such lineal ascendants have got split in the names of various legal heirs.
4. Similarly, the Income Tax Appeal No. 43 of 2006 was admitted by this Court vide order dated 05.02.2008 on the following substantial questions of law.
1. Whether on the facts and in the circumstances of the case, the leaned ITAT was justified in deleting the disallowance of equivalent of interest on borrowed capital to the debit balances existing in the name of Directors on the ground that no disallowance was made in the assessment year 19AFR91-92 & 1992-93 while placing reliance on its decision in the case of the assessee for the Assessment Years 1995-96 and 1996-97, ignoring the facts that the omission on the part of the Assessing Officer in particular years will alone not become ground for relief in a case where Assessing Officer has given concrete material to make the disallowance?.
2. Whether on the facts and in the circumstances of the case, the leaned ITAT was justified in confirming the order of CIT (Appeals) in allowing the interest of Rs.10,09,000/- claimed by the assessee on the borrowed funds even though there is evidence of linking; these funds with withdrawals for non-business purposes ?
5. In all the Appeals, the facts and circumstances are identical. Hence, all these appeals are decided by this common judgment for the sake of convenience.
6. In all the questions admitted by this Hon’ble Court, the issue is only one i.e. pertaining to interest free advances given to the family members and Director of the assessee company.
7. Sri D. D. Chopra assisted by Sri Ghanshyam Chaudhary learned counsel for the appellant-department submits that in all the assessment years under consideration, the assessee has shown the following loss in its return:
