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2018 (4) TMI 1946 - AT - Income TaxAllowability of assessee’s claim of interest expenditure - Commissioner (Appeals) upheld the disallowance of interest expenditure by holding that interest income earned by the assessee has to be treated as business income and the interest expenditure cannot be allowed u/s 36(1)(iii) as it is not for the purpose of business and it cannot be allowed under section 37(1) as it was connected to activities prohibited in law or for infraction of law - HELD THAT:- Commissioner(Appeals) has totally overlooked and ignored the inconsistencies pointed out by the assessing officer with regard to the nature of transactions between the parties in purported violation of various provisions of Companies Act. Commissioner(Appeals) while allowing assessee’s claim in Assessment Year 2010–11 has not at all dealt with a number of factual issues raised by the assessing officer. In as much as, while deciding assessee’s appeal for AY 2011–12 the Commissioner(Appeals) has upheld the disallowance of interest expenditure claimed by the assessee on a altogether different reasoning by changing the head of interest income shown by the assessee under the head ‘income from other sources’ to ‘business income’. Thus, there is inconsistency even in the stand of the department with regard to the head of income. The most important factor which will have crucial bearing on the disputed issue is the fate of the cases filed by the CBI against the assessee under the Prevention of Corruption Act and Prevention of Money Laundering Act. A reading of the impugned assessment orders as well as the first appellate order for assessment year 2011–12 would leave no room for doubt that the disallowance of interest expenditure stands on the fulcrum of the allegations made by the CBI against the assessee and other persons in the charge sheet/complaint filed under the Prevention of Money Laundering Act, 2002 and Prevention of Corruption Act, 1988. Undisputedly, these are recent developments much after completion of proceedings before the Departmental Authorities. None of the Departmental Authorities had the benefit of the aforesaid orders passed by the learned Special Judge, CBI (04), New Delhi, which were produced for the first time in course of appeal hearing before us. Rules of natural justice and fair play demand that the Departmental Authorities must be given an opportunity to analyze and examine the impact the orders passed by the learned Special Judge, CBI (04), New Delhi, may have on the disputed issue arising in the present appeals. Therefore, regard being had to the facts discussed by us herein before and the changed scenario arising due to the orders passed by the learned Special Judge, CBI (04), New Delhi, we are of the considered opinion that the issues raised in the present appeals are required to be restored back to the Assessing Officer for de novo adjudication after considering all incidental facts and material including the orders of the learned Special Judge, CBI (04), New Delhi. Appeals are allowed for statistical purposes.
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