2006 (6) TMI 201 - AT - Income Tax

Summary

Issues Involved:
1. Appeal against orders of CIT(A) for asst. yrs. 1992-93 and 1993-94 regarding interest and commitment charges.
2. Claim under s. 36(1)(iii) for interest and commitment charges.
3. Admissibility of additional ground under r. 46A of IT Rules.
4. Interpretation of legal provisions and precedents related to interest deduction for capital borrowed for business purposes.

Analysis:

Issue 1: Appeal against CIT(A) orders
The appeals were directed against the CIT(A) orders for asst. yrs. 1992-93 and 1993-94 regarding interest and commitment charges. The ITAT Pune-A heard both appeals together for convenience and disposed of them through a common order.

Issue 2: Claim under s. 36(1)(iii)
The main issue involved in the appeal for asst. yr. 1992-93 was the assessee's claim for interest and commitment charges under s. 36(1)(iii). The CIT(A) allowed the claim, directing the AO to withdraw depreciation allowed on the impugned interest. The AO had ignored the claim initially, leading to the appeal.

Issue 3: Admissibility of additional ground
The Department requested to admit an additional ground related to the admissibility of additional evidence by CIT(A) for asst. yr. 1992-93. However, the ITAT rejected this additional ground under r. 46A of the IT Rules, as the AO was present during the hearing and the CIT(A) had called for a report.

Issue 4: Interpretation of legal provisions
The judgment analyzed various legal precedents regarding the deduction of interest paid on capital borrowed for business purposes. It discussed the applicability of s. 36(1)(iii) and Expln. 8 to s. 43(1) of the Act. The judgment referred to cases like Alembic Glass Industries Ltd., Associated Fibre & Rubber Industries (P) Ltd., and Core Healthcare Ltd. to establish the principles governing the deduction of interest under s. 36(1)(iii).

In conclusion, the ITAT Pune-A dismissed the Department's appeals for both asst. yrs. 1992-93 and 1993-94, upholding the CIT(A) orders based on the legal analysis and precedents discussed. The judgment emphasized the importance of interest deduction for capital borrowed for business purposes and clarified the scope and applicability of relevant legal provisions and court decisions.