TMI Blog2006 (10) TMI 92X X X X Extracts X X X X X X X X Extracts X X X X ..... m accrued to the assessee on the advances made to M/s. Mohan General Trading Co., Calcutta and M/s. Malik Co., Kanpur? Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the advance made to M/s. Malik Co. was not a business advance ? Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in upholding the disallowance of Rs. 1,98,607 made by the income-tax authorities under section 36(1)(iii) of the Income-tax Act, 1961, on the ground that the interest should have been charged' on advances made to M/s. Mohan General Trading Co., Calcutta and M/s. Malik Co., Kanpur? Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in confirming the disallowance of Rs. 1,98,607 under section 36(1)(iii) of the Income-tax Act, 1961, for the assessment year 1980-81 ?" 2 The reference relates to the years 1978-79, 1979-80 and 1980-81. 3 Briefly stated the facts giving rise to the present reference are as follows: 4 The brief facts of the case are that the assessee lady had obtained import licence for importing certain machines for running a tanner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount advanced to various parties from the interest paid by the assessee as under: "1. Mis. Mohan General Trading Co. Rs. 3,31,343 at 12% Rs. 39,761 2. Mis. Malik Co. Rs. 4,76,785 at 12% per annum 57,214 96,975" Assessment year 1979-80: "Scrutiny of balance-sheet showed that the assessee had advanced Rs. 3,88,057 to M/s. Mohan Gen Trading Co. and Rs. 7,02,464 to M/s. Malik Co. for known business purposes and interest income over it has not been shown whereas interest on debt balance of M/s. Ideal Glass Co. has been shown by the assessee. The assessee paid Rs. 2,38,772 interest to her creditors. The assessee has not been able to establish as to how interest has not been charged from two debtors while same was charged from others. Considering the facts and circumstances of the case interest amounting to Rs. 1,09,685 is disallowed under section 36(1)(iii) of the Income-tax Act." Assessment year 1980-81 "The assessee has paid interest of Rs. 2,33,434 to the various creditors and has shown interest of Rs. 17,500 having been received from M/s. Ideal Glass Co. The assessee has not charged interest fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the provisions of section 36(1) (iii) in respect of M/s. Malik Co. is also correct." 10.The Income-tax Officer categorically mentioned in his order as "therefore, interest amounting to Rs. 1,98,607 is disallowed under section 36(1)(iii) of the Income-tax Act, 1961, like last year". As has been mentioned by the Tribunal in paragraph 11 of the order, the Departmental Representative on behalf of the respondent only relied upon the orders of the authorities below and read in extenso the order of the Commissioner of Income-tax (Appeals) None of the lower authorities had considered the aspect of the approval of income in terms of the agreement even there was no submission on behalf of the Department that any opportunity was allowed to the assessee to explain her viewpoint on the question of accrual of income in terms of the aforesaid two agreements On behalf of the assessee, specific argument was made that no opportunity Was allowed to explain her case before the authorities below but this was rejected by the Tnbunal and the relevant findings of the Tnbunal contained in paragraph 13 of the order are reproduced below: "The request of the assessee that she should be provided an opp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (3) CIT v. Radico Khaitan Ltd . [2005] 274 ITR 354 (All). 14.Shri A. N. Mahajan, learned standing counsel, on the other hand, submitted that under the agreements entered into by the applicant with the two firms has clearly established that if the project is not completed within a specified period the firms would be liable to pay interest on the accrued rate and, therefore, the Tribunal was justified in relying upon the said clause of the a and upholding the disa1 of the proportionate amount of interest under section 36(1) (iii) of the Act, which the applicant had paid on borrowed capital. He has relied, upon a decision of this court in the case of CIT v. H. R. Sugar Factory P. Ltd. [1991] 187 ITR 363. 15.We have given our anxious consideration to the various pleas raised by learned counsel for the parties. 16.It is not in dispute that for the assessment years 1978-79 and 1979-80, the Tribunal has reversed the disallowance of the proportionate amount of interest. In respect of the assessment year 1980-81, the Tribunal has con firmed the disallowance relying upon the clause of the a which provided charging of interest. However, we find that in the remand report, which was ..... X X X X Extracts X X X X X X X X Extracts X X X X
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