High Court allows assessing officer flexibility in allocating interest expenditure between business activities.

The High Court ruled in favor of the Revenue, stating that the assessing officer should not be limited to the Special Bench's guidelines when allocating interest expenditure between different business activities. The Court emphasized that the officer has the discretion to consider all relevant facts and circumstances in making this determination.

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Issues:
1. Allocation of interest expenditure between different business activities.

Analysis:
The High Court judgment involves the issue of allocation of interest expenditure between two business activities - share dealing and loans and advances. The assessing officer had bifurcated the interest and financial charges between the two activities, resulting in a loss in the speculative activity and taxable income in the other. The CIT (Appeals) accepted the assessee's contention that the interest payable on borrowings made for business purposes should be allowed as a deduction without being allocated between different business activities. The Tribunal, referring to a Special Bench decision, remanded the matter to the assessing officer to decide the allocation of interest expenditure afresh, considering the ratio laid down by the Special Bench.

The Revenue contended that the Tribunal erred in directing the assessing officer to follow the Special Bench's ratio while deciding the allocation of interest expenditure. The Revenue argued for an open remand without any specific directions. The assessee, on the other hand, claimed that the assessing officer's distinction between share dealing and advancing loans was artificial and that the Special Bench's guidelines were general in nature and could be considered by the assessing officer. The High Court acknowledged the need for caution in issuing directions on remand, ensuring that the assessing officer is not unduly restricted. The Court clarified that the assessing officer can consider all relevant facts and circumstances beyond the Special Bench's guidelines while deciding the allocation of interest expenditure.

In conclusion, the High Court answered the substantial question of law in favor of the Revenue and against the assessee. The Court emphasized that the assessing officer, while considering the allocation of interest expenditure, should not be confined to the Special Bench's guidelines but can explore all relevant facts and circumstances to make an informed decision.

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