2016 (5) TMI 694 - HC - Income Tax

High Court upholds Tribunal decisions on tax appeals, no substantial questions of law found

The Commissioner of Income-tax Versus M/s. Himatsingka Seide Ltd

The High Court dismissed both appeals by the appellant-Revenue, upholding the Tribunal's decisions. The Court found no substantial questions of law in the ... Disallowance under section 14A - ITAT allowed the claim - Held that:- Once Rule 8(D) of the I .T. Rules, is held to be having prospective effect, naturally it could not be applied to the assessment year in question and therefore, the view taken by the Tribunal cannot be said to be erroneous nor it can be said that any substantial question of law would arise for consideration. No substantial question of law. Disallowance of interest under section 36(1)(iii) - ITAT allowed the claim - Held that:- Once the interest is of a loan taken for the existing manufacturing unit, may be as term loan or may be working capital, the interest cannot be disallowed. Further on the question of diversion of fund, it is by now well settled that the business wisdom of the assessee cannot be substituted by the assessing officer. Further the loan was actually taken for establishing a new unit and the utilization thereof is proved. Under these circumstances, we find that it cannot be said that the Tribunal has committed an error in deleting the disallowance made by the Assessing Officer or CIT (Appeals) of the amount of interest. No substantial question of law. Issues:1. Entitlement for deduction under section 10B of the Act2. Disallowance under section 14A of the Act3. Disallowance of interest under section 36(1)(iii) of the ActEntitlement for deduction under section 10B of the Act:The appellant-Revenue raised the issue of whether the assessee fulfilled the conditions for deduction under section 10B of the Act. The Tribunal upheld the deduction based on its earlier order, even though the orders had not reached finality. The counsel for the appellant did not press this question during the hearing, leading to it not being considered in the present appeals.Disallowance under section 14A of the Act:The Tribunal considered the issue of disallowance under section 14A of the Act, sustaining it at 5% of exempted income. The Tribunal cited precedents and upheld the disallowance, dismissing both the revenue's and the assessee's grounds. The decision was influenced by the applicability of Rule 8D of the Income Tax Rules with prospective effect, as established by the Bombay High Court. The Kerala High Court's decision was deemed irrelevant as it did not address the retrospective or prospective effect of Rule 8D.Disallowance of interest under section 36(1)(iii) of the Act:The Tribunal examined the disallowance of interest amounting to a specific sum under section 36(1)(iii) of the Act. It was found that the interest claimed by the assessee was related to loans for existing manufacturing units and not for diversion. The Tribunal concluded that the disallowance made by the lower authorities was unsustainable and deleted the disallowance. The Tribunal emphasized that the assessing officer cannot question the business wisdom of the assessee, especially when the loan was utilized for establishing a new unit.In conclusion, the High Court dismissed both appeals, finding no substantial questions of law in the issues raised by the appellant-Revenue. The judgments and decisions cited, along with the factual analysis, guided the Court's decision in each issue.