2004 (10) TMI 649 - HC - Income Tax

s.256(2) reference upholds deletion of Rs.2,70,000 interest on Rs.18,80,868 advance to subsidiary as legitimate commercial decision

HC answered the s.256(2) reference in favour of the assessee, holding the Tribunal was justified in upholding deletion of Rs. 2,70,000 interest charged on ... - The Income-tax Appellate Tribunal, Delhi referred under section 256(2) of the Income-tax Act, 1961 the question: 'Whether on the facts and in the circumstances of the case, the Tribunal was justified in law confirming the deletion of Rs. 2,70,000 on account of interest on debit balance in the account of M/s. Dhampur Yeast Co. Ltd., a subsidiary of the assessee-company, ignoring principles of accountancy?' The assessee (a sugar manufacturer) had advanced Rs. 18,80,868 to its subsidiary on which interest of Rs. 2,70,000 was disallowed by the Assessing Officer; the CIT(A) deleted the addition and the Tribunal upheld that deletion, finding the assessee had foregone interest 'considering its weak financial position and on commercial expediency.' Relying on the earlier decision in ITR No. 196 of 1995 (order dated 30th September, 2004) on substantially similar facts, the court answered the referred question 'in affirmative i.e., in favour of the assessee and against the Revenue.' No order as to costs.