- (1.) THIS appeal was admitted under s. 260A of the IT Act for the asst. yr. 1994 -95 on the following questions : "(a) Whether the Tribunal was justified in law in upholding the disallowance of interest expenditure to the extent of Rs. 10,24,59,637 incurred by the appellant in respect of capital borrowed and utilized for the purposes of its business in respect of which the appellant was entitled to deduction under s. 36(1)(iii) of the IT Act, 1961 ? (b) Whether there was any material before the Tribunal to hold that any part of the interest -free loans to the subsidiary and associate companies was given by the appellant out of borrowed funds and its purported findings upholding the disallowance of interest expenditure of Rs. 10,24,59,637 have been arrived at by ignoring the relevant materials and/or by taking into consideration irrelevant and/or extraneous materials and/or are otherwise arbitrary, unreasonable and perverse ?
(2.) THE facts of the case briefly are as follows : During the relevant previous year for the asst. yr. 1994 -95 the appellant had borrowed funds on which it had paid interest. The deduction for such interest was allowed by the AO in the assessment made under s. 143(3) of the IT Act, 1961 (the Act). Thereafter the CIT initiated proceedings under s. 263 of the Act on the ground that the AO had not investigated whether borrowed funds were given by way of interest -free loans to the subsidiaries of the appellant. The initiation of the proceedings under s. 263 of the Act were challenged by the appellant by way of writ proceedings before assessment made by the AO with a direction to frame it afresh. Against the said order of the CIT the petitioner had taken an appeal to the Tribunal but was not successful therein. Ultimately the AO pursuant to the said order of the CIT disallowed a sum of Rs. 10,24,59,637 out of the interest paid by your petitioner on borrowed funds.
(3.) DURING the relevant previous year for the asst. yr. 1994 -95 your petitioner had outstanding advances and receivables from the concerns mentioned hereinafter. The AO disallowed interest paid on borrowed funds on the assumption that such borrowed funds were utilized in respect of such outstanding advances to such firms. The interest paid on borrowed funds were disallowed as under : Sl. Name of Concern Amount No. 1 Chohal Investments Ltd. 2,71,53,343 2 Poly Investment Ltd. 7,44,13,340 3 Gupta Syal Ltd. 26,353 4 Kishanchand Spinning Mills Ltd. 4,61,336 5 Kidarnath Kishanchand Finance and Investment 4,05,265 Ltd. Total 10,24,59,637 M/s Chohal Investments Ltd., Poly Investments Ltd. and Gupta Syal Ltd. are appellant's wholly -owned subsidiaries. The fact that no part of the borrowed funds were utilised for making any advance to any of the said concerns was not considered by the AO. The petitioner's appeal before the CIT(A) on the above issue was also unsuccessful. In the further appeal before the Tribunal your petitioner reiterated its submissions on facts and in law. Such submissions made before the Tribunal would appear from the miscellaneous application which the appellant filed against the order of the Tribunal affirming the said order of AO and CIT(A) disallowing the said interest (miscellaneous application - -pp. 227 to 237 of paper book). The facts stated in the said miscellaneous application are true and correct. Such facts are not disputed. The Tribunal dismissed the said miscellaneous application on the ground that allowing the same would amount to reviewing its order.;