- (1.) THE appeal under Section 260A of the Act for the asst. yr. 1996 -97 has been admitted by this Hon'ble Court on the following questions of law: (i) Whether the Tribunal was justified in law in remanding the issue relating to disallowance of interest expenditure of Rs. 90,35,217 to the AO, particularly in view of the order dt. 20th Dec, 2000 passed by the CIT(A) and the order dt. 25th April, 2003 passed by the Tribunal both for the asst. yr. 1995 -96? (ii) Whether the Tribunal was justified in law in ignoring its findings for the asst. yr. 1995 -96 that the advance to M/s Sonia International was made for purchase for capital goods out of the appellant's own funds and not out of borrowed funds, and in remanding the matter for the asst. yr. 1996 -97 to the AO for an enquiry about the source of funds for making the advance on the assumption that it was a loan? (iii) Whether in view of the findings of the CIT(A) for the asst. yr. 1995 -96 which were accepted by the Revenue, namely, that loans were given by the appellant out of its own funds and not out of borrowed funds and comparison between the borrowing rate and the lending rate was not called for and that in any event no disallowance of interest expenditure could be made because of any alleged difference between the borrowing rate and the lending rate, the Tribunal was justified in law in remanding the matter for the asst. yr. 1996 -97 to the AO for an enquiry about the source of funds without considering and/or dealing with any of the contentions of the appellant or the said findings for the asst. yr. 1995 -96? (iv) Whether and in any event the order of remand by the Tribunal is contrary to the principles laid down by this Hon'ble Court in various judgments including in Woolcombers of India Ltd. v. CIT : (1981) 23 CTR (Cal) 204 : (1982) 134 ITR 219 (Cal)?
(2.) IT appears that the AO disallowed a sum of Rs. 90,35,217 out of the interest paid on borrowed fund. The said sum consisted of two items namely, Rs. 77,55,00,642 in relation to advance made to Sonia International and Rs. 12,79,00,575 on account of difference in the rate of interest between borrowing and lending by the appellant. The said sum of Rs. 12,79,00,575 was in fact treated as notional interest which the appellant should have earned on its interest -bearing loans. Since the said amount was not earned by the appellant, the said equivalent amount was disallowed for not earning the same in respect of the interest paid on borrowed fund. It appears that interest was disallowed with reference to Sonia International on the assumption as has been stated before us by Mr. Bajoria on an erroneous assumption that the said sum had been given out of borrowed fund. The advance to the said concern as it is submitted was given in the earlier asst. yr. 1995 -96 for purchasing capital goods. In spite of such payment the firm failed to supply those goods. The order was rescinded and/or cancelled by the parties and the payment which was made in advance was returned by the said Sonia International to the appellant in instalments. The issue relating to advance by the appellant to the said concern came up for the first time during the asst. yr. 1995 -96. The interest was disallowed with reference to the said advance in the said year was subject -matter of appeal which was pending before the CIT(A). The said CIT(A) by his order held that no such disallowance could be made since the advance was for the purpose of procuring capital goods for the business and further the advance was made out of the internal accruals of the appellants. The Tribunal confirmed the said order so passed by the CIT(A).
(3.) OUR attention was drawn to the statement of account of Sonia International for the asst. yr. 1996 -97. It appears from the said accounts that during the year the balance was reduced to Rs. 97,89,008 from Rs. 5,10,51,00,444 and during the year there were several debit and credit entries made in the accounts in respect of the lease rent and other expenses. Therefore, it was contended before us that the said amount was not by way of any advance. The explanation has also been placed before us which was annexed to the paper book (in fact appearing at p. 73 of the paper book). Two other sums as it appears being Rs. 1,57,00,000 and Rs. 25,00,000 were paid on 22nd May, 1995 and 5th June, 1995 respectively. The said sums were paid out of the appellant's own fund and which has been placed before us on the basis of the evidence annexed to the paper book and our attention was drawn to the said evidence by Mr. Bajoria. In spite of the fact that no borrowed fund has been used for making any advance the Sonia International as contended on behalf of the appellant most of the outstanding were brought forward from the earlier year, the AO contrary to the decision of the CIT(A) and the Tribunal for the preceding asst. yr. 1995 -96 disallowed the said sum of Rs. 77,55,00,642 out of interest paid on borrowed fund. The CIT(A) as it is submitted followed the said order which was passed by him for the asst. yr. 1994 -95 on the ground that the facts were similar to that year. It is further pointed out that with regard to the asst. yr. 1994 -95 no advance was made to Sonia International. The first payment of advance was made for the previous year relevant to the asst. yr. 1995 -96. It was further pointed out that the observations made by the AO that the Sonia International was connected with the Thapar Group also cannot be accepted. For the asst. yr. 1994 -95 the advances involved were those to the subsidiaries and others. Therefore, the CIT(A) concluded that by not utilising such fund properly and resorting to borrowings the assessee had not followed the normal business norms and/or its memorandum cannot be accepted.;