S.J.VAZIFDAR,CJ - (1.) This is an appeal against the order of the Income Tax Appellate Tribunal relating to the Assessment Year 2009-10. Five questions are raised in the appeal, but only question No.(iii) was pressed at the hearing. It reads as under:- "iii) Whether in the facts and in the circumstances of the case the Learned Income Tax Appellate Tribunal has grossly erred in upholding the order of the Assessing Officer and order of the Commissioner of Income Tax (Appeals), Chandigarh with regard to the disallowance of interest amounting to Rs.28,70,608/- u/s 36(1)(iii) of the Income Tax Act which is the actual expenditure incurred by the appellant but neither allowed as a deduction u/s 36(1)(iii) as business expenditure nor treated as capital expenditure? " The appeal is admitted on the above substantial question of law.
(2.) The appellants - a partnership firm sought a deduction under Section 36(1)(iii) of the Income Tax Act, 1961, in respect of the interest paid by them. The appellants contended that they had raised loans at interest and had, in turn, advanced interest free loans to their partners to enable them to purchase properties in their names. It was contended before us that these properties were purchased by the partners to enable them in turn to make them available to the appellants for the purpose of their business.
(3.) The Assessing Officer found that the properties had not been put to use and, therefore, disallowed the deduction in view of the proviso to Section 36(1)(iii). Accordingly, the Assessing Officer disallowed the proportionate interest relating to investments allegedly made in the properties. The disallowance of Rs.56,51,346/- included interest in the sum of Rs. 28,70,608/- which has been disallowed in view of the provisions of Section 40a(ia) which has not been challenged before us . The question of law before us, therefore, pertains only to the balance amount of Rs.27,80,738/- which was disallowed in view of the proviso to Section 36(1)(iii). The CIT (Appeals) rejected the appellants' contention that the issue had been settled against the department in the earlier assessment year. Whether this is so or not is immaterial as far as the appeal before us is concerned. The appellants relied upon the order of the Income Tax Appellate Tribunal for the Assessment Year 2007-08. The department had filed ITA No.228 of 2012 against that order. However, the tax effect being less than Rs.20 lakhs, the appeal was allowed to be withdrawn by an order dated 10.02.2016 in view of Circular No.21/2015 dated 10.12.2015 issued by the CBDT. The withdrawal of ITA No.228 of 2012 cannot, therefore, preclude the department from raising the contentions in this appeal. The Tribunal, by the impugned order confirmed the , assessment order and the order of the CIT (Appeals).;