Commissioner of Income Tax vs Apex Agencies

R. Sudhakar, J.—This Tax Case (Appeal) is filed by the Revenue as against the order of the Income Tax Appellate Tribunal raising the following substantial question of law:

Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in merely remitting the issue of disallowance of interest and finance charges, back to the assessing officer for fresh consideration without considering the issue on merits while disposing the appeal?

The assessment in this case relates to the assessment year 2005-06. The appellant is a trader in batteries, torch lights and bulbs etc. For the assessment year in question, the assessee filed returns admitting income of Rs. 19,27,960/-. While completing the scrutiny assessment, the Assessing Officer made an addition of Rs. 12,86,106/- disallowing the interest expenditure as not relating to the assessee''s business. Aggrieved by the said order of the Assessing Officer, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals), who after following the assessee''s own case in respect of the previous assessment years, confirmed the order of assessment. Aggrieved by the said order, the assessee once again went before the Income Tax Appellate Tribunal.

The Tribunal relying upon its decision in respect of the very same assessee for the previous assessment years, allowed the appeal filed by the assessee. For better clarity, the relevant portion of the order of the Tribunal reads as follows:

We have perused the orders and heard the rival contentions. There is no dispute that the disallowance of interest on finance charges was confirmed by ld. CIT(Appeals) relying on his predecessor''s order in assessee''s own case for assessment years 2000-01, 2001-02 and 2003-04. Vide order dated 24th September, 2011 in Miscellaneous Petition Nos. 89, 159 & 160/Mds/2010 filed by the Revenue, this Tribunal had refused to interfere with its earlier orders quashing the assessments done for assessment years 2000-01, 2001-02 and 2003-04. In fact, in the order on the Miscellaneous Petition mentioned supra, the Tribunal has reproduced its earlier order quashing the assessments for those years. Learned D.R. agreed that A.O. had relied on his orders of earlier years mentioned above for making disallowance for the impugned assessment year also. Therefore, in our opinion, the matter requires a revisit by the A.O., since the earlier orders which were relied on having been quashed. Therefore, we set aside the orders of the authorities below and remit the issue regarding disallowance made on the interest debited by the assessee in its Profit and Loss account, back to the Assessing Officer for fresh consideration in accordance with law. Needless to say, assessee has to be given proper opportunity for explaining its case.

Aggrieved by this order of the Tribunal, the Revenue is before this Court.

Learned Standing Counsel appearing for the Revenue submits that the Tribunal following its earlier order in respect of the very same assessee for the previous assessment years allowed the appeal filed by the assessee. In that earlier order, the Tribunal has not considered the issue on merits, but on the ground of limitation, the Tribunal dismissed the appeal filed by the Revenue. Hence, the order of the Tribunal is not sustainable as one covering the issue in this appeal.

Heard Mr. J. Narayanasamy, learned standing counsel appearing for the Revenue and Mr. N.V. Balaji, learned counsel appearing for the assessee and perused the materials placed before this Court.

The main issue in this case is whether the interest and finance charges are an allowable deduction. This issue was already a subject matter of appeal before the Tribunal. The Tribunal in respect of the assessment years 2000-01, 2001-02 and 2003-04 dismissed the appeals filed by the Revenue on the ground of limitation and not on merits. In such view of the matter, the Tribunal has misdirected itself to hold that the assessments in respect of the previous years were quashed and answered the issue in favour of the assessee. We therefore, set aside the order of the Tribunal and remand the matter back to the Tribunal for deciding the matter afresh on merits.

In the result, this Tax Case (Appeal) is allowed by way of remand. No costs.