COMMISSIONER OF INCOME TAX AND THE JOINT COMMISSIONER OF INCOME TAX ASSESSMENT-SPECIAL RANGE Vs. SHARATH INVESTMENTS PVT. LTD.

JUDGEMENT

(1.) APPEAL under Section 260A of the Income Tax Act, 1961 [for short, the Act] by the revenue against the order of the income tax appellate tribunal, Bangalore bench, posing for answer the following substantial questions of law: a) Whether, the tribunal was correct in holding that the loss incurred by the assessee in the sale of shares held by its of M/s ICDS Limited is an allowable deduction despite the same having been incurred due to a personal settlement entered into by some of the directors of the assessee company with that of other members of the Manipal Group of companies and there being no business interest of the assessee involved in such sale? b) Whether, the tribunal was correct in holding that interest payments made towards acquisition of shares of M/s ICDS Ltd. pursuant to the awards entered into by the directors of the company with other rival factions of Manipal Pax group would amount to an expenditure incurred during the course of business and was an allowable deduction? c) Whether the tribunal failed to take into consideration that the shares were purchased by the assessee company of M/s ICDS Ltd. at the instance of the directors in order to take hold of M/s ICDS Ltd. by defeating the Ambani award which had conferred control of this company in favour of its rival faction which did not amount to any business benefit for the assessee company and consequently recorded a perverse finding?

(2.) UNDER the impugned order, the tribunal while allowing the appeal filed by the assessee, reversed the finding of the assessing officer and the first appellate authority, which had taken the view that certain amounts claimed as business loss of the assessee -company relevant for the assessment year 1996 -97, though computed as short term capital loss, but nevertheless claimed as loss under the head profits and gains of the business, cannot be so allowed and further finding that the claim of the assessee for reduction of a sum of Rs. 63,85,464/ - as business expenditure being interest paid to its directors and others in respect of the borrowings of the company for carrying on its business, is also to be allowed.

(3.) CONSEQUENTLY , the tribunal also opined that the amount of Rs. 63,85,464/ - paid by the assessee as interest paid on the borrowings for the purpose of investment in the assessee's business and which had been disallowed by the assessing officer for the reason that the transaction being not in the normal course of business cannot be allowed as deductible expenditure incurred by the assessee for the purpose of its business should also be allowed and is required to be reversed and as such allowed the claim towards payment of interest in the computation of the overall tax liability of the assessee. It is against this order of the tribunal recording such a finding, this appeal by the revenue raising the substantial questions of law as referred to above.