SALUJA FARMS Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) ALL these three reference applications involve identical question of law and, therefore, are being disposed of by this common order. Pursuant to directions given by this Court under S. 256(2) of the IT Act, 1961 (in short 'the Act'), following question has been referred for opinion of this Court by the Income tax Appellate Tribunal, Delhi Bench 'A' (for short the 'Tribunal') :

(2.) THE question that was considered by the authorities was whether there was scope for disallowance of certain amounts out of the interest claimed by the assessee as deduction. It was the stand of the assessee that members of the assessee AOP had contributed considerable amount for the purpose of running agricultural farms and earning dividend and interest income. The members withdrew a part of the amount deposited by them with the assessee. AOP and the assessee AOP had to borrow money from the bank to enable its members to withdraw a part of the amount standing to their credit in the books of the AOP. The AO held that the borrowings were not utilised for earning the taxable income and the interest paid by the assessee could not be allowed as a deduction. Matter was carried in appeal before the Appellate Assistant Commissioner (in short 'the AAC'), who reversed the findings. The matter was carried in appeal by the Revenue before the Tribunal. After considering the rival stands, Tribunal came to hold as follows :

(3.) THERE is no appearance on behalf of assessee in spite of notice. However, we have heard the learned counsel for the Revenue. According to the learned counsel for the Revenue the findings recorded are essentially factual and there being no link with the earning of income, the ITO was justified in disallowing the claim of interest.