CIT Vs. BRAHMAPUTRA CAPITAL & FINANCIAL SERVICE LTD

JUDGEMENT

(1.) This is an appeal by the Revenue under Section 260A of the Income Tax Act, 1961 ("Act" for short) and the following substantial questions of law are sought to be raised:-

(2.) The assessee is a non-banking finance company registered with the Reserve Bank of India. In the return of income filed for the assessment year 2007-08, it claimed that it was not assessable in respect of any interest on the loans advanced by it in the previous years relevant to the assessment years 1996-97 and 1998-99, on accrual basis, since there was a resolution of the Board of Directors dated 4 th March, 2004 not to charge interest in respect of those loans having regard to the financial difficulties in which the debtor-companies were placed. It was also claimed before the Assessing Officer that the claim of the assessee was accepted by the Income Tax Appellate Tribunal ("Tribunal" for short) in the assessment years 2003-04 to 2006-07. The Assessing Officer examined the facts for the year under appeal and found that the companies to whom the assessee advanced loans were financially well off. He noticed from the balance sheets of the companies that they were making profits for the year under appeal and, therefore, the assessee was no longer justified in not charging interest on the loans to them. The details of the loans and the amount of interest on them for the year under appeal are as under:- <FRM>JUDGEMENT_4100_ILRDLH22_2012_1.html</FRM>

(3.) The CIT(Appeals), before whom the assessee filed an appeal noticed that the debtor-companies were not loss making companies in the relevant previous years, that they were actually making profits and in this view of the matter, he held that the Assessing Officer was justified in charging interest. He accordingly dismissed the assessee's appeal. In his order, the CIT(Appeals) also noted that the Tribunal had decided the dispute in favour of the assessee for the assessment years 1997-98 and 1998-99 because in those years the borrowing companies were in a bad financial position making it impossible to realize any interest from them, whereas that factsituation does not obtain in the year under appeal in which the borrowing companies were making handsome profits. He noted that the following are the details of the profits earned by the borrowing companies in the year ended 31 st March, 2007;