INCOME TAX OFFICER Vs. RATHNA AND CO

JUDGEMENT

(1.) This appeal by the revenue is directed against the order of the Commissioner (Appeals) dated 26-5-1991, on the ground that the Commissioner (Appeals) erred in deleting the addition of Rs 1,44,798 being the interest on borrowed funds utilised in construction of theatre.

(2.) The brief facts of the case are that the assessee is a firm of contractors. The construction of the theatre which the assessee commenced has not been completed even till the assessment year under consideration. The assessee, in its return of income for the year under appeal has claimed deduction of a sum of Rs. 1,44,798 on account of payment of interest on borrowed funds for construction of theatre which has been disallowed by the assessing officer, holding that it is not connected with the business of the assessee and that it has not yielded any income so far. The assessee appealed against this order of the assessing officer to the Commissioner (Appeals).

(3.) At the time of hearing before the Commissioner (Appeals), it was pointed out by the learned authorised representative of the assessee that for the assessment year 1986-87, following the decision in the case of CIT v. J.K. Industries (P) Ltd., 1980 125 ITR 218 , the Commissioner (Appeals) held that the interest paid on loans diverted for the purpose of construction is allowable against the income from business of contracts. Hence, the Commissioner (Appeals), following the decision of his predecessor for the year 1986-87, deleted the addition made by the assessing officer. The department is now before us, aggrieved against the order of the Commissioner (Appeals) on this issue