CIT Vs. AAFLOAT TEXTILE (INDIA) LTD.

JUDGEMENT

(1.) THE questions of law raised by the Revenue in this appeal reads thus:

(2.) FROM the questions raised by the Revenue, it is clear that the basic dispute in the present case is, whether the Income Tax Appellate Tribunal was justified in setting aside the order passed under section 201(1)/201(1A) of the Income Tax Act, 1961 by holding that the assessee had not issued convertible debentures to Gujarat Lease Financing Ltd. in spite of the fact that pursuant to the Memorandum of understanding dt. 29 -9 -1997, debentures were issued to Gujarat Lease Financing Ltd. and the interest on such debentures were credited to the account of Gujarat Lease Financing Ltd. in the assessees books of account.

(3.) RELEVANT facts are that the assessee had taken advances facilities from banks and financial institutions including Gujarat Lease Financing Ltd. As per the terms of contract, the assessee was required to repay the same with interest. Sometime in March 1997 the assessee expressed its inability to pay the interest on account of financial difficulties. Thereupon, the banks and financial institutions including Gujarat Lease Financing Ltd. insisted that their advances be converted into debentures so as to create a charge on the assets of the assessee. Accordingly, a memorandum of understanding was arrived at between the parties and the assessee after passing necessary resolution to that effect, credited the debenture interest to the account of Gujarat Lease Financing Ltd.