LACHHIRAM PURANMAL Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) PURSUANT to the direction of this Court vide order dt. 9th April, 1995 in M.C.C. No. 141 of 1990, the Tribunal Indore Bench, has drawn up a statement of the case and referred the following question for the opinion of this Court :

(2.) THE applicant-assessee derives income from business in grains and cotton. He was assessed to income-tax for the asst. yrs. 1976-77 to 1978-79. The ITO disallowed the interest of Rs. 35,595 for diversion of borrowed money to non-business purposes during the assessment pertaining to the asst. yr. 1976-77. In appeal before the CIT(A), the order was confirmed. However, in appeal to the Tribunal, in respect of the addition of Rs. 25,752 on the ground of diversion of borrowed funds to Trilokchand Ghanshyamdas, the Tribunal set aside the order of the ITO as also of the CIT(A) and directed the ITO to re-examine the circumstances enumerated in the order and consider the plea of the assessee. In respect of the disallowance of interest of Rs. 9,828 representing the borrowed funds utilised for the purchase of agricultural land, the Tribunal observed that there was no dispute that a sum of Rs. 82,083 was utilised for the purchase of agricultural land which was admitted to be not a business investment. The disallowance was, therefore, maintained. In the subsequent years also, the Tribunal followed the order passed in the asst. yr. 1976-77 and maintained the disallowance. Against the order of the Tribunal, the assessee sought reference under S. 256(1) of the IT Act, 1961 ('the Act') which was declined. On a direction being, however, issued under S. 256 (2), the said question has been referred for our opinion.

(3.) THE learned counsel for the assessee has submitted that the Tribunal erred in maintaining the disallowance on the ground that the part of the interest for which the same was claimed represented the borrowed funds utilised for the purchase of agricultural land, especially when the CIT(A), for the asst. yr. 1975-76, had allowed the same and the assessment had attained finality as no appeal was preferred by the Department against the order of the CIT(A). The learned counsel has referred to the decision of the Supreme Court in Union of India vs. Kamlakshi Finance Corpn. Ltd. (1991) 55 ELT 433 in support of his contention that once the CIT(A) had, in the asst. yr. 1975- 76, held that the borrowed funds had not been diverted for the purchase of agricultural lands, the disallowance could not be made, the AO was bound by the said direction while making assessment in respect of the allowance of interest claimed in the subsequent assessment years. The learned counsel has also referred to the decision of the Allahabad High Court in CIT vs. Kamla Town Trust (1992) 102 CTR (All) 45 : (1992) 198 ITR 191 (All) as also to the decision of the Supreme Court in Indian & Eastern Newspaper Society vs. CIT (1979) 12 CTR (SC) 190 : (1979) 119 ITR 996 (SC) : TC 68R.221 in support of his contention that such departure could not have been made in the subsequent years. The learned counsel for the Department has submitted that the principle of res judicata and estoppel do not apply in such matters and the decision given by an ITO for one assessment year cannot affect or bind his decision for another year.