COMMISSIONER OF INCOME TAX Vs. GOM INDUSTRIES LTD

JUDGEMENT

(1.) THIS is an appeal filed by the Revenue (IT Department) under Section 260a of the IT Act, against the order dt. 27th May, 2003, passed by Tribunal in ITA No. 42/ind/2000. This appeal was admitted for final hearing on following substantial questions of law :

(2.) IN short, the question that arises for consideration in this appeal filed by the Revenue is : whether Tribunal was justified in holding that assessee is entitled to get the benefit of Rs. 12,64,851 by way of interest accrued on a particular transaction which the AO had declined to grant to the assessee by adding the said amount in their total income in asst. yr. 1996-97.

(3.) THE assessee is a limited company engaged in the business of manufacture of resins and fatty acid. During the assessment year in question, it was noticed that assessee had paid an amount of Rs. 1,04,33,920 to one M/s M. M. Industries for purchase of industrial gas cylinders. It was noticed that a sum of Rs. 97,29,630 was borrowed fund and the assessee had not shown any lease rent from such lease transaction. In this way the AO disallowed interest of Rs. 12,64,851. It is this transaction whose legality and genuineness was doubted by AO. In the opinion of AO, the transaction in question was not genuine and bona fide one and being bogus in nature, a sum of Rs. 12,64,851 was disallowed towards bank interest on account of interest-free advance to M/s M. M. Industries. This finding of AO was challenged by assessee in appeal to CIT (A ). The CIT (A) upheld the finding of AO and dismissed the appeal. In further appeal by assessee to Tribunal, the same was allowed by the Tribunal. It was held on facts that transaction in question entered into by assessee with M/s M. M. Industries is genuine and proper. It was further held that once the transaction in question is held to be genuine, the same has got to be given effect to. As a consequence, the disallowance of interest to bank to the extent of Rs. 12,64,851 paid by assessee under Section 36 (1) (iii) ibid was set aside and instead, the assessee was allowed to claim the benefit of Section 36 (1) (iii) for claiming deduction towards payment of interest in respect of capital borrowed for the purpose of business. It is against this finding of Tribunal, the Revenue has come up in appeal.