Income-tax---

----Reference---Business expenditure---Interest on borrowed capital---Tribunal disallowing part of the interest on ground that part of borrowed capital used for purchase of agricultural lands---Commissioner (Appeals) for earlier year recording finding that there was no nexus between borrowed capital and purchase of agricultural lands- --Tribunal rejecting reference application---Order of Tribunal whether justified is a question of law-- Indian Income Tax Act, 1961, Ss.36(l)(iii) & 256(2).

The Income-tax Officer disallowed a part of interest payment for the assessment years 1976-77 to 1978-79 on the ground that part of the borrowed funds was utilised in purchase of agricultural lands. The Income-tax Appellate Tribunal upheld the order of the Income-tax Officer. On an application to the Income-tax Appellate Tribunal seeking review, the assessee contended that there was no investment in purchase of agricultural lands in the assessment years in question and the investments in this regard were made during the preceding assessment years and the last one was in 1973; that all these investments were duly accounted for in the books of account; and that moreover, for the preceding assessment year 1975-76, the Commissioner, on the same set of facts, had given a finding that there was no nexus between the borrowings and the purchase of agricultural lands which had been accepted by the Department. The Tribunal rejected the miscellaneous petition and also the application for reference under section 256(1) of the Income Tax Act, 1961. On an application to direct a reference under section 256(2):

Held, that the question whether the Tribunal was right in disallowing part of the interest in the assessment years 1976-77 to 1978-79 when the issue involved stood finally concluded by the order of the Commissioner of Income-tax (Appeals) for the assessment year 1975-76 was to be referred.

CIT v. Godavari Corporation Ltd. (1985) 156 ITR 835 (MP) and Union of India v. Kamlakshi Finance Corporation Ltd. (1991) 55 ELT 433 (SC) and AIR 1992 SC 711 ref.

Nazir Singh for the Assessee.

D.D. Vyas for the Commissioner.

JUDGMENT

N.K. JAIN, J.---By this application under section 256(2) of the Income Tax Act, 1961 (hereinafter referred to as "the Act"), the applicant assessee seeks direction to the Income-taxAppellate Tribunal, Indore, to state the case and refer to this Court the following questions said to be of law arising out of consolidated order, dated September 10, 1987, of the Tribunal passed in I.T.As. Nos.747, 1105, 1106 and 1107/Ind of 1984 relating to the assessment years 1976-77 to 1978-79 and its refusal to make a

reference by its order, dated November 16, 1987, passed in R.A. No. 139/Ind. of 1987:

"(i) Whether, on the facts and in the circumstances of the case and having regard to the findings of the learned Commissioner of Income-tax (Appeals) in the assessment year 1975-76 which is accepted by the Department, the Tribunal is justified in law to uphold a part of the interest payments as disallowable?

(ii) Whether, on the facts and in the circumstances of the case, the Tribunal is justified in law in holding the findings of the lower authorities as correct when such a finding is already reversed by the Commissioner of Income-tax (Appeals) in the assessment year 1975-76 concluding that up to the accounting year ended on November 13, 1974, relevant to the assessment year 1975-76, there is no nexus, between the borrowings and the purchase of agricultural lands for maintaining disallowance of a part of interest?

(iii) Whether the conclusion of the Tribunal on a question of fact is barred by an earlier finding that there is no nexus between the borrowings and purchase of agricultural land to justify a part of the interest as disallowable?

(iv) Whether there was evidence upon which it was open to the Tribunal to come to a decision for maintaining the disallowance of a part of interest payment as disallowable?

(v) Whether, on the facts and in the circumstances of the case any interest payment is hit under the provisions of section 36(1)(iii) when there is a concluded finding in the assessment year 1975-76 that no borrowings are there for purchase of agricultural lands?

(vi) Whether, on the facts and in the circumstances of the case and the accepted position in the assessment year 1975-76 (Diwali year 1973-74) the borrowings could be reconsidered in order to have a different view and such an act is permissible and legal under the provisions of the Act?

(vii) Whether, the disallowance of Rs.9,84d, Rs.9,840 and Rs.9,828 in the assessment years 1976-77, 1977-78 and 1978-79, respectively, is correct in law?"

Additional questions:

"(I) Whether, on the facts and in the circumstances of the case, the learned Assessing Officer had jurisdiction to reopen the issue in the assessment year 1976-77, which stood finally concluded by the Commissioner of Income-tax (Appeals) in his order for the assessment year 1975-76?

(II) Whether, on the facts and in the circumstances of the case the. learned Commissioner of Income-tax (Appeals) while disposing of the appeal for the assessment year 1976-77 had jurisdiction to sit in judgment over the findings of his colleague on the same set of facts for the assessment year 1975-76 and come to a conflicting conclusion?"

At the time of hearing of the application, the applicant-assessee superseded the aforesaid nine questions by the following one common question of law and prayed that the same may be called from the Tribunal;

"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in upholding the action of the Income-tax Officer in disallowing part interest for the assessment years 1976-77, 1977-78 and 1978-79 when the issue involved stood finally concluded vide the Commissioner of Income -tax (Appeals)'s order, dated December 29, 1978, for the assessment year 1975-76?"

In the assessment years 1976-77, 1977-78 and 1978-79, the Income- tax Officer, inter alia, made disallowance of Rs.9,840, Rs.9,840 and Rs.9,828, respectively, out of the total claim of interest paid by the assessee on the ground that proportionate borrowed funds were utilised for purchase of lands. The said disallowance in each year was confirmed in appeal by the Commissioner of Income-tax (Appeals) and also by the Tribunal. The assessee thereafter, made two successive miscellaneous applications before the Tribunal seeking review of its order passed in appeal contending that there was a mistake apparent on the face of the record in the order of the Tribunal in appreciation of facts, namely, that there was no purchase of agricultural lands in the instant assessment years (i.e., 1976-77 to 1978-79). The last date of purchase, according to him, was May 30, 1973, and there was no disallowance of any portion of claim of interest till the assessment year 1975-76. The said miscellaneous applications were, however, rejected by the Tribunal. The assessee thereafter, sought reference under section 256(1) which too was declined by the Tribunal vide order, dated November 16, 1987. The assessee has, therefore, come up before this Court under section 256(2).

We have heard Shri Nazir Singh, learned counsel for the applicant, and Shri D.D. Vyas, learned counsel for the non-applicant/Department.

It was contended on behalf of the applicant that there was absolutely no investment in purchase of agricultural lands in the relevant assessment; years. All the investments in this regard, it was pointed out, were made during the preceding assessment years and the last one being on May 30, 1973. All these investments are duly accounted for in the books of account regularly maintained by the applicant. In the assessment order for the assessment year 1475-76, it was further pointed out, the agricultural income as shown by the applicant was accepted by the Income-tax Officer but the claim of interest amounting to Rs.8,200 was disallowed on the plea that the interest bearing loans have been invested in purchase of agricultural lands, the non-business assets. In appeal, the Commissioner of Income-tax (Appeals), however, deleted the addition in full. This decision of the Commissioner of Income-tax (Appeals) was accepted by the Department and the same has, therefore, become final between the parties and is binding on them even in the successive assessment years 1976-77 to 1978-79. Reliance has been placed on the decisions in Union of India v. Kamlakshi Finance Corporation Ltd., AIR 1992 SC 711; (1991) 55 ELT 433 (SC) and CIT v. Godavari Corporation Ltd. (1985) 156 ITR 835 (MP). In KanAakshi's case (1991) 55 ELT 433, the apex Court held:

"In disposing of the quasi judicial issues before them, Revenue Officers are bound by the decisions of the appellate authorities. "

In Godavari's case (1985) 156 ITR 835, this Court observed (headnote):

"In income-tax proceedings, though the rule of res judicata does not apply, the rule of consistency does apply."

As against it, the Department maintained that the decision of the Tribunal is based on appreciation of facts and no referable question of law, therefore, arises for that decision.

Having heard learned counsel for the parties and considered their submissions, we are satisfied that prima facie the question of law as suggested by the applicant-assessee does arise in this case requiring answer by this Court. We, therefore, allow the application and require the Tribunal to state the case and refer the question as extracted in paragraph 2 above for the opinion of this Court. No order is, however, made as to the costs of this application. Counsel's fee is fixed at Rs.750 for each side, if certified.

A copy of this order be transmitted to the Tribunal for doing the needful within three months from the date of the receipt of the copy.

M.B.A./3024/FCOrder accordingly.