Income‑tax‑‑

‑‑‑‑Reference‑‑‑Business expenditure‑‑‑Interest‑‑‑Loans availed of long back‑‑‑Payment of interest established year after year‑‑‑Tribunal, justified in holding that disallowance of interest by Assessing Officer was not justified‑‑ No question of law arose‑‑‑Indian Income Tax Act, 1961, S.256(2).

For the assessment year 1990‑91, the assessee claimed interest in respect of certain credits amounting to Rs.16,08,000 which was disallowed by the Assessing Officer on the ground that it was not genuine. The total interest claimed was Rs.1,50,750. The Assessing Officer disallowed it on the ground that it was not genuine and that the alleged creditors did not respond to the notices issued and, therefore, they were non‑existent for all practical purposes. On appeal, the Commissioner of Income‑tax (Appeals) held that the genuineness of the 29 creditors was accepted by the Assessing Officer for the earlier years and it was not open to him to turn around and say that the persons from whom loans were allegedly taken were non‑existent persons for the purpose of payment of interest. On further appeal, the Tribunal held that the genuineness of the creditors was not disputed and, therefore, the claim was to be allowed. On an application to direct reference:

Held, that the credits in so far as the 29 persons were concerned were not introduced in the year of assessment, namely, 1990‑91. Once the genuineness of the credits was accepted in an earlier year there was no question of disallowing the interest on the ground that the creditors were persons to whom payment of interest was not established. Therefore, the Assessing Officer was not justified in disallowing the interest and no question of law arose out of the order of the Tribunal.

P.K.R. Menon and George K. George for Petitioner.

S. Ananthakrishnan for Respondent.

JUDGMENT

ARIJIT PASAYAT, C. J.‑‑‑ The prayer for reference under section 256(1) of the Income Tax Act, 1961 (for short "the Act"), has been turned down by the Income‑tax Appellate Tribunal, Cochin Bench (in short "the Tribunal"), and hence this application under section 256(2) of the Act has been filed.

The dispute relates to the assessment year 1990‑91. Interest claimed in respect of certain credits amounting to Rs.16,08,000 was disallowed by the Assessing Officer on the ground that it was not genuine. Total interest claimed was Rs.1,50,750. The Assessing Officer was of the view that the alleged creditors did not respond to the notices issued and, therefore, they were non‑existent for all practical purposes. The Commissioner of Income tax (Appeals), held that the genuineness of the 29 creditors was accepted by the Assessing Officer for the earlier years. That being the position, it was not open to the Assessing Officer to turn around and say that the persons from whom loans were allegedly taken were non‑existent persons for the purpose of payment of interest. In appeal before the Tribunal, the stand of the Revenue was that the Assessing Officer having found that the persons were not genuine, the claim of interest ought not to have been allowed. The Tribunal observed that the genuineness of the creditors was not disputed and therefore, the claim was to be allowed.

Learned counsel for the Revenue submits that the Assessing Officer proceeded on the basis that the persons were not genuine and, therefore, the conclusion of the Tribunal that there was no dispute about the genuineness is a factual error. Learned counsel for the assessee submitted that the grant of interest was consequent to the acceptance of the genuineness of the loan. Long back the loans were availed of. Detailed examination was made in the relevant assessment year to test the credit worthiness and genuineness of the creditors, and interest was being allowed year after year. For the first time, departure was sought to be made and, therefore, the Commissioner of Income‑tax (Appeals) and the Tribunal were justified in accepting the claim.

We find that the credits in so far as the 29 persons were concerned were not introduced in the year of assessment, namely 1990‑91. Once the genuineness of credits was accepted in an earlier year, as observed by the Commissioner of Income‑tax (Appeals), there is no question of disallowing the interest on the ground that the creditors were persons to whom payment of interest was not established. Such a stand was not available to the Assessing Officer. The conclusions rendered by the Commissioner of Income‑tax (Appeals) and the Tribunal are, in order and hence no question of law arises.

The original petition is accordingly dismissed.

M.B.A.//566/FC

Petition dismissed.