Law:

Section:

I. Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Year in which allowable - Assessment year 1978-79 - Assessee-company was engaged in business of manufacture and sale of sugar by vacuum pan process - It had claimed a sum as interest on excess levy sugar price which was disallowed by ITO on ground that it was a provision and not an ascertained liability - Allahabad High Court in assessee's case for assessment year 1974-75 had held that liability for payment of interest chargeable under Levy Sugar Price Equalisation Fund Act, 1976 accrued only after 1-4-1976 - Whether since assessment year in question was 1978-79, liability had accrued and it could not be said that it was only a mere provision of liability. - Held, yes II. Section 5 of the Income-tax Act, 1961 - Income - Accrual of - Assessment year 1978-79 - Assessee-company had advanced certain sum to 'D' Ltd., a subsidiary of assessee - Interest on said sum had been charged but in relevant previous year assessee did not charge interest considering weak financial position of 'D' Ltd. - ITO, however, made an addition of estimated interest to total income of assessee - Commissioner (Appeals) as well as Tribunal had recorded a categorical finding that it was on account of commercial expendency and continued losses suffered by 'D' Ltd. that interest was not charged in relevant year - Whether Tribunal was justified in deleting addition - Held, yes CASES REFERRED TO CIT v. Dhampur Sugar Mills Ltd. [2005] (2005) 274 ITR 340 / 142 Taxman 362 (All.) [Para 5] and CIT v. Radico Khaitan Ltd. [2005] (2005) 274 ITR 354 / 142 Taxman 681 (All.) [Para 6]. A.N. Mahajan for the Applicant. R.R. Agarwal for the Respondent. JUDGMENT 1. The Income-tax Appellate Tribunal, Delhi, has referred the following two questions of law under section 256(1) of the Income-tax Act, 1961, hereinafter referred to as "the Act", for the opinion to this Court: "1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in confirming the Commissioner of Income-tax (Appeals) order allowing interest accrued on excess levy sugar price of Rs. 9,82,343 ? 2. Whether, on the facts and circumstances of the case,…

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