Law: Income Tax Act, 1961

Section: 256,256(2)

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. 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…

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