Sri A.V. Krishna Kaundinya V. Sri J.V. Prasad

ITTA/159/2003

AI Insights

The case involves two appeals filed against the common order of the Income Tax Appellate Tribunal, which had dismissed the appellant's earlier appeals regarding the disallowance of interest deductions on loans taken for construction of buildings. The appellant had initially engaged in steel re-rolling but later shifted to road transport and leasing out buildings. The core issue was whether the interest on loans taken for constructing these buildings, which were later used for the appellant's transport business and leased out, should be deductible for the assessment years 1993-94 and 1995-96. The Tribunal's earlier decision to disallow these deductions was challenged, leading to the current appeals.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 676070 (HC-VISAKHAPATNAM)
• Appeal Type: Others
• Pronouncement Date: 08-10-2014
• Assessment Year: misc
• Laws Referred To: Income Tax Act
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: J V PRASAD
• Assessee Lawyers: A V KAUNDINYA
• Keywords: Building construction; Income Tax; Lease; Steel re-rolling; Road transport; Loan deduction
• Section: 263; 260

Judgement Text

"THE HON’BLE SRI JUSTICE L. NARASIMHA REDDY AND THE HON’BLE SRI JUSTICE CHALLA KODANDA RAM I.T.T.A.Nos.159 & 162 of 2003 COMMON JUDGMENT: (Per the Hon’ble Sri Justice L. Narasimha Reddy) These two appeals are filed against the common order dated 07- 09-2001, passed by the Visakhapatnam Bench of the Income Tax Appellate Tribunal (for short ‘the Tribunal’) in I.T.T.A.Nos.8 and 9/V/2000. The facts in brief are that the appellant commenced the business of steel re-rolling. Over the period, it has raised loans for making construction of buildings within the factory premises. By the assessment year 1992-93, the activity of re-rolling was stopped and the building and other infrastructure are used for the business in road transport, and the buildings were also given on rent. In the returns submitted for the assessment years 1992-93 to 1995-96, the income was shown from the house property and transport business of the appellant. It has also claimed deduction of interest paid on loans, borrowed for construction of the buildings. The Assessment Officer did not allow the same. In the appeals preferred before the Commissioner of Appeals, orders were passed on 25-06-1999 and 23-07-1999, in relation to the assessment years 1992-93 and 1994-95, respectively, allowing such deductions. Following the same, the Assessing Officer allowed deductions for the assessment years 1993-94 and 1995-96 also. However, the Jurisdictional Commissioner re-opened the assessments for those two years, in exercise of power under Section 263 of the Income Tax Act (for short ‘the Act’) and passed orders dated 19-12- 1999, disallowing the same. Challenging the same, the appellant filed I.T.A.Nos.8 and 9/V/2000 before the Tribunal by raising several grounds. The appeals were dismissed by the Tribunal. Hence, these two appeals under Section 260 of the Act. Heard Sri A.V. Krishna Kaundinya, learned counsel for the appellant and Sri J.V. Prasad, learned Standing Counsel for the respondent. There is no denial of the fact that the appellant, which initially was undertaking the activity of steel re-rolling; switched over to the operation of trucks and giving buildings on lease. The loans for construction of the building were, no doubt, taken, when the activity of the appellant was of re-rolling of the steel. The fact, however, remains that the amount was borrowed for the construction of the building, and that in turn was given on lease, or is utilized for its transport business. The Tribunal tried to distinguish the precedents, that were cited before it. The pointed distinction is not at all relevant for the facts of the case. Added to that, the deduction was permitted in respect of the assessments, for the years 1992-93 and 1994-95. There cannot be any basis for denying a facility for the two assessment years, in between. We therefore allow the appeals and set aside the orders in I.T.T.A.Nos.8 and 9/V/2000, dated 07-09-2001. As a result, we set aside the order dated 19-12-1999, passed by the Jurisdictional Commissioner, under Section 263 of the Act against the appellant, in respect of the assessment years 1993-94 and 1995-96. There shall be no order as to costs. __________________________ L. NARASIMHA REDDY, J. __________________________ CHALLA KODANDA RAM,J. Dt.08-10-2014 KO Though several questions of law were framed in the memorandum of grounds, we find that the following questions of law arise for consideration: 1) When the result of a search has the effect of only reducing the losses for the block period, does there exist an occasion to levy tax on the undisclosed income? and 2) When there is unabsorbed depreciation available to an assessee in the previous assessment years, whether he is entitled to seek adjustment thereof against any amount of undisclosed income, noticed in the search? "