Commissioner of Income Tax, Central Circle vs Rewdale Precision Tools (P.) Ltd.

Dilip B. Bhosale, J.—These two appeals are directed against the common order dated 26-12-2006 passed by the Income Tax Appellate Tribunal, Bangalore Bench "A" (for short "the Tribunal") in ITA Nos. 44 and 45/BANG/2005, pertaining to the assessment years 1992-93 and 1993-94, whereby the appeals filed by the respondent-assessee were allowed in part and the Tribunal directed the Assessing Officer to allow netting of interest and grant set off of interest earned towards interest paid. This Court is informed that the Assessing Officer, in view of the order dated 26-12-2006, passed the order dated 19-11-2007 granting benefit of netting of interest to the extent of Rs. 19,52,040 for the assessment year 1992-93 and Rs. 14,40,945/- for the assessment year 1993-94. There does not appear to be any dispute that the Commissioner of income tax could not invoke the powers u/s 263 of the income tax Act, 1961 (sic) (for short "IT Act") to examine legality of the order dated 19-1-2007 in view of pendency of these appeals. In other words, the order passed by the Assessing Officer dated 19-11-2007 was subject to the result of the present appeals.

The Tribunal while dealing with the appeal against the order of the Commissioner of income tax (Appeals-III) Bangalore dated 27-10-2004, considered two grounds of challenge. Firstly, whether the assessee''s claim made u/s 10B of the I.T. Act can be allowed, and secondly, whether the assessee was entitled for netting of interest. The present appeals, are directed against the findings recorded by the Tribunal on the second ground of challenge. The Tribunal while considering the second ground of challenge in paragraph 5.1 of the order observed thus:

5.1 However, alternative ground raised by the learned counsel which is in respect of netting of interest. It is the case of assessee that the deposits were made due to the compulsion for procuring import licence and letter of credit. For this purpose, the assessee had to borrow amount from the bank on interest. Subsequently, these amounts were deposited in the bank which earned interest. This being the fact, we are inclined to accept that the authorities below should have granted set off of interest earned towards interest paid.

The learned counsel appearing for the revenue submitted that the Tribunal committed grave error of law in directing the Assessing officer-to-allow netting of interest and grant set off of interest earned towards interest paid without verifying whether the deposits made by the assessee were made due to compulsion for procuring import licence and letter of credit and that the assessee had borrowed the amount from the bank on interest. He submitted that this ground of challenge was not raised by the assessee before the Assessing Officer. He submitted that it was wrong on the part of the Tribunal to assume that the case, as reflected in paragraph 5.1 of the impugned order, was true and correct. In other words, he submitted the assessee did not place any material on record to show that the fixed deposits were made due to compulsion for procuring import licence and letter of credit and for that purpose the assessee had borrowed the said amount from the bank on interest.

On the other hand, Mr. Shankar, learned counsel for the assessee submitted that the revenue did not raise any dispute in respect of the assessee''s case, as reflected in paragraph 5.1 of the impugned order, before the Tribunal. He submitted that the assessee, in any case, was entitled for seeking netting of interest by setting off of interest earned towards interest paid. He then submitted that the assessee had made fixed deposits for procuring import licence and letter of credit and for that purpose he had borrowed the amount from the very same bank on interest. In view thereof, he submitted that the assessee was entitled for allowing netting of interest and the assessing officer while passing the order dated 19-11-2007 has rightly granted the relief, though not in respect of entire amount but in respect of the amount mentioned above. He fairly stated that though the order dated 19-11-2007 was not challenged at that stage, the assessee will not have any objection for allowing the Commissioner to invoke his powers u/s 263 and examine the legality and correctness of the order passed by the Assessing Officer.

We have perused the order dated 19-11-2007 passed by the Assessing Officer in both these appeals pertaining to assessment years 1992-93 and 1993-94 and we find that the case of the assessee has been accepted by the Assessing Officer to the extent of Rs. 19,52,040/- and Rs. 14,40,940/- though the claim was in respect of Rs. 26,21,951 and Rs. 15,38,900/-, respectively. It is the case of the assessee that the Assessing Officer vide order dated 19-11-2007, taking into consideration the interest earned towards interest paid, has passed an order giving effect to the order passed by the Tribunal dated 26-12-2006. In other words, it was submitted on behalf of assessee that the Assessing Officer while dealing with the issue whether the assessee is entitled for netting of interest by setting off of interest earned towards interest paid, examined the case of the assessee as to whether he is entitled for netting of interest and if yes, to what extent. In this view of the matter, learned counsel for the revenue submitted that the Commissioner may be allowed to exercise his powers u/s 263 of the I.T. Act to examine the order passed by the Assessing Officer dated 19-11-2007 and to find out whether allowing of netting of interest by setting-off of interest earned towards interest paid was permissible and, if yes, to what extent. It is in this view of the matter, we are satisfied that the following order shall meet the ends of justice:

The jurisdictional Commissioner of income tax shall examine the case/record if he deems fit and proper and in exercise of his revisional powers u/s 263 of the I.T. Act, issue appropriate directions within 16 weeks from the date of receipt of this order. It is open to the Commissioner to examine whether on the facts and in the circumstances of the case and in law, the Assessing Officer was justified in allowing netting of interest. In other words, the Commissioner shall examine whether the assessee is entitled for setting-off of interest earned towards interest paid. It is needless to observe that if the case of the assessee, as reflected in paragraph 5.1 in the impugned order, is held to be proved, the assessee shall be entitled for netting of interest.

The appeals are accordingly disposed of in terms of this order.