IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. I.T.A. No.694 of 2010 (O&M) Date of decision: 14.12.2010 Commissioner of Income Tax. -----Appellant. Vs. Jind Co-op. Sugar Mills Ltd. -----Respondent CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOEL HON'BLE MR. JUSTICE AJAY KUMAR MITTAL Present:- Mr. Yogesh Putney, Sr.Standing counsel for the Revenue. --- ADARSH KUMAR GOEL, J. 1. This appeal has been preferred by the revenue under Section 260-A of the Income Tax Act, 1961 (for short, “the Act”) against the order of the Income Tax Appellate Tribunal, New Delhi dated 19.6.2009 in I.T.A. No.583/DEL/2009 claiming following substantial question of law:- “Whether on the facts and in the circumstances of the case, the learned ITAT was right in confirming the reduction of disallowance of Rs.74,98,294/- to Rs.10,87,177/- made on account of interest on interest free loans without appreciating the facts that money to the extent of interest free loan has not been utilized by the assessee society for its own business purposes.” I.T.A. No.694 of 2010 2. The assessee is a cooperative society engaged in manufacture and sale of sugar. It claimed deduction in respect of interest payment on the loans. The Assessing Officer disallowed the deduction on the ground that the assessee had itself advanced loans to other cooperative societies and to that extent, payment of interest could not be treated to be for business purposes. On appeal, the CIT(A) partly allowed the appeal of the assessee holding that loan advanced to one of the cooperative sugar mills had already been received back and the said cooperative sugar mill was under winding up. The Tribunal upheld the said finding as follows:- “4. ......... However, in this year it emerges out that a settlement has arrived between the assessee and M/s Bhuna Coop. Sugar Mills wherein the loanee has paid a sum of Rs.1,49,51,081/- towards full and final settlement of the principle amount. It would show that no amount remained with the M/s Bhuna Co-op Sugar Mills which can be said as paid out of interest bearing funds by the assessee and in view of that no interest can be disallowed to the assessee. On due consideration of the CIT(A)’s order we do not find any merit in the appeal of the revenue. It is dismissed.” 3. We have heard learned counsel for the appellant. 4. Learned counsel for the appellant submits that in view of judgment of this Court in CIT v. Abhishek Industries Ltd. 286 ITR 1, interest on borrowed capital could not be allowed as 2 I.T.A. No.694 of 2010 deduction if the assessee had itself advanced loan to its sister concern. 5. We are unable to accept the submission. The judgment relied upon is distinguishable. Therein the case was of advancing loan to a sister concern and not where a bonafide loan was advanced for business purposes. In that judgment, the principle laid down in Mcdowell & Co. Ltd. v. CTO [1985] 154 ITR 148 (SC) was followed that where an assessee avoids tax liability by manipulation, the device so adopted can be checked to tax real income. 6. Having regard to the finding in the present case, which is not shown to be perverse, we do not find any error in the view taken by the Tribunal. 7. No substantial question of law arises. 8. The appeal is dismissed. (ADARSH KUMAR GOEL) JUDGE December 14, 2010 ( AJAY KUMAR MITTAL ) ashwani JUDGE 3