2011 (8) TMI 1154 - AT - Income Tax

Tribunal grants partial relief to assessee, remands certain claims for verification

Indian Rayon & Industries Ltd. Versus Asst Comr of Income Tax, Range 3 (2), Mumbai

Indian Rayon & Industries Ltd. Versus Asst Comr of Income Tax, Range 3 (2), Mumbai - TMI Issues Involved:1. Disallowance of rural development expenditure.2. Disallowance of interest under Section 244A.3. Disallowance of depreciation on rollover charges.4. Disallowance of expenditure under Section 40A(9).5. Disallowance of deduction under Section 35D.6. Disallowance of payment to Lodha & Co.7. Alternative claim regarding debenture issue expenses.8. Additional grounds regarding sales tax exemption and expenditure on assets not owned.9. Deductibility of interest expenses under Section 36(1)(iii).Detailed Analysis:1. Disallowance of Rural Development Expenditure:The assessee claimed Rs. 3,44,461 as rural development expenses, which was disallowed by the AO and confirmed by the CIT(A) based on earlier years' disallowances. The Tribunal noted that similar issues in previous years were restored to the AO, who eventually allowed the claim. Thus, the Tribunal restored the issue to the AO for verification, directing that if the facts were identical to earlier years, the claim should be allowed.2. Disallowance of Interest under Section 244A:The assessee received Rs. 20,54,935 as interest under Section 244A for AY 1993-94, which was offered to tax in the current year. The AO and CIT(A) confirmed its inclusion in the current year's income. The Tribunal, referencing the Special Bench decision in Avada Trading Co., held that if there is any subsequent reduction in the interest, the assessment can be rectified under Section 154. Thus, the Tribunal rejected the assessee's ground but noted that any future changes should be accounted for under Section 154.3. Disallowance of Depreciation on Rollover Charges:The AO disallowed Rs. 29,061 claimed as depreciation on rollover charges, treating them as capital in nature. The CIT(A) upheld this, referencing the Tribunal's earlier decision allowing the expenditure as revenue in nature. The Tribunal, considering the High Court's decision against the assessee, allowed the depreciation claim, noting that the AO had allowed it in earlier years.4. Disallowance of Expenditure under Section 40A(9):The AO disallowed Rs. 29,74,188 paid to schools under Section 40A(9), confirmed by the CIT(A). The Tribunal noted that similar disallowances in earlier years were allowed by the Tribunal. Thus, following its earlier decisions, the Tribunal allowed the claim for the current year.5. Disallowance of Deduction under Section 35D:The assessee did not press this issue as the deduction was allowed by the AO in AY 1999-00. The Tribunal dismissed this ground as not pressed.6. Disallowance of Payment to Lodha & Co.:The assessee did not press this issue, acknowledging it related to AY 1994-95. The Tribunal dismissed this ground as not pressed.7. Alternative Claim Regarding Debenture Issue Expenses:The assessee did not press this issue, noting that the NCD issue expense claim and deduction under Section 35D were already allowed. The Tribunal dismissed this ground as not pressed.8. Additional Grounds:- Sales Tax Exemption: The Tribunal admitted the additional ground regarding the exclusion of sales tax exemption benefit from taxable profits, noting that similar issues were restored to the AO in earlier years. The Tribunal restored the matter to the AO to examine the additional evidence and decide as per law.- Expenditure on Assets Not Owned: The Tribunal admitted this alternative ground, noting that similar issues were restored to the AO in earlier years. The Tribunal restored the matter to the AO for examination and decision as per law.9. Deductibility of Interest Expenses under Section 36(1)(iii):The AO disallowed Rs. 37,60,46,864 as interest on borrowed funds for new projects, treating them as separate businesses. The CIT(A) allowed the claim, following earlier decisions. The Tribunal upheld the CIT(A)'s decision, referencing its earlier order for AY 1995-96, noting that the new units were part of the existing business and thus the interest was deductible under Section 36(1)(iii).Conclusion:The Tribunal dismissed the revenue's appeals and partly allowed the assessee's appeals, restoring certain issues to the AO for verification and examination. The cross-objections by the assessee were dismissed as infructuous.