2012 (7) TMI 655 - AT - Income Tax

Tribunal Rulings on Income Tax Act Sections: Interest Allowed, Deductions Disallowed

The Tribunal directed the Assessing Officer to allow the interest claimed by the assessee under Sec. 36(1)(iii) of the Income Tax Act, citing the ... Payment of interest on investment in equity shares - deduction u/s 36(1)(iii) - held that:- It is evident from the referred record that the assessee was having interest free funds available more than investments in question. - it is clear that the assessee had sufficient interest free funds. - AO directed to allow the interest as claimed. Deduction u/s 10B - Aemendment - 9th year of claim. - unexpired period of ten consecutive AYs. - whether in the light of the amended provisions of sec. 10B, the assessee who started manufacturing in the year 1994, availed first tax rebate benefit in the year 1997-98 is entitled for getting the deduction in the AY in hand i.e. 2005-06. - held that:- the first part of the legislation cannot be read in isolation. The entire stature or provision has to be read or referred conjointly. A word here or clause there cannot be relied on by excluding the entire provision. Ten consecutive Assessment Years start from Assessment Year relevant to the previous year in which the undertaking begins manufacture / production. The assessee herein commenced its production on 1.1.1994. We observe that said period of ‘ten Assessment Years’ can’t cover the Assessment Year in hand which is in fact the 12th Assessment Year from the date of manufacturing. - Decided against the assessee. Issues Involved:1. Sec. 36(1)(iii) of the Income Tax Act.2. Deduction under Sec. 10B of the Income Tax Act.3. Disallowance under Sec. 40(a)(ia) of the Income Tax Act.4. Set-off of carried forward depreciation.5. Alternate deduction under Sec. 80IA of the Income Tax Act.Issue-wise Detailed Analysis:1. Sec. 36(1)(iii) of the Income Tax Act:The assessee claimed interest on investments in equity shares as a business expenditure. The Assessing Officer (AO) disallowed Rs. 15,35,501/- on the grounds that the investments were not for business purposes and the funds could have been used to reduce debt. The CIT (A) upheld this disallowance. However, the Tribunal found that the assessee had sufficient interest-free funds to cover the investments, relying on case laws such as CIT vs. Bombay Samachar and CIT vs. Reliance Utilities and Power Ltd. The Tribunal directed the AO to allow the interest as claimed by the assessee.2. Deduction under Sec. 10B of the Income Tax Act:The assessee claimed a deduction of Rs. 7,68,39,953/- under Sec. 10B, asserting it was within the ten-year period starting from AY 1997-98. The AO and CIT (A) disallowed the claim, stating the ten-year period ended in AY 2003-04, as the manufacturing began in AY 1994-95. The Tribunal upheld the disallowance, interpreting the ten-year period to start from the year manufacturing commenced, not from when the deduction was first claimed. The Tribunal concluded that the assessee's interpretation contradicted legislative intent.3. Disallowance under Sec. 40(a)(ia) of the Income Tax Act:The AO disallowed Rs. 4,88,95,690/- for late TDS payments. The CIT (A) upheld this, allowing credit in the subsequent year. The Tribunal, referencing the Finance Act, 2010 amendment, allowed the deduction in the year the TDS was paid, thus accepting the assessee's ground.4. Set-off of Carried Forward Depreciation:The assessee challenged the disallowance of Rs. 12,20,31,583/- carried forward depreciation. The Tribunal noted the rectification order dated 31.03.2005 allowed the set-off. The Tribunal remitted the issue back to the AO for verification and appropriate action after hearing the assessee.5. Alternate Deduction under Sec. 80IA of the Income Tax Act:The assessee sought an alternate deduction of Rs. 4,01,99,719/- under Sec. 80IA for income from power generation if Sec. 10B was disallowed. The Tribunal remitted this issue to the AO for re-examination, directing a fresh decision after providing the assessee an opportunity to present its case.Additional Grounds in ITA No. 3227/M/2010:- The Tribunal rejected Ground No. 1 related to Sec. 10B, consistent with its earlier decision.- Grounds No. 2 to 4 regarding Sec. 36(1)(iii) were accepted based on the earlier findings.- Ground No. 5 was not pressed by the assessee.- Ground No. 6 about Sec. 40(a)(ia) was accepted in line with the earlier decision.- Ground No. 7, an alternate claim under Sec. 80IA, was remitted to the AO for fresh adjudication.Conclusion:- ITA No. 1789/M/2009: Grounds I and III accepted, Ground II rejected, Grounds IV and V remitted back to the AO.- ITA No. 3227/M/2010: Ground 1 rejected, Grounds 2, 3, 4, and 6 accepted, Ground 5 not pressed, Ground 7 remitted to the AO, Ground 8 consequential.Order Pronounced:The order was pronounced in the open court on 30.05.2012.