2011 (8) TMI 1310 - AT - Income Tax

Tribunal ruling on income computation, expense disallowance, interest, and deductions

J.K. Lakshmi Cement Ltd. Versus Assistant Commissioner of Income-tax, Kolkata And Vice-Versa,

J.K. Lakshmi Cement Ltd. Versus Assistant Commissioner of Income-tax, Kolkata And Vice-Versa, - TMI Issues Involved:1. Computation of income under section 115JB of the Income Tax Act.2. Disallowance of expenses under section 40A(9) of the Income Tax Act.3. Addition of notional interest.4. Calculation of depreciation.5. Charging of interest under sections 234B and 234D.6. Credit for MAT under section 115JAA.7. Deduction under section 35(1)(ii).Issue-wise Analysis:1. Computation of Income under Section 115JB:The primary issue was whether the assessee could adjust the debit balance in the Profit and Loss Account against the Share Premium Account and Revaluation Reserve, as per a scheme sanctioned by the High Courts, for computing book profit under section 115JB. The Tribunal held that such adjustments, though permitted by the High Court, were not in accordance with generally accepted accounting practices. The statutory auditors had qualified their report stating that the adjustment was not in line with accepted practices. The Tribunal concluded that the AO must determine the correct amount of loss brought forward or unabsorbed depreciation without considering the adjustment, thereby allowing the assessee's claim.2. Disallowance of Expenses under Section 40A(9):The assessee incurred expenses for running a school and other facilities, which were disallowed by the AO under section 40A(9). The CIT(A) allowed the claim based on a previous ITAT order for the assessee's own case, which relied on a Kerala High Court judgment. However, the Tribunal remanded the issue back to the AO for verification of details, as the assessee had failed to provide necessary information during the assessment.3. Addition of Notional Interest:The AO added notional interest on deposits made by the assessee, which were under legal disputes and unlikely to be recovered. The Tribunal, following its earlier decisions and various High Court judgments, held that no real income accrued to the assessee due to the financial difficulties of the debtors. The addition was deleted.4. Calculation of Depreciation:The assessee argued that the opening WDV for the assessment year should be the same as the closing WDV of the previous year, which included capitalized interest expenditure. The Tribunal directed the AO to recompute the depreciation by adopting the correct opening WDV as per the previous year's assessment order.5. Charging of Interest under Sections 234B and 234D:The Tribunal upheld the charging of interest under sections 234B and 234D, following the Supreme Court's decision in JCIT vs. Rolta India Ltd., which clarified that interest under these sections applies to companies liable to pay tax under section 115JB.6. Credit for MAT under Section 115JAA:The Tribunal directed the AO to quantify the MAT credit as per the provisions of section 115JAA, ensuring that the credit is carried forward and set off in accordance with the law.7. Deduction under Section 35(1)(ii):The AO disallowed the deduction claimed for donations made to Pushpawati Singhania Research Institute, questioning its approval status. The Tribunal found that the institute was notified by the CBDT, and the notification was effective retrospectively, covering the relevant assessment year. The deduction was allowed, and the CIT(A)'s order was upheld.Conclusion:The Tribunal provided a detailed analysis and directions on each issue, ensuring compliance with legal provisions and accounting standards. The appeals and cross-objections were partly allowed for statistical purposes, with specific instructions for the AO to follow.