2005 (7) TMI 582 - AT - Income Tax

Summary

Issues Involved:
1. Deduction under section 32AB of the Income-tax Act.
2. Depreciation on bricks.
3. Depreciation consequent to assessment under section 115J.
4. Deemed income in the case of non-performing assets.
5. Expenses for earning dividend.
6. Inams.
7. Debenture premium expenses.
8. Higher depreciation on leased vehicles.
9. Short-term capital loss.
10. Contingent deposit collected by the assessee.

Detailed Analysis:

1. Deduction under section 32AB of the Income-tax Act:
The assessee contended that the deduction under section 32AB should be computed before setting off carried forward unabsorbed investment allowance. The Revenue argued that the deduction should be allowed on income computed as per sections 28 to 32A, necessitating the set-off of carried forward investment allowance first. The Tribunal upheld the Revenue's view, confirming that once the carried forward investment allowance is set off, there is no positive income for the deduction under section 32AB.

2. Depreciation on bricks:
The assessee claimed 100% depreciation on special bricks used for Cupola, citing a precedent where bottles were considered independent plants. The Revenue argued that bricks cannot be considered independent assets for depreciation. The Tribunal agreed with the Revenue, stating that bricks are materials for constructing a plant and cannot be depreciated as independent assets.

3. Depreciation consequent to assessment under section 115J:
The assessee conceded that the issue of depreciation under section 115J was decided against them by the Supreme Court in Karnataka Small Scale Industries Development Corpn. Ltd. v. CIT. Consequently, the Tribunal confirmed the CIT(A)'s order denying the depreciation claim.

4. Deemed income in the case of non-performing assets:
The assessee argued that sticky income from hire purchase and leasing transactions should not be included in taxable income. The Tribunal, citing the Supreme Court's decision in UCO Bank v. CIT and its own precedent, agreed that such income should not be recognized as taxable income and directed the Assessing Officer to delete the amounts in question.

5. Expenses for earning dividend:
The CIT(A) estimated 25% of gross dividend as expenditure for earning dividend, while the assessee argued for 2% based on a similar Tribunal decision. The Tribunal, for consistency, directed the Assessing Officer to recompute the deduction under section 80M using 2% of the gross dividend as expenditure.

6. Inams:
The Tribunal noted that the assessee had not pressed this issue before the CIT(A), and therefore, it could not be raised before the Tribunal. The Tribunal also observed that inams were not related to business expenditure and confirmed the lower authority's order.

7. Debenture premium expenses:
The assessee claimed the entire premium should be allowed in the first year, but the CIT(A) allowed it on a pro rata basis. The Tribunal upheld the CIT(A)'s decision, citing the Supreme Court's judgment in Madras Industrial Investment Corpn. Ltd. v. CIT, which supports pro rata allocation.

8. Higher depreciation on leased vehicles:
The Tribunal confirmed the CIT(A)'s order allowing higher depreciation on leased vehicles, referencing the Madras High Court's decision in CIT v. Madan & Co., which entitles the assessee to a higher rate of depreciation.

9. Short-term capital loss:
The Tribunal noted that the issue of capital loss carried forward and set off was consequential to earlier orders for the assessment years 1992-93 and 1993-94. Both parties conceded this, and the Tribunal confirmed the lower authority's order.

10. Contingent deposit collected by the assessee:
The assessee argued that the contingent deposit collected as sales tax during the pendency of a writ petition should not be included in total income. The Revenue countered that it should be considered a trading receipt. The Tribunal, referencing the Madras High Court's decision in Southern Explosives Co. and the Supreme Court's judgments in Chowringhee Sales Bureau (P.) Ltd. and K.C.P. Ltd., held that the amount collected to meet statutory liability forms part of trading receipts and should be included in total income.

Conclusion:
The Tribunal dismissed the assessee's appeal for the assessment year 1988-89 and partly allowed the appeals for the assessment years 1992-93, 1993-94, and 1994-95. The Revenue's appeal for the assessment year 1994-95 was partly allowed.