2006 (7) TMI 521 - AT - Income Tax

Business disallowance Dividend income Losses - Carry forward and set-off of in case of certain companies

Summary

Issues Involved:
1. Invocation of provisions of section 142(2A) of the Act.
2. Disallowance under section 43B for non-payment of provident fund.
3. Addition due to the difference in turnover recorded by the assessee and data from the National Stock Exchange.
4. Non-allowance of brought forward business loss and unabsorbed depreciation under section 79.
5. Charging of interest under sections 234B and 234C.
6. Exemption of dividend income under section 10(33).
7. Deletion of penalty charged by National Stock Exchange.
8. Deletion of addition due to interest-free loans to others/associate concerns.

Detailed Analysis:

1. Invocation of Provisions of Section 142(2A) of the Act:
The first ground of appeal by the assessee regarding the invocation of provisions of section 142(2A) was not pressed and hence dismissed as not pressed.

2. Disallowance under Section 43B for Non-Payment of Provident Fund:
The assessee's appeal on this ground was upheld. The delay in payment was due to the non-allotment of a code number by the authorities, which was eventually allotted on 20-7-2000, and the payment was made on 28-7-2000. The Tribunal found that there was a reasonable cause for the delay and referred to the case of Addl. CIT v. Vestas RRB India Ltd., deciding that no disallowance can be made under section 43B if the amount was deposited before filing the return. Consequently, the disallowance was deleted.

3. Addition Due to Difference in Turnover:
The Tribunal found that the difference in turnover was due to transactions in the auction segment. The assessee provided full details and bank statements, showing no actual difference. The lower authorities did not consider the reconciliation provided by the assessee. Hence, the addition of Rs. 2,01,996 was deleted.

4. Non-Allowance of Brought Forward Business Loss and Unabsorbed Depreciation Under Section 79:
The Tribunal noted that the assessee was a 100% subsidiary of ITC Classic Finance Ltd., which was a public company. After amalgamation, the shares vested in ICICI Ltd., and subsequently in ITC Ltd., all public companies. The Tribunal held that section 79 does not apply to companies in which the public are substantially interested. However, to verify the current status of the assessee as a subsidiary, the issue was remitted back to the Assessing Officer for verification and a fresh order.

5. Charging of Interest Under Sections 234B and 234C:
The Tribunal directed the Assessing Officer to allow consequential relief under section 234B if any. Regarding section 234C, the issue was restored to the Assessing Officer to pass a speaking order after giving the assessee a reasonable opportunity to be heard.

6. Exemption of Dividend Income Under Section 10(33):
The Tribunal upheld the CIT(A)'s decision that dividend income of Rs. 1,96,316 is exempt under section 10(33) read with section 115-O. The law does not distinguish between dividends received as a trader or investor, and the dividend income is exempt in the hands of the shareholder.

7. Deletion of Penalty Charged by National Stock Exchange:
The Tribunal agreed with the CIT(A) that the penalties charged by NSE were for contractual violations and not for offenses prohibited by law. The penalties were compensatory in nature and allowable as business expenditure under section 37(1). The addition of Rs. 4,75,335 was deleted.

8. Deletion of Addition Due to Interest-Free Loans to Others/Associate Concerns:
The Tribunal upheld the CIT(A)'s finding that the interest-bearing funds were not utilized for giving interest-free advances. The interest-bearing funds were used for business purposes, making the interest payments deductible under section 36(1)(iii). The addition of Rs. 57,35,720 was deleted.

Conclusion:
The appeal of the assessee was partly allowed, and the appeal of the department was dismissed.