2008 (3) TMI 503 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of interest on Bihar Jamindari Abolition Compensation Bonds.
2. Depreciation on steel furniture, counters, and electric fittings.
3. Estimation of expenses for earning dividend income.
4. Rebate on settlement of advances.
5. Bad debts written off.
6. Computation of book profits u/s 115JA.

Summary:

1. Disallowance of Interest on Bihar Jamindari Abolition Compensation Bonds:
The CIT (Appeals) upheld the disallowance of Rs. 3,71,500 made by the Assessing Officer regarding the inclusion of interest on accrual basis on the investment made in 2.5% Bihar Jamindari Abolition Compensation Bonds, 1973. The Tribunal restored the issue to the Assessing Officer for fresh decision after the outcome of the pending case in the Calcutta High Court, as the bonds were not transferred in the assessee's name and the interest was not received.

2. Depreciation on Steel Furniture, Counters, and Electric Fittings:
The CIT (Appeals) upheld the disallowance of depreciation by not treating steel furniture, counters, and electric fittings as plant and machinery. The Tribunal allowed the assessee's claim, following its earlier decision that such items constitute plant and machinery, thus eligible for higher depreciation.

3. Estimation of Expenses for Earning Dividend Income:
The CIT (Appeals) restricted the disallowance of expenses for earning dividend income to 10% of the dividend income, as opposed to 75% disallowed by the Assessing Officer. The Tribunal found no infirmity in this restriction, following its earlier decision.

4. Rebate on Settlement of Advances:
The CIT (Appeals) upheld the addition made by the Assessing Officer regarding rebates given on the settlement of advances. The Tribunal allowed the assessee's claim, noting that the rebate was granted in non-performing accounts and was an actual loss to the bank, not an unascertained liability. The Assessing Officer was directed to verify that the total claim, along with amounts allowed u/s 36(1)(viia), does not exceed the prescribed limit.

5. Bad Debts Written Off:
The CIT (Appeals) allowed the deduction of bad debts written off to the extent of Rs. 65.61 crores, reducing the amount claimed under section 36(1)(viia). The Tribunal restored the matter to the Assessing Officer for fresh computation, clarifying that the proviso to section 36(1)(vii) restricts deduction only to the extent of bad debts for which provision was made under section 36(1)(viia).

6. Computation of Book Profits u/s 115JA:
The CIT (Appeals) upheld the addition of provisions for bad and doubtful debts while computing book profits u/s 115JA. The Tribunal found these provisions to be neither ad hoc nor contingent and directed the Assessing Officer to exclude them from book profits. Other adjustments made by the Assessing Officer were also restored for fresh decision.

Conclusion:
The appeals were allowed in part, with several issues restored to the Assessing Officer for fresh consideration and decision.