2009 (4) TMI 529 - AT - Income Tax

Issues Involved:
1. Claim of depreciation.
2. Deduction under section 36(1)(viia) and 36(1)(viii).
3. Depreciation on leased assets.
4. Disallowance of bad debts.
5. Capital expenditure for raising authorized capital.
6. Loss on shares held as current investment.
7. Disallowance under section 14A.
8. Disallowance of share issue expenses.
9. Interest on non-performing assets (NPA).
10. Interest charged under section 234D.

Comprehensive, Issue-wise Detailed Analysis:

1. Claim of Depreciation:
The assessee's appeal for the assessment year 1995-96 involved the rejection of a claim for depreciation of Rs. 1,00,11,600 on 486 Industrial Gas Cylinders. The Assessing Officer disallowed the claim based on information from Addl. CIT, Chennai, suggesting that the transactions were financial loan transactions rather than genuine purchases. The Tribunal found a violation of natural justice as the evidences collected were not properly confronted with the assessee. The matter was remanded back to the Assessing Officer for a fresh decision after allowing the assessee a reasonable opportunity to rebut the evidence.

2. Deduction under Section 36(1)(viia) and 36(1)(viii):
For the assessment year 1997-98, the Tribunal held that deduction under section 36(1)(viii) should be allowed first, and the remaining income should be considered for deduction under section 36(1)(viia). The Tribunal also clarified that only profits derived from long-term finance qualify for deduction under section 36(1)(viii), excluding other incomes such as lease rentals, dividends, and interest on deposits. For the assessment year 2000-01, the Tribunal followed the same principle, remanding the matter to verify the period of debentures for interest on debentures.

3. Depreciation on Leased Assets:
For the assessment year 1997-98, the Tribunal allowed the assessee's claim for depreciation on assets leased to M/s. Prakash Industries Ltd., following its decision for the assessment year 1996-97, where the transaction was not considered a mere paper transaction.

4. Disallowance of Bad Debts:
For the assessment year 1997-98, the Tribunal held that the provision for bad debts for the current year should not be considered for quantifying deduction under section 36(1)(vii). Only the opening balance of the provision should be reduced from the actual write-off of bad debts. This principle was applied similarly for the assessment year 2000-01.

5. Capital Expenditure for Raising Authorized Capital:
For the assessment year 2000-01, the Tribunal upheld the disallowance of Rs. 64,96,000 spent on raising authorized capital, following the judgments of the Hon'ble Apex Court in Punjab State Industrial Development Corpn. Ltd. and Brooke Bond India Ltd., distinguishing it from the General Insurance Corpn. case.

6. Loss on Shares Held as Current Investment:
For the assessment year 2000-01, the Tribunal upheld the disallowance of Rs. 1,04,27,000 as a business loss since the shares were held as investments. It also rejected the claim for a capital loss as there was no transfer of shares.

7. Disallowance under Section 14A:
For the assessment year 2001-02, the Tribunal remanded the issue of disallowance of Rs. 1,00,000 under section 14A for earning dividend income to the Assessing Officer for a fresh decision in light of the Special Bench decision in Daga Capital Management (P.) Ltd., restricting the disallowance to Rs. 1 lakh if the computed disallowance exceeds this amount.

8. Disallowance of Share Issue Expenses:
For the assessment year 2002-03, the Tribunal upheld the disallowance of Rs. 27,50,000 being 1/10th of share issue expenses, following the judgments of the Hon'ble Apex Court in Punjab State Industrial Development Corpn. Ltd. and Brooke Bond India Ltd., and rejecting the applicability of section 35D.

9. Interest on Non-Performing Assets (NPA):
For the assessment year 1997-98, the Tribunal upheld the deletion of additions for accrued interest on NPAs, noting that section 43D and Rule 6EA apply, making such interest taxable only on receipt or when credited to the P&L account. This principle was similarly applied for the assessment year 2000-01.

10. Interest Charged under Section 234D:
For the assessment year 2002-03, the Tribunal held that section 234D is applicable only from the assessment year 2004-05, following the Special Bench decision in Ekta Promoters (P.) Ltd., and decided in favor of the assessee.

Conclusion:
The Tribunal provided detailed rulings on each issue, ensuring adherence to principles of natural justice, proper application of relevant sections, and consistency with higher judicial precedents. The matters were remanded where necessary, ensuring the assessee had opportunities to present their case comprehensively.

← Previous Next →