2008 (7) TMI 620 - AT - Income Tax

Summary

Issues Involved:
1. Allowance of deduction u/s 33AC of the Income-tax Act.
2. Restriction of disallowance of interest u/s 14A.
3. Allowance of depreciation on fees paid to the Registrar of Companies.
4. Disallowance of claim u/s 80-IB.
5. Computation of bad debts and loss from partnership firm profit under section 115JB.

Summary:

1. Allowance of Deduction u/s 33AC:
The assessee claimed deduction u/s 33AC for profits from the shipping business, including income from the sale of ships. The Assessing Officer (AO) denied the deduction, arguing that the profit from the sale of ships is not derived from the operation of ships. The AO also noted the lack of separate books for the shipping business and questioned the main object of the assessee company. The CIT(A) allowed the deduction, stating that the income from the sale of ships qualifies for inclusion as income from the operation of ships. The CIT(A) emphasized that section 33AC is an incentive provision and the reserve created should be used for purchasing new ships. The Tribunal upheld the CIT(A)'s decision, noting that the AO failed to consider the legislative intent behind section 33AC and the proper creation and utilization of reserves by the assessee.

2. Restriction of Disallowance of Interest u/s 14A:
The CIT(A) restricted the disallowance of interest u/s 14A to Rs. 59,602, based on the proportionate interest attributable to new investments made during the financial year 2003-04. The Tribunal found no fault in the CIT(A)'s approach and dismissed the revenue's ground on this issue.

3. Allowance of Depreciation on Fees Paid to the Registrar of Companies:
The CIT(A) allowed the claim for depreciation on fees paid to the Registrar of Companies, based on the Tribunal's order for earlier years, which the Department had accepted. The Tribunal declined to interfere with the CIT(A)'s order and dismissed the revenue's ground.

4. Disallowance of Claim u/s 80-IB:
The AO rejected the claim u/s 80-IB, stating that there was no storage activity carried out by the assessee. The CIT(A) and the Tribunal found that the assessee was involved in storing foodgrains for the Food Corporation of India, as evidenced by the invoices. The Tribunal upheld the CIT(A)'s decision to allow the claim u/s 80-IB.

5. Computation of Bad Debts and Loss from Partnership Firm Profit u/s 115JB:
The AO added back the bad debts and loss from the partnership firm for the computation of profit u/s 115JB. The Tribunal agreed with the assessee, citing the Delhi High Court's decision in CIT v. Eicher Ltd., which held that the provision for bad and doubtful debts is an ascertained liability and should not be added back to the book profit. However, the Tribunal agreed with the Department that the loss from the partnership firm could be added back.

Conclusion:
The Tribunal partly allowed the revenue's appeal, confirming the CIT(A)'s decisions on the allowance of deduction u/s 33AC, restriction of disallowance of interest u/s 14A, allowance of depreciation on fees paid to the Registrar of Companies, and disallowance of claim u/s 80-IB. However, it agreed with the Department on adding back the loss from the partnership firm for the computation of profit u/s 115JB.