2010 (3) TMI 1111 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of addition on account of disallowance of pre-operative interest expenses.
2. Inclusion of pre-operative interest expenses and prior period expenses while computing book profit u/s 115JB.
3. Deletion of interest charged u/s 234B and 234C.

Summary:

Issue 1: Deletion of Addition on Account of Disallowance of Pre-operative Interest Expenses
The Tribunal upheld the deletion of the disallowance of Rs. 2,19,92,647/- on account of pre-operative interest expenses, which had been capitalized in the books and claimed as revenue expenses. The Tribunal followed its own earlier decisions in the assessee's case for Assessment Years 2000-01, 2001-02, and 2002-03, where similar disallowances were deleted based on the decision of the Hon'ble Gujarat High Court in CIT vs. Core Health Care Limited 251 ITR 61 (Guj.). The proviso to section 36(1)(iii) inserted by the Finance Act, 2003, w.e.f. 01/04/2004, was held not applicable for the Assessment Year 2003-04. Thus, the Tribunal rejected the Revenue's ground.

Issue 2: Inclusion of Pre-operative Interest Expenses and Prior Period Expenses While Computing Book Profit u/s 115JB
The Tribunal upheld the CIT(A)'s direction to the Assessing Officer not to include pre-operative interest expenses and prior period expenses while computing book profit u/s 115JB. The Tribunal referred to its earlier decisions and the Hon'ble Supreme Court's ruling in Apollo Tyres Limited 255 ITR 273 (SC), which restricts the Assessing Officer from altering the net profit shown in the P&L account except as provided in the Explanation to section 115J. The Tribunal found no infirmity in the CIT(A)'s order and rejected the Revenue's ground.

Issue 3: Deletion of Interest Charged u/s 234B and 234C
The Tribunal examined the CIT(A)'s directions regarding the deletion of interest charged u/s 234B and 234C. The CIT(A) had directed the Assessing Officer to delete the interest if the assessee was not liable for taxation under normal provisions, following the decision of the Hon'ble Karnataka High Court in 243 ITR 519 (Karn). However, the Tribunal noted that in the assessee's own case for earlier years, it was held that interest u/s 234B and 234C is leviable when income is computed u/s 115JA. The Tribunal held that interest u/s 234B and 234C is mandatory and compensatory, not penal, and directed the Assessing Officer to rework the interest chargeable after giving effect to the order. This ground of appeal was partly allowed.

Conclusion:
The appeal of the Revenue was partly allowed, with the Tribunal upholding the CIT(A)'s decisions on issues 1 and 2, and modifying the decision on issue 3 regarding the levy of interest u/s 234B and 234C. The order was signed, dated, and pronounced in the Court on 31/03/2010.