2009 (11) TMI 919 - AT - Income Tax

Summary

Issues Involved:
1. Reopening of the assessment under Section 147.
2. Addition of interest income under the head "income from other sources."
3. Deduction of interest expenditure under Section 57(iii).
4. Addition of miscellaneous receipts to other income.
5. Capitalization of interest expenditure.
6. Assessment of tolling income.
7. Waiver of accrued interest income.
8. Levy of interest under Sections 234A to 234D.
9. Initiation of penalty proceedings under Sections 271(1)(c) and 271B.

Detailed Analysis:

1. Reopening of the Assessment under Section 147:
The first ground against the reopening of the assessment under Section 147 of the Income Tax Act was dismissed as not pressed.

2. Addition of Interest Income under the Head "Income from Other Sources":
The Assessing Officer (AO) included the interest income of Rs. 93,47,688/- under the head "income from other sources" as the assessee had not commenced business activities. This was upheld by the CIT(A) and the Tribunal, relying on the Supreme Court judgments in Tuticorin Alkalies Chemicals & Fertilisers Vs. CIT and CIT Vs. Coromandel Cements Ltd.

3. Deduction of Interest Expenditure under Section 57(iii):
The assessee's alternative contention that the interest expenditure should be adjusted against the interest income was accepted. The Tribunal directed the AO to quantify the interest expenditure attributable to the earning of the interest income and allow it as a deduction under Section 57(iii).

4. Addition of Miscellaneous Receipts to Other Income:
The addition of Rs. 7,52,882/- to other income was challenged, and the assessee restricted the challenge to Rs. 2,10,890/- representing the sale proceeds of scrap. The Tribunal deleted this addition, following the Mumbai Bench decision in Floatglass India Ltd. Vs. JCIT, which held that such receipts should reduce the cost of the project.

5. Capitalization of Interest Expenditure:
The CIT(A) allowed the capitalization of interest expenditure, which the AO had disallowed on the grounds that the business had not commenced. The Tribunal upheld the CIT(A)'s decision, noting that interest expenditure incurred before the commencement of production should be capitalized.

6. Assessment of Tolling Income:
The AO assessed tolling income separately under the head "income from other sources," which was upheld by the CIT(A). However, the Tribunal held that the tolling receipts should be reduced from the capital works-in-progress account, following the Supreme Court judgment in CIT Vs. Bokaro Steels Ltd.

7. Waiver of Accrued Interest Income:
The AO added Rs. 67,73,433/- as accrued interest income from Shalimar Wire Industries Ltd., which was confirmed by the CIT(A). The Tribunal, however, held that no interest accrued due to the waiver and the modification of the scheme of arrangement by the Calcutta High Court, which effectively wiped out the debt from Shalimar.

8. Levy of Interest under Sections 234A to 234D:
The levy of interest under Sections 234A to 234D was held to be consequential.

9. Initiation of Penalty Proceedings under Sections 271(1)(c) and 271B:
Grounds challenging the initiation of penalty proceedings under Sections 271(1)(c) and 271B were dismissed as no appeal can be filed against the mere initiation of penalty proceedings.

Conclusion:
The Tribunal's decisions were a mix of dismissals and partial allowances, focusing on the correct application of legal principles regarding the assessment of income, capitalization of expenses, and the treatment of specific receipts and expenditures in the context of pre-commencement business activities.