2010 (9) TMI 1156 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of addition on account of disallowance u/s 14A of the I.T. Act.
2. Levy of interest u/s 234B & 234C of the I.T. Act when the total income was assessed u/s 115JB of the Act.

Summary:

Issue 1: Deletion of addition on account of disallowance u/s 14A of the I.T. Act

The Revenue appealed against the deletion of an addition of Rs. 6,92,997/- made by the Assessing Officer (A.O.) on account of disallowance u/s 14A of the I.T. Act. The A.O. observed that interest-bearing funds were invested in HDFC Mutual Fund, and thus, disallowed 12% on the entire amount of Rs. 1,32,37,857/-. The Learned Commissioner of Income Tax (Appeals) [CIT(A)] deleted the addition, noting that the appellant had substantial interest-free funds and no nexus between borrowings and investments was established. The CIT(A) emphasized that no disallowance of interest was made in the past for old investments, and the appellant had sufficient own funds to cover the investments. The Tribunal upheld the CIT(A)'s order, noting that the A.O. did not establish that investments were made out of borrowed funds and that the Tribunal has no power of enhancement. Consequently, the Revenue's appeal was dismissed.

Issue 2: Levy of interest u/s 234B & 234C of the I.T. Act when the total income was assessed u/s 115JB of the Act

The assessee's Cross Objection challenged the levy of interest u/s 234B & 234C, arguing that when income is computed u/s 115JA, interest cannot be charged under these sections. The assessee relied on the decision of the Hon'ble Bombay High Court in the case of Snowcem India Ltd. The Revenue, however, cited the ITAT, 'C' Bench, Ahmedabad (Third Member) decision in the case of Kanel Oil & Export Inds. Ltd., which held that interest u/s 234B & 234C is leviable on income computed u/s 115JA/115JB. The Tribunal, after considering both sides, followed the ITAT, 'Spl.' Bench, Ahmedabad decision in the case of ACIT -vs.- Ashima Syntex Ltd., and upheld the levy of interest u/s 234B & 234C when book profit is computed u/s 115JB. Consequently, the Cross Objection filed by the assessee was dismissed.

Conclusion:

Both the appeal filed by the Revenue and the Cross Objection filed by the assessee were dismissed. The Tribunal upheld the CIT(A)'s deletion of the disallowance u/s 14A and confirmed the levy of interest u/s 234B & 234C when income is computed u/s 115JB.