2011 (4) TMI 1424 - AT - Income Tax

Summary

Issues Involved:
1. Addition made u/s 14A on proportionate basis.
2. Deletion of interest u/s 234D.
3. Deletion of addition on account of valuation of closing stock.
4. Computation of deduction u/s 80HHC after considering the sale proceeds of DEPB license.
5. Disallowance of depreciation on building.
6. Disallowance of payments made to PF.

Summary:

1. Addition made u/s 14A on proportionate basis:
The Assessing Officer (AO) disallowed Rs. 28,16,011/- out of interest paid and Rs. 80,18,703/- out of administrative expenses, invoking Section 14A, as the assessee failed to establish that no expenditure was incurred for earning exempt income. The CIT(A) found that the interest was paid only to two banks for packing credit and investments were made out of surplus funds, thus no disallowance could be made out of interest paid. However, CIT(A) upheld a partial addition of Rs. 10 lacs for administrative expenses. The Tribunal set aside the matter to the AO to re-examine the claim in light of the Bombay High Court decision in Godrej & Boyce Manufacturing Co. Ltd. Vs DCIT.

2. Deletion of interest u/s 234D:
The AO charged interest u/s 234D amounting to Rs. 9,18,915/-. CIT(A) deleted the addition, stating that Section 234D was applicable w.e.f. 01.06.2003. The Tribunal upheld CIT(A)'s decision, referencing the Delhi High Court's ruling in DIT Vs M/s. Jacob Civil Incorporated, which held that Section 234D would not apply prior to Assessment Year 2004-05.

3. Deletion of addition on account of valuation of closing stock:
The AO valued the closing stock on the basis of cost price, resulting in an addition of Rs. 17,20,980/-. CIT(A) deleted the addition, relying on ITAT's decision for Assessment Year 1993-94. The Tribunal upheld CIT(A)'s decision, noting that the assessee consistently valued closing stock at cost price or market price, whichever was lower, a method accepted in earlier years.

4. Computation of deduction u/s 80HHC after considering the sale proceeds of DEPB license:
The AO disallowed the claim of deduction u/s 80HHC in respect of DEPB receipts. CIT(A) allowed the claim. The Tribunal set aside the issue to the AO to decide in light of the Bombay High Court's decision in CIT Vs Kalpataru Colour & Chemicals, which held that the entire amount of DEPB received must be excluded under clause (baa) of Explanation to Section 80-HHC.

5. Disallowance of depreciation on building:
The AO disallowed depreciation on the building, as the conveyance deed was not executed in favor of the assessee. CIT(A) allowed the claim, relying on the Supreme Court's decision in Mysore Minerals, which held that ownership for Section 32(1) purposes includes possession and dominion over the property. The Tribunal upheld CIT(A)'s decision, distinguishing it from the Tamil Nadu Civil Supply Corporation Ltd. case.

6. Disallowance of payments made to PF:
The AO disallowed payments made to PF, which CIT(A) upheld. The Tribunal deleted the disallowance, referencing ITAT's decision in the assessee's own case for Assessment Year 2003-04, which was upheld by the Delhi High Court. The Tribunal directed the AO to delete the addition.

Conclusion:
The appeals for Assessment Year 2002-03 are partly allowed for statistical purposes, and the Revenue's appeal for Assessment Year 2004-05 is dismissed.