2010 (10) TMI 761 - AT - Income Tax

Addition - Classification of interest on inter-corporate deposits interest on bank FDRs (after setting off against interest paid) and interest on bonds and securities as income from other sources - the issue also covered against the assessee by the decision of Hon ble Delhi High Court in the case of C.I.T. vs. Shri Ram Honda Equipment (2007 -TMI - 2891 - HIGH COURT DELHI) Custom duty draw back - Accrued during the relevant assessment year - There is no dispute to the well settled legal proposition that even under accrual system of accounting till the assessee get right to receive the income the same cannot be brought to tax. Unless the concerned department intimate the acceptance of claim of the assessee the assessee do not acquire any right to receive the same. - decided in favor of assessee. levy of interest u/s 234B - the assessee submitted detailed submissions and case laws for the proposition that interest was not leviable. Moreover he also submitted that he has given elaborate submissions before the Ld. Commissioner of Income Tax (Appeals) - But Ld. Commissioner of Income Tax (Appeals) has not addressed all the submissions -Further find that Ld. Commissioner of Income Tax (Appeals) s order is a laconic order on this issue - Accordingly remit this issue to the files of Ld. Commissioner of Income Tax (Appeals) to consider the issue afresh and pass a proper and speaking order. Disallowance u/s 43B (actual payment clause)- adjustment amounts to actual payment - Even the learned counsel for revenue has no objection to such contention provided such deduction was not allowed in the preceding year since double deduction of the same amount cannot be allowed - Considering the same the order of Ld. Commissioner of Income Tax (Appeals) is modified and the matter is remitted to the file of Assessing Officer who shall allow the alternate claim of assessee after verification if such deduction was not allowed in the preceding year - Since it has been held that advance payment did not represent the payment of excise duty the question of including the same in the closing stock does not arise - Therefore finding of Ld. Commissioner of Income Tax (Appeals) to that effect is vacated. Interest u/s 234D - As per the the decision of the Delhi Tribunal in the case of M/s Glaxo Smithkline Asia (P) Ltd. vs. ACIT (2005 -TMI - 64215 - ITAT DELHI-C) tribunal held that the law dealing with the imposition of interest u/s 234D is substantive law and not procedural law and hence interest under this section cannot be charged in respect of assessment years prior to the coming into force of section 234D i.e. 1.6.2003. Hence he directed that interest u/s 234D would not be chargeable - Decided in favour of assessee.

Issues Involved:
1. Classification of interest income.
2. Addition on account of custom duty drawback.
3. Withdrawal of interest granted under Section 244A.
4. Levy of interest under Section 234B.
5. Levy of interest under Section 220(2).
6. Deletion of disallowance under Section 43B.
7. Deletion of addition on account of warranty provision.
8. Applicability of Section 234D.

Issue-wise Detailed Analysis:

1. Classification of Interest Income:
The first common issue pertains to the classification of interest on inter-corporate deposits, interest on bank FDRs (after setting off against interest paid), and interest on bonds and securities as 'income from other sources' as opposed to 'income from business' as claimed by the assessee. The Tribunal upheld the decision of the Ld. Commissioner of Income Tax (Appeals), noting that this issue had been decided against the assessee by the Hon'ble Delhi High Court in the assessee's own case for A.Y. 1985-86 and followed in subsequent years.

2. Addition on Account of Custom Duty Drawback:
The issue pertains to the addition made on account of custom duty drawback alleged to have accrued to the assessee during the relevant assessment years. The Tribunal noted that the ITAT had previously remanded this issue to the Assessing Officer to verify when the claim of the assessee was accepted. The Tribunal found no material to substantiate that the claim lodged by the assessee had actually been accepted by the government department, thus giving rise to accrual of income during the year under consideration. The issue was decided in favor of the assessee.

3. Withdrawal of Interest Granted Under Section 244A:
The issue raised was the withdrawal of interest granted under Section 244A for A.Y. 1992-93, 1994-95, 1996-97, and 1998-99. Both counsels agreed that this is consequential to the final tax liability.

4. Levy of Interest Under Section 234B:
The issue pertains to the levy of interest under Section 234B of the IT Act. The Ld. Commissioner of Income Tax (Appeals) directed the Assessing Officer to charge interest under Section 234B after giving effect to the appeal order. The Tribunal found the order of the Ld. Commissioner of Income Tax (Appeals) to be laconic and remitted the issue back to the Ld. Commissioner of Income Tax (Appeals) to consider the issue afresh and pass a proper and speaking order.

5. Levy of Interest Under Section 220(2):
The issue pertains to the levy of interest under Section 220(2) of the IT Act. The Ld. Commissioner of Income Tax (Appeals) held that interest under Section 220(2) is chargeable on government money which is due and has not come into government account. The Tribunal remitted the issue to the files of the Assessing Officer to consider the issue afresh in light of the assessee's submission and to factually verify the veracity of the various orders, amounts, and dates mentioned therein.

6. Deletion of Disallowance Under Section 43B:
The issue raised by the revenue was whether the Ld. Commissioner of Income Tax (Appeals) was justified in deleting the disallowance made by the Assessing Officer under Section 43B (actual payment clause) for various assessment years. The Tribunal noted that the issue was covered in favor of the assessee by ITAT orders for previous years and remitted the matter to the file of the Assessing Officer to delete/modify/confirm the addition in accordance with findings given in those orders.

7. Deletion of Addition on Account of Warranty Provision:
The issue pertains to the deletion of addition made by the Assessing Officer on account of warranty provision. The Ld. Commissioner of Income Tax (Appeals) found that the basis of computing the warranty expenditure on an accrual basis adopted by the assessee was scientific and allowed the claim. The Tribunal upheld this decision, noting that the method for computing warranty expenditure is on a scientific basis and is consistent with the judgments of the Hon'ble Apex Court and other case laws.

8. Applicability of Section 234D:
The issue pertains to whether Section 234D is procedural law and applicable to the computation of interest for the period after 1.6.2003, notwithstanding the assessment year involved. The Ld. Commissioner of Income Tax (Appeals) referred to the decision of the Delhi Tribunal and held that Section 234D is substantive law and cannot be charged for assessment years prior to 1.6.2003. The Tribunal upheld this decision, following the precedent set by the Hon'ble Jurisdictional High Court.

Conclusion:
The appeals filed by the assessee were partly allowed for statistical purposes, and the revenue appeals were also partly allowed for statistical purposes. The Tribunal pronounced the order in the open court on 29.10.2010.

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