2012 (11) TMI 621 - AT - Income Tax

Addition of 10% of the unsecured loan as interest income. - assessee company advanced unsecured loan to another government company, viz. Trivandrum Rubber Works Ltd with an intention to take over the company. - Following the judgement of Tribunal in assessee s own case for assessment year 2004-05 and for the reasons stated therein addition 10% of the unsecured loan as interest income on account of interest on advance to Trivandrum Rubber Works Ltd is not justified Order of lower authorities are set aide and the addition is deleted Decided in favor of assessee. Disallowance of claim of loss on revaluation of spares as expenditure - Held that - The loss or gain, if any, in the revaluation would be notional in nature, therefore, the assessee may not have any funds for replacement of asset physically. Loss, if any, in the revaluation of the loose tools and implements would be capital in nature, therefore, the same cannot be allowed while computing the income as revenue expenditure- there is no infirmity in the order of the lower authority , the same is confirmed Decided against the assessee. Income from Agriculture operations - producing rubber products - Whether Sale value of scrap can be excluded from the turnover while computing income under Rule 7A of the I.T. Rules, 1962 - Held that - Order of the Tribunal is set aside and the issue is remitted back to the file of the assessing officer to verify whether the income from scrap is obtained in the course of agricultural operation, i.e. in the occurs of taking yield or whether it is natural scrap generated in producing rubber products covered by Rule 7A of the I.T. Rules and to assess the income from scrap accordingly - Assessing officer shall thereafter reframe the assessment order in accordance with law after giving reasonable opportunity of hearing to the assessee appeal allowed for statistical purposes.

Summary

Issues:
1. Disallowance of amount invested by the assessee in Trivandrum Rubber Works Ltd as unsecured loan.
2. Disallowance of claim of loss on revaluation of spares as expenditure.
3. Exclusion of sale value of scrap from turnover under Rule 7A of the I.T. Rules, 1962.

Analysis:

Issue 1: Disallowance of unsecured loan amount
The assessee invested in Trivandrum Rubber Works Ltd as an unsecured loan with the intention to take over the company. The assessing officer added 10% of the unsecured loan as interest income, which was challenged. The Tribunal, after considering previous rulings, found no basis for adding interest as receivable. The Tribunal held that the addition on account of interest on the advance to Trivandrum Rubber Works Ltd was not justified, and the lower authorities' orders were set aside.

Issue 2: Disallowance of loss on revaluation of spares
The assessee claimed a loss on the revaluation of spares as revenue expenditure. The revenue argued that the loss on revaluation of spares is a capital loss, as spares are considered capital assets. The Tribunal noted that the revaluation of spares was not clear from the records and that any loss or gain would be notional. The Tribunal held that the loss on revaluation of spares, being capital in nature, cannot be allowed as revenue expenditure. The order of the lower authority disallowing the claim was confirmed.

Issue 3: Exclusion of sale value of scrap from turnover
The matter was previously considered by the Tribunal and later remitted back to the assessing officer by the High Court for further verification. The Tribunal acknowledged the High Court's judgment and remanded the issue back to the assessing officer for reconsideration in light of the High Court's directions. The assessing officer was instructed to reframe the assessment order after considering the High Court judgment and giving a reasonable opportunity of hearing to the assessee.

In conclusion, the Tribunal allowed the assessee's appeal regarding the unsecured loan amount, partly allowed the appeal concerning the loss on revaluation of spares, and remitted the issue of exclusion of sale value of scrap back to the assessing officer for reconsideration based on the High Court's directions.