2011 (12) TMI 717 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of interest u/s 36(1)(iii)/14A.
2. Disallowance of deferred revenue expenditure.
3. Levy of interest u/s 234A, 234B, and 234C.
4. Allowance of deduction u/s 80IA.
5. Allowance of deduction u/s 80IA on scrap sale and commission received on late payment.
6. Allowance of depreciation on old plant & machinery.
7. Penalty u/s 271(1)(c).

Summary:

Issue 1: Disallowance of interest u/s 36(1)(iii)/14A
During the assessment proceedings, the AO disallowed the interest claimed by the assessee, noting loans and advances to related parties and investments in shares. The CIT(A) confirmed this disallowance. The Tribunal found that the AO did not specify the timing of the investments and the availability of surplus funds. The Tribunal referred to the decisions in CIT vs. Reliance Utilities & Powers Ltd. and Chemiinvest Ltd. vs. ITO, remitting the matter back to the AO for re-examination.

Issue 2: Disallowance of deferred revenue expenditure
The AO disallowed a sum of Rs. 1,14,240/- following the assessment order for A.Y 2003-04, which was confirmed by the CIT(A). The Tribunal referred to its earlier decision for A.Y 2003-04, where the expenditure was allowed as revenue expenditure, and directed the AO to allow the expenditure.

Issue 3: Levy of interest u/s 234A, 234B, and 234C
The Tribunal noted that the issue is consequential and directed the AO to levy interest as per the provisions of the Act.

Issue 4: Allowance of deduction u/s 80IA
The AO disallowed the deduction u/s 80IA, noting that the old machinery purchased exceeded 20% of the total value. The CIT(A) allowed the deduction, agreeing with the assessee's submission that the condition regarding old machinery applies only in the initial year. The Tribunal confirmed the CIT(A)'s decision, referring to the decisions in CIT vs. Nippon Electronics (India) Ltd. and ITO vs. Laxmi Packers.

Issue 5: Allowance of deduction u/s 80IA on scrap sale and commission received on late payment
The AO disallowed the deduction on scrap sale and commission on late payment. The CIT(A) allowed the deduction, referring to the decisions in Nirma Inds. vs. DCIT and DCIT vs. Harjivandas Juthabhai Zaveri And Another. The Tribunal confirmed the CIT(A)'s decision.

Issue 6: Allowance of depreciation on old plant & machinery
The AO invoked Explanation 3 of sec.43[1], disallowing depreciation on the machinery purchased from a sister concern. The CIT(A) allowed the depreciation, noting that the extra cost was due to excise duty and sales tax. The Tribunal confirmed the CIT(A)'s decision.

Issue 7: Penalty u/s 271(1)(c)
The AO levied a penalty due to disallowance of interest and deferred revenue expenditure. The CIT(A) allowed relief for the deferred revenue expenditure but confirmed the penalty for the interest disallowance. The Tribunal set aside the penalty proceedings, remitting the issue back to the AO for reconsideration after the set aside proceedings.

Conclusion:
The assessee's appeals in I.T.A.Nos.6200/Mum/2007 & 2289/M/2010 are allowed for statistical purposes, while the Revenue's appeal in I.T.A.No.6647/Mum/2007 is dismissed.