2010 (1) TMI 1310 - AT - Income Tax

Summary

Issues:
1. Disallowance of Rs.1,66,74,500 towards obsolete/non-moving material written off.
2. Tax treatment of premium on redemption of debentures - revenue receipt or capital gains.

Issue 1: Disallowance of Rs.1,66,74,500 towards obsolete/non-moving material written off:
The appeal was filed by the assessee-company challenging the disallowance of Rs.1,66,74,500 towards obsolete/non-moving material written off. The CIT(A) confirmed the disallowance. The assessee contended that the issue was decided in their favor in earlier years by the ITAT. The Tribunal noted that the first issue was decided in favor of the assessee in the past and set aside the second issue for further consideration by the Assessing Officer. The Tribunal upheld the CIT(A)'s order regarding ground Nos. 2 and 3, but set aside the disallowance of Rs.1,66,74,500 related to ground No.1. Consequently, the appeal was partly allowed in this regard.

Issue 2: Tax treatment of premium on redemption of debentures - revenue receipt or capital gains:
The second issue revolved around the tax treatment of the premium on redemption of debentures amounting to Rs.6,44,42,000. The CIT(A) treated the premium as a revenue receipt taxable under "Income from other sources," while the assessee argued that it should be taxed under 'capital gains.' The Tribunal observed that the CIT(A) had followed his earlier order for the assessment year 2004-2005, where the issues were decided against the assessee. The Tribunal upheld the CIT(A)'s decision on this matter, stating that the premium on redemption of debentures should be taxed under 'Income from other sources.' As a result, the appeal was partly allowed, confirming the tax treatment of the premium as a revenue receipt.

In conclusion, the Appellate Tribunal ITAT MUMBAI, in the cited judgment, addressed the issues of disallowance of obsolete/non-moving material written off and the tax treatment of the premium on redemption of debentures. The Tribunal partly allowed the appeal filed by the assessee-company, upholding the tax treatment of the premium as a revenue receipt and setting aside the disallowance related to obsolete/non-moving material.