2001 (10) TMI 262 - AT - Income Tax

Summary

Issues:
1. Computation of interest income on maturity of FDRs.
2. Treatment of expenditure incurred towards approach road and klin chimney.

Analysis:

*Issue 1: Computation of interest income on maturity of FDRs*
The appeal by the Department concerns the CIT(A)'s direction to consider interest income on the maturity of Fixed Deposit Receipts (FDRs) for the assessment year 1992-93. The Assessing Officer (AO) noted that the accrued interest was reported at Rs. 9,000, but believed it to be higher based on the standard 10% interest rate per annum for long-term deposits. Consequently, the AO added Rs. 22,000 as interest income on an estimated basis. The Departmental Representative contended that the CIT(A) erred in instructing the AO to include the interest income on FDR maturity. The ITAT examined the situation and found that the AO should have verified the actual interest rate offered by the bank where the deposits were made, rather than making assumptions. As the assessee followed the mercantile system of accounting, interest should have been credited annually on an accrual basis. Therefore, both the AO and CIT(A) were deemed to have erred in calculating the interest income. The ITAT set aside the orders of the lower authorities and remanded the matter to the AO for a fresh inquiry to determine the actual interest rate offered by the bank and include it on an accrual basis, providing the assessee with an opportunity to present evidence.

*Issue 2: Treatment of expenditure towards approach road and klin chimney*
The second ground of appeal challenges the CIT(A)'s deletion of Rs. 35,180 in expenses. The AO categorized this amount, spent by the assessee on an approach road and klin chimney, as capital expenditure and disallowed it. However, the CIT(A) reviewed the expenditure details and concluded that they were not capital in nature but rather incurred for generating income from the brick business. The Departmental Representative supported the AO's decision, but the ITAT upheld the CIT(A)'s order after examining that the expenses were related to repairs and hire charges, not capital assets. Since there was no evidence to suggest that these expenses resulted in acquiring enduring capital assets, the ITAT confirmed the CIT(A)'s decision to delete the Rs. 35,180 expenses. Consequently, the Department's appeal was partially allowed.

In conclusion, the ITAT's judgment addressed the issues of interest income computation on FDR maturity and the treatment of specific expenses, providing detailed reasoning for its decision in each case.