2004 (9) TMI 330 - AT - Income Tax

Summary

Issues Involved:
1. Admission of Additional Ground of Appeal regarding interest under sections 234B and 234C of the Income-tax Act.
2. Deductions under sections 80HH and 80-I without deducting depreciation, unabsorbed losses, and unabsorbed depreciation.
3. Computation of book profit under section 115J of the Income-tax Act.
4. Charging of interest under sections 234B and 234C of the Income-tax Act.

Issue-Wise Detailed Analysis:

1. Admission of Additional Ground of Appeal:
The assessee requested the admission of an additional ground of appeal concerning the erroneous charging of interest under sections 234B and 234C on income computed under section 115J. The request was based on a legal precedent set by the Karnataka High Court in Kwality Biscuits Ltd. v. CIT. The Tribunal admitted this additional ground as no new evidence was required, and the facts were already on record.

2. Deductions under Sections 80HH and 80-I:
The assessee claimed that deductions under sections 80HH and 80-I should be allowed from profits and gains without deducting depreciation, unabsorbed losses, and unabsorbed depreciation. The Assessing Officer and CIT(A) denied these deductions, citing that the resultant figure of profit and gains was negative after deducting depreciation. The CIT(A) upheld this decision, referencing section 80AB and relevant case law, including decisions from the Kerala High Court and Supreme Court, which supported the view that deductions should be allowed from net income after considering all deductions.

The Tribunal, after reviewing various case laws and the scheme of the Act, concluded that the gross total income for Chapter VIA purposes means income after all deductions, including carried forward losses. Since the assessee's total income was negative, no deductions under Chapter VIA were allowed. The Tribunal upheld the CIT(A)'s order.

3. Computation of Book Profit under Section 115J:
The assessee objected to the computation of book profit under section 115J, arguing that the Assessing Officer wrongly substituted depreciation as per Schedule XIV of the Companies Act instead of the depreciation charged in the Profit & Loss Account as per Income-tax Rules. The CIT(A) confirmed the Assessing Officer's computation, stating that the depreciation should be calculated as per Schedule XIV and that the assessee's higher depreciation claim lacked bona fide technical evaluation.

The Tribunal reviewed the case laws, including the Hon'ble Supreme Court's decision in Surana Steels (P.) Ltd. v. Dy. CIT and the Gauhati High Court's decision in CIT v. Mech Technik India (P.) Ltd. The Tribunal concluded that the term 'loss' in section 205(1) of the Companies Act includes depreciation and that the book profit under section 115J should be computed after considering depreciation as per Schedule XIV. The Tribunal upheld the CIT(A)'s order on this ground.

However, there was a dissenting opinion from the Accountant Member, who argued that the Assessing Officer should not recast the profit and loss account for the relevant previous year and that the depreciation charged by the assessee was in conformity with the law. The Third Member, after reviewing the case, agreed with the Accountant Member, stating that the Assessing Officer had no authority to interfere with the accounts approved by the Board of Directors and filed with the Registrar of Companies. The Third Member held that the assessee had no book profit for section 115J purposes, and the appeal was allowed in favor of the assessee.

4. Charging of Interest under Sections 234B and 234C:
The assessee argued that interest under sections 234B and 234C should not be charged as the computation of income or book profit under section 115J could only be made at the end of the financial year. The Tribunal, referencing the Karnataka High Court's decision in Kwality Biscuits Ltd., held that interest under sections 234B and 234C is not chargeable in such cases. The Tribunal followed the principle that in case of ambiguity in a taxing provision, the interpretation favoring the assessee should be adopted. Hence, the Tribunal ruled that interest under sections 234B and 234C should not be charged.

Conclusion:
The appeal filed by the assessee was partly allowed. The Tribunal admitted the additional ground of appeal, upheld the CIT(A)'s order on deductions under sections 80HH and 80-I, and the computation of book profit under section 115J, but ruled in favor of the assessee regarding the charging of interest under sections 234B and 234C. The Third Member's opinion, agreeing with the Accountant Member, led to the final decision that the assessee had no book profit for section 115J purposes.