2001 (1) TMI 228 - AT - Income Tax

Summary

Issues:
1. Dispute over the direction to allow depreciation and interest to third parties out of income computed by applying N.P. rate of 10%.
2. Dispute over the direction to charge interest on receipt basis in respect of fixed deposits.

Issue 1:
The appeal by Revenue challenged the CIT(A)'s direction to allow depreciation and interest to third parties based on a net profit (N.P.) rate of 10%. The Revenue contended that the challenge was against the reduction of N.P. rate from 11% to 10%, citing a Tribunal decision applying a 12.5% N.P. rate. The assessee argued that the CIT(A) deemed 10% N.P. rate reasonable for allowing depreciation and interest, emphasizing that the challenge raised by the Revenue did not concern the reasonableness of the N.P. rate. The Tribunal analyzed the Department's ground and found it targeted the allowance of depreciation and interest, not the N.P. rate's reasonableness. Referring to a High Court decision, the Tribunal upheld the CIT(A)'s order on allowing depreciation and interest, concluding that no interference was warranted.

Issue 2:
The second ground of dispute involved the CIT(A)'s direction to charge interest on fixed deposits on a receipt basis. The Revenue argued for interest to be charged on an accrual basis due to the assessee's mercantile accounting system, highlighting difficulties in tracking interest upon FDR maturity and redeposit without disclosure. The assessee supported the CIT(A)'s decision, aligned with a Tribunal precedent. The Tribunal reviewed the record and noted the CIT(A) followed a Tribunal decision from a prior year, directing interest to be charged on FDRs based on actual receipt. Considering the assessee's practice of crediting interest upon receipt by the bank, the Tribunal deemed the CIT(A)'s direction justified, dismissing the Revenue's appeal accordingly.