2008 (1) TMI 468 - AT - Income Tax

Issues Involved:
1. Deduction of Rs. 2,54,53,425 for purchase tax on alcohol.
2. Deduction of Rs. 82,65,936 for actual payment of purchase tax.
3. Addition of Rs. 51,000 as notional interest on advance to M/s Chetake Construction.
4. Addition of Rs. 5 lacs as notional interest on inter-corporate deposits.
5. Disallowance of Rs. 75,000 from staff welfare expenses.
6. Addition of Rs. 2,72,26,096 and Rs. 17,72,671 to book profit under section 115JA.
7. Credit for tax deducted at source (TDS) and interest under section 244A.
8. Withdrawal of interest of Rs. 17,435 under section 244A.

Issue-wise Detailed Analysis:

1. Deduction of Rs. 2,54,53,425 for Purchase Tax on Alcohol:
The AO noted that the assessee credited Rs. 2,54,53,425 in its P&L account as purchase tax written back but reduced this amount while computing taxable income. The assessee argued that this was a book entry and not real income, pending a High Court decision. However, the AO treated this as income, which was confirmed by the CIT(A), citing section 41(1) of the IT Act, 1961. The Tribunal held that the amount was not taxable as income under section 41(1) since there was no remission or cessation of liability by the State Government, and no real income was generated by the book entry.

2. Deduction of Rs. 82,65,936 for Actual Payment of Purchase Tax:
The assessee paid Rs. 82,65,936 as purchase tax and claimed it as a deduction, later writing it back. The Tribunal ruled that since the amount was paid and no refund was received, it was an allowable deduction, and the reversal did not constitute income under section 41(1).

3. Addition of Rs. 51,000 as Notional Interest on Advance to M/s Chetake Construction:
The AO added Rs. 51,000 as notional interest on an advance of Rs. 5,08,919 to M/s Chetake Construction, assuming fund diversion. The Tribunal, following its earlier decision for AY 1997-98, restored the matter to the AO to examine the nature of the transaction and decide accordingly.

4. Addition of Rs. 5 lacs as Notional Interest on Inter-Corporate Deposits:
The AO added Rs. 5 lacs as notional interest on a deposit of Rs. 50 lacs. The Tribunal, following its earlier decision, restored the issue to the CIT(A) to re-examine the facts and decide based on the final outcome of the principal amount's addition.

5. Disallowance of Rs. 75,000 from Staff Welfare Expenses:
The AO disallowed Rs. 75,000 from staff welfare expenses on an estimated basis, citing unverifiable vouchers. The Tribunal, following its earlier decision, restricted the disallowance to Rs. 65,000, considering similar facts and circumstances.

6. Addition of Rs. 2,72,26,096 and Rs. 17,72,671 to Book Profit under Section 115JA:
The assessee reduced these amounts from book profit while computing income under section 115JA, claiming them as notional income. The Tribunal restored the issue to the AO to re-examine the claim in light of the Supreme Court's decision in Apollo Tyres Ltd. and decide accordingly.

7. Credit for Tax Deducted at Source (TDS) and Interest under Section 244A:
The Tribunal directed the AO to verify the TDS claim, give appropriate credit, and allow interest under section 244A on excess tax received from the assessee.

8. Withdrawal of Interest of Rs. 17,435 under Section 244A:
The Tribunal allowed this ground for statistical purposes, directing the AO to verify and adjust the interest under section 244A.

Conclusion:
The appeal was partly allowed, with some issues restored to the AO or CIT(A) for re-examination and others decided in favor of the assessee. The Tribunal emphasized the importance of real income and proper verification of claims.

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