2003 (3) TMI 319 - AT - Income Tax

Summary

Issues Involved:

1. Computation of deduction under section 80-IA concerning gross or net interest on fixed deposits with banks.
2. Valuation of closing stock.
3. Charging of interest under section 234B without specific mention in the assessment order.
4. Admissibility of additional grounds raised by the assessee.

Detailed Analysis:

1. Computation of Deduction under Section 80-IA:

The primary issue was whether the gross or net interest on fixed deposits with banks should be considered in the computation of deduction under section 80-IA. The Tribunal restored this issue to the file of the Assessing Officer, directing him to follow the directions given in a previous order related to the assessment year 1991-92.

However, there was a dissenting opinion regarding the eligibility of interest income on fixed deposits for deduction under section 80-IA. The Judicial Member opined that interest and dividend income, being assessed under the head 'other sources,' cannot be considered as income derived from profits and gains of business. This view was supported by multiple judgments, including those from the Supreme Court and High Courts, emphasizing that the expression 'derived from' has a narrow meaning and does not cover income from fixed deposits.

The Third Member, concurring with the Judicial Member, held that interest income on FDRs is not eligible for deduction under section 80-IA. The matter was resolved with the majority view that such interest income is not derived from an industrial undertaking and thus not eligible for the deduction.

2. Valuation of Closing Stock:

The assessee did not press this ground during the hearing. Consequently, the Tribunal dismissed this ground.

3. Charging of Interest under Section 234B:

The assessee raised an additional ground regarding the charging of interest under section 234B without specific mention in the assessment order. The Tribunal admitted this additional ground, referencing the Supreme Court judgment in the case of National Thermal Power Co. Ltd. v. CIT.

The Tribunal noted that the Supreme Court in Ranchi Club Ltd. had affirmed the principle that interest under sections 234A and 234B is levied on the tax declared in the return, not on the income determined by the Assessing Authority. Moreover, in the absence of specific mention in the assessment order, no interest could be recovered merely by demand notice.

After reviewing the assessment order, the Tribunal found no specific mention of charging interest under section 234B. Therefore, following the Supreme Court's judgment, the Tribunal held that the Assessing Officer was not justified in charging interest under section 234B, allowing the additional grounds raised by the assessee.

4. Admissibility of Additional Grounds:

The Tribunal admitted the additional grounds raised by the assessee, considering the substantial question of law involved and the Supreme Court's judgment in the case of National Thermal Power Co. Ltd. v. CIT.

Conclusion:

The appeal was allowed in part. The issue of computation of deduction under section 80-IA was restored to the Assessing Officer. The ground regarding the valuation of closing stock was dismissed as it was not pressed. The Tribunal held that the Assessing Officer was not justified in charging interest under section 234B without specific mention in the assessment order. The additional grounds raised by the assessee were admitted and succeeded.