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1999 (7) TMI 113 - AT - Income Tax

Issues:
Claim of the assessee under s. 32AB.

Analysis:
The only issue in this appeal pertains to the claim of the assessee under section 32AB. The assessee had purchased new plant and machinery during the year under consideration, partly financed by a loan from a bank and the rest from its own funds. The AO disallowed the deduction claimed under s. 32AB, stating that the amount utilized for machinery was not from the income of the assessee. The CIT(A) upheld this decision. The assessee agreed that deduction should not be allowed for the borrowed amount or from reserves. However, the assessee argued that the entry made regarding the reserve account was a paper entry to meet legal requirements. The ITAT observed that the assessee is entitled to deduction only if the amount for machinery is from the income of the year, not from borrowed money or reserves. The ITAT concluded that the entry for writing off the reserve was a paper entry and should be ignored. The remaining amount used for machinery was from the normal funds of the business, derived from the profits of the year. The ITAT rejected the contention that profits accrue only at the end of the accounting year, emphasizing that the term "out of such income" in s. 32AB must be given meaning. Thus, the ITAT set aside the CIT(A) order and directed the AO to allow the claim under s. 32AB for the amount utilized from the business's profits.

In conclusion, the ITAT allowed the appeal of the assessee, emphasizing that the deduction under s. 32AB should be granted for the amount utilized from the business's profits, disregarding the paper entry for writing off reserves and rejecting the argument that profits accrue only at the end of the accounting year.

 

 

 

 

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