2014 (7) TMI 896 - AT - Income Tax

Calculation of book profits u/s 115JB - Interest expenses disallowed as unascertained liability - Held that - Whether the interest liabilities constitutes ascertained one or not is also linked to the issue of rejection of books of accounts as the books of account is the basis for computation of book profits u/s 115JA of the Act - Following the decision in Hitesh S. Mehta Versus DCIT Central Circle- 23, Mumbai 2013 (10) TMI 1065 - ITAT MUMBAI - the issue is to be remitted back to the CIT (A) for fresh adjudication Decided in favour of assessee. Interest u/s 234A, 234B and 234C Applicability of interest on notified persons - Held that - The issue relating to the deduction of interest expenditure is remitted to the CIT (A) for fresh adjudication thus, the liability of the assessees u/s 234A, 234B and 234C depends upon the proposed adjudication of the CIT (A) in the set aside proceedings Decided in favour of Revenue.

Summary

Issues Involved:
1. Assessment year 2007-08 - Appeals against order of CIT (A)-40, Mumbai.
2. Disallowance of interest expenditure and depreciation expense.
3. Calculation of book profit u/s 115JB.
4. Chargeability of interest u/s 234A, 234B, and 234C of the IT Act, 1961.

Analysis:

Issue 1: Disallowance of Interest Expenditure and Depreciation Expense
The ITAT, Mumbai considered two cross-appeals against the CIT (A)'s order for the assessment year 2007-08. The appeals were clubbed due to interlinked issues. The ITAT addressed various grounds raised by the assessee, including the disallowance of interest expenditure and depreciation expense. The assessee's counsel did not press some grounds, which were subsequently dismissed. Grounds 4 and 6 were interconnected regarding the disallowance of interest expenditure. The ITAT referred to a previous case and set aside the issue for fresh adjudication by the CIT (A) to consider the rejection/reliability of the books of account. The ITAT held that the issue of interest liabilities should be reconsidered after granting a reasonable opportunity to the assessee. An additional ground raised by the assessee concerning the taxation of income was rejected as having no substance. The assessee's appeal was partly allowed for statistical purposes.

Issue 2: Calculation of Book Profit u/s 115JB
The ITAT noted that the calculation of book profit u/s 115JB was linked to the issue of rejection of books of accounts. The ITAT set aside the relevant grounds for fresh adjudication by the CIT (A) after considering a previous decision. The ITAT directed that a decision should be made only after reviewing the decision in the referenced case. Grounds 4 and 6 were consequently set aside for further consideration.

Issue 3: Chargeability of Interest u/s 234A, 234B, and 234C
In a separate appeal by the Revenue, the issue revolved around the chargeability of interest u/s 234A, 234B, and 234C of the IT Act, 1961. The Revenue contended that the CIT (A) erred in holding that the assessee, a notified person under a specific Act, was not liable to pay interest under these sections. The ITAT decided to set aside the grounds raised by the Revenue, considering the consequential nature of the issues pending adjudication by the CIT (A). The appeal of the Revenue was allowed for statistical purposes.

In conclusion, the ITAT's detailed analysis and decisions on the various issues raised in the appeals provided clarity on the disallowance of interest expenditure, calculation of book profit, and the chargeability of interest under specific sections of the IT Act, 1961. The judgments highlighted the importance of proper adjudication and consideration of relevant legal provisions in determining the tax liabilities of the parties involved.