[2020] 116 taxmann.com 851 (Cochin – Trib.)

I Rule 7A talks about computation of income derived from sale of centrifuged latex or cenex or latex based crepes, etc; said rule does not talk about taxability of income from sale of old rubber trees – Thus, sale proceeds on sale of rubber trees and timber cannot be brought to tax under Rule 7A of I.T. Rules

• Assessee earned exempt income of Rs.6.59 lakhs – Against total investment of Rs.4.17 crores in mutual funds of sister concerns, interest bearing funds were to tune of Rs.22.17 crores – Assessing Officer disallowed interest amounting to Rs.18.43 lakhs under section 14A, read with rule 8D of Income Tax Rules, 1962 – Held, that Rule 8D was introduced with effect from 24-3-2008 and it was prospective in operation and same cannot be applied retrospectively in relevant assessment year 2006-07 – Thus, Assessing Officer was to be directed to disallow only 2% of expenses incurred towards exempted income.

• In view of retrospective amendment introduced by Finance Act No. 2, 2009 by introducing clause (i)(c), amount set aside as provision for diminution in value of investment is to be added back to book profit as shown in profit and loss account.

• Assessee made provision for lease rent of Rs. 61 lakh as unascertained liability – Though liability was crystallized in year in which order of State Government was passed, contention of assessee was that it was following mercantile system of accounting and therefore, provision was to be allowed – Held, that such liability could not be allowed merely in view of mercantile system of accounting followed by assessee; provision for lease rent was unascertained liability in assessment year under consideration and it was to be allowed in year of crystallization of expenditure.

• Assessee incurred interest expenses on delayed payments of Agricultural Income Tax (AIT) demanded by State AIT Department – Assessee claimed deduction contending that payment of interest under AIT Act had arisen on account of scheme of amalgamation approved by High Court wherein some other companies were amalgamated with assessee – Held, that any amount payable for default committed by assessee in discharging its statutory obligation under Agricultural Income Tax cannot be allowed as a deduction; mere approval of amalgamation by High Court won’t confer any entitlement for allowability of such an expenditure.

Aspinwall and Co. Ltd.