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SC rules in favour of Tata Chem

By Our Staff Correspondent

MUMBAI APRIL 7. The Supreme Court last week ruled in favour of Tata Chemicals with respect to claims worth Rs. 400 crores and rejected the demands of the Income-tax Department. According to a Tata Chemicals release, the claims by the income tax authorities pertain to interest expenses capitalised by Tata Chemicals during 1991-92 which the IT authorities felt was not a tax deductible expenditure.

In 1990-91, Tata Chemicals had decided to diversify into fertilizers, the source of funds were both internal accruals and debt.

According to the prevailing accounting rules, interest paid on debt raised for the purpose of expansion / diversification can be capitalised in the books till the asset is put to use.

Tata Chemicals, for the first time, claimed interest capitalised in the books of accounts for the assessment year 1992-93 as deductible revenue expenses. Similar claims were made later for subsequent assessment years up to assessment year 2002-03.

However, the income-tax assessing officer had disallowed this stance of Tata Chemicals and raised huge tax demands. Last week, the Supreme Court upheld the decision of the High Court and ruled in favour of Tata Chemicals.

In effect, the order removes a potential liability and therefore the company will no longer be required to disclose contingent liability in its notes to the accounts.

The effect of the order is both profit and cash neutral to the company, the release added.

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