Tuesday, Apr 08, 2003
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By Our Staff Correspondent
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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