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These are the latest case laws decided by various Income Tax Appellate Tribunals (ITAT) of India on Income Tax which have been published recently. The case laws are open for discussion and we invite expert comments from our members on its applicability and effect on relevant issues.

07-11-2019, A.G. Industries, Section 14A, 80IC, Tribunal Delhi

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4 days 14 hours ago #11356 by amit
Section - 14A, 80IC, 80HH, 93, 80-IB
Order Date - 07-11-2019
Favouring - Partly
Court - Tribunal Delhi
Appellant - A.G. Industries Pvt. Ltd.
Respondent - ACIT
Justice - H.S. SIDHU JM & ANADEE NATH MISSHRA AM
Citation - 1119Taxpundit91
Appeal No. - ITA No:- 4657/Del/2016
Asstt. Year - 2012-13

Order

PER : ANADEE NATH MISSHRA, AM

A]. This appeal has been filed by the assessee against the order dated 24.06.2016 passed by Learned Commissioner of Income Tax(Appeals)-I New Delhi [in short “Ld.CIT(A)”] pertaining to assessment year 2012-13. The Assessee has raised following grounds of appeal:-

1. That order passed u/s 250(6) of the Income Tax Act, 1961 is against law and facts on the file in as much as the Ld. Commissioner of Income Tax (Appeals) was not justified to arbitrarily uphold disallowance u/s 14A read with Rule 8D amounting to Rs. 7,24,291/- pertaining to the taxable unit of the appellant and Rs. 6,48,149/- pertaining to exempted Haridwar unit (Total Rs. 13,72,440/-).

2. That the Ld. Commissioner of Income Tax (Appeals) was further not justified to uphold action of the Ld. Assessing Officer in disallowance of deduction u/s 80-IC amounting to Rs. 28,81,388/-.

3. That the Ld. Commissioner of Income Tax (Appeals) was further not justified in upholding the action of the Ld. Assessing Officer in not allowing deductions u/s 80-IC on disallowed amount of Rs. 6,48,149/- u/s 14A.

. Assessment order dated 27.3.2015 was passed by the AO under section 143(3) of the Income Tax Act, 1961. In this assessment order, the Assessing Officer made a further disallowance of Rs. 13,72,440/- under section 14A of the Income Tax Act r.w.r. 8D Income Tax Rules in addition to suo moto disallowance of Rs. 01,18,44,660/- made by the assessee under section 14A. Further the Assessing Officer disallowed an amount of Rs. 28,81,388/- out of deduction under section 80IC of Income Tax Act, 1961 amounting to Rs. 32,49,88,100/- claimed by the assessee. The relevant portions of the assessment order as reproduced below for ease of reference:- Disallowance u/s 14A read with Rule 8D

During the year assessee has earned exempt income/Dividend income of Rs.2,33,42,646/- and made disallowance of Rs. 1,18 44,660/- on account of expenditure incurred in relation to the said income u/s 14A. Out of this disallowances of Rs. 50,86,500/- has been made in Taxable Units and Rs. 67,58,160/- in Exempt Unit. In this connection the assessee has submitted detailed working of disallowances u/s 14A made as per computation of income. Submission / calculation of the assessee is analyzed in light of the method prescribed as per Rule-8D of the I.T. Rules, in the following table.

4] Disallowances on account of excess claim of deduction u/s 80 IC As per form 10 CCB the assessee has claimed deduction u/s 80 IC in Haridwar Unit to the tune of Rs. 32,49,88,100/-. The said deduction has been claimed on profit and gains of Rs.36,22,45,554/-. The said profit and gains include other income (interest) of Rs. 28,81,388/-. The assessee was asked to explain that why deductions u/s 80 IC should not be disallowed on other income (interest) of Haridwar Unit.

Assessee vide letter dated 16.03.2015 submitted that the assessee has earned interest at Rs. 2881388/-from the FDRs etc which are prepared for margin money etc. Otherwise also, it is pertinent to mention that the assessee has paid huge Finance Cost (i.e. Interest) for the said Eligible unit. The interest earned is less than the interest Paid and the assessee could have shown the Net Interest after set off the same within the interest head. It is also not out of place to mention here that the interest income earned would have not been there had the funds not invested and were utilized directly for the eligible business and would have reduced the Finance Cost (Interest paid).Therefore, the Interest Earned is actually, in view of the above discussions, is part and parcel of the income derived from the eligible Unit only. It is a matter of presentation only. Notwithstanding anything contrary to here in above, had there been no Interest expenses and only Interest Income, it can be said that the assessee had earned Interest purely on investments.

The explanation of the assessee is not acceptable Section 80IC of the Income Tax Act, 1961 provides that,

“(1) Where the gross total income of an assessee includes any profits and gain derived by an undertaking or an enterprise from any business referred to in sub-section (2), there shall in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains, as specified in subsection (3).

(3) The deduction referred to in sub-section (1) shall be-(i) in the case of any undertaking or enterprise refer ed to in sub-clauses (i) and (iii) of clause (a) of sub-clauses (i) and (iii) of clause (B), of sub-section (@), one hundred percent of such profits and gains for ten assessment years commencing with the initial assessment year;

(ii) in the case of any undertaking or enterprise referred to in sub-clauses

(ii) of clause (a) of sub-clauses (ii) of clause (b) of sub-section (2), one hundred percent of such profits and gains for five assessment years commencing with the initial assessment year and thereafter twenty- five percent of profit and gains.

As per above, it is established that the deduction u/s 80IC of IT' Act, 1961 shall be allowed on the profits and gains from business. However the interest income earned shall be taxed under ‘Income from Other Sources’. Hence, it is clear that interest from fixed deposits is not entitled for deduction u/s 80IC of the Act. Reliance is placed in the case of Pandian Chemicals Ltd. Vs. CIT [262 ITR 278 (SC)], wherein the apex court held that ‘Derivation of interest on profits on deposit with the Electricity Board could not be said to be flowing directly from the industrial undertaking and, therefore, deduction under section 80HH could not be allowed in respect thereof.”

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