2010 (9) TMI 897 - AT - Income Tax

Expenditure incurred in relation to income not includible in total income, Business disallowance, Deductions - Profits and gains from industrial undertakings other than infrastructure development undertakings,

Summary

Issues:
1. Disallowance of payment made by the assessee in the PF and ESI accounts before the due date of filing of the returns.
2. Exclusion of interest income from eligible profit while computing the deduction admissible under section 80-IB of the Act.
3. Disallowance of expenses under section 14A of the Act for earning exempt income.

Issue 1: Disallowance of Payment in PF and ESI Accounts:
The dispute revolved around whether the learned CIT(A) was justified in directing the Assessing Officer to allow the payment made by the assessee in the PF and ESI accounts before the due date of filing the returns. The Assessing Officer disallowed the payments under section 36(1)(va) of the Income-tax Act, stating they were not made within the limitation provided in the PF Act and ESI Act. However, the learned CIT(A) deleted the disallowance, citing the Hon'ble Delhi High Court's decision that if payments were made before the due date of filing the return, no disallowance should be made under section 43B of the Act. The ITAT Delhi upheld the decision, stating the payments were made before the due date of filing the returns, thus dismissing the revenue's appeals.

Issue 2: Exclusion of Interest Income for Section 80-IB Deduction:
The first issue in the assessee's appeal concerned the exclusion of interest income from eligible profit for computing the deduction under section 80-IB of the Act. The ITAT Delhi referred to a previous order where they upheld the exclusion of interest income earned on deposits for availing CC facility or margin money for a letter of credit as income from other sources. The Assessing Officer disallowed the deduction under section 80-IB for this interest income, relying on relevant judgments. The ITAT Delhi declined to interfere with the learned CIT(A)'s decision, stating that interest income, though related to the industrial undertaking, was not derived directly from it, hence not eligible for deduction under section 80-IB.

Issue 3: Disallowance of Expenses under Section 14A for Exempt Income:
The final issue involved the disallowance of expenses of Rs. 22,20,155 under section 14A of the Act for earning exempt income. The Assessing Officer computed the disallowance using Rule 8D of the Income-tax Rules, based on a Tribunal decision. However, the ITAT Delhi noted that the Tribunal decision had not been approved by the Hon'ble Bombay High Court for prospective application from assessment year 2008-09. Therefore, the ITAT Delhi set aside the issue to the file of the Assessing Officer for fresh computation of expenses related to exempt income. Consequently, the appeals filed by the revenue were dismissed, while the assessee's appeal was allowed for statistical purposes.