2014 (9) TMI 962 - AT - Income Tax

Disallowance of claim of deduction under section 80-IC - non-timber forest product based industries - Held that - The assessee is producing limestone powder in the State of Himachal Pradesh and the lime rocks which is raw material of the assessee is found only in the forests and the Government of Himachal Pradesh has allowed such activity to the assessee. Limestone is therefore a non-timber forest product. Schedule XIV (Part C, Item No. 18) provides deduction to non-timber forest product based industries , which is limestone, is specifically included in the forest produce and is a non-timber forest products. It is a cardinal principle of interpretation of statutes that the words of the statute must be understood in their natural, ordinary or popular sense and construed according to their grammatical meaning. The words of a statute must, prima facie be given their ordinary meaning. Since in Schedule XIV the item- non-timber forest product based industries is mentioned, it would definitely include manufacturing of limestone powder in the State of Himachal Pradesh and as such claim of the assessee under section 80-IC should have been allowed by the authorities below. Accordingly, we set aside the orders of the authorities below and allow the claim of the assessee of deduction under section 80-IC - Decided in favour of assessee. Addition on account of household expenses - Held that - Assessee has agricultural holding which is explained in the document of the agricultural land to be under cultivation would suggest that some benefit of agricultural income earned by the assessee, can be given to the assessee. Therefore estimate made by the assessee of earning agricultural income at ₹ 1,60,000 the assessee can be given benefit of agricultural income in a sum of ₹ 80,000 only. The assessee thus would be entitled for meeting out household expenses out of agricultural income in a sum of ₹ 80,000 only. Thus the addition of ₹ 2,40,000 made by the authorities below would be reduced to ₹ 1,60,000. - Decided partly in favour of assessee.

Summary

Issues:
1. Disallowance of claim of deduction under section 80-IC of the Income-tax Act.
2. Addition of household expenses.

Issue 1: Disallowance of claim of deduction under section 80-IC of the Income-tax Act:

The assessee challenged the disallowance of deduction under section 80-IC amounting to Rs. 14,35,198 before the Commissioner of Income-tax (Appeals). The Assessing Officer rejected the claim stating that limestone extraction does not fall under non-timber forest products. The Commissioner of Income-tax (Appeals) upheld this decision, emphasizing that the assessee did not fulfill the conditions specified in Schedule XIV. The Appellate Tribunal, however, disagreed with the lower authorities. Referring to the Indian Forest Act and the Industrial Policy of Himachal Pradesh, the Tribunal concluded that limestone, being a forest produce, qualifies as a non-timber forest product. The Tribunal held that the assessee's claim under section 80-IC should have been allowed as limestone powder production falls under "non-timber forest product based industries" as per Schedule XIV.

Issue 2: Addition of household expenses:

The Assessing Officer added Rs. 2,40,000 as household expenses due to lack of evidence of agricultural income declared by the assessee. The Commissioner of Income-tax (Appeals) upheld this addition. However, the Appellate Tribunal considered the agricultural land owned by the assessee and reduced the addition to Rs. 1,60,000, granting partial benefit for agricultural income. The Tribunal concluded that the assessee should be allowed to use agricultural income of Rs. 80,000 towards household expenses, resulting in a reduced addition of Rs. 1,60,000. Therefore, grounds 4 and 5 of the assessee's appeal were partly allowed.

In summary, the Appellate Tribunal overturned the disallowance of deduction under section 80-IC, allowing the assessee's claim related to limestone powder production. Additionally, the Tribunal partially allowed the appeal regarding the addition of household expenses by considering the agricultural income of the assessee.