2011 (12) TMI 577 - AT - Income Tax

Inclusion of interest income from FD, AVVNL and job receipts for the purpose of computing deduction under section 80IB - Held that - Allocation made by the AO on-the basis of turnover is illogical and uncalled for in the case of the appellant, accordingly the exclusion for computation of eligible profit for deduction u/s. 80IB of the Act by the AO is not justified. The appeal is allowed on this issue. TDS u/s 194C - Addition made under section 40(a)(ia) on reimbursement of expenses - no TDS

Summary

Issues Involved:

1. Inclusion of interest income from FD, AVVNL, and job receipts for computing deduction under section 80IB.
2. Bifurcation of expenses between two units for computing deduction under section 80IB.
3. Deletion of addition made under section 40(a)(ia) of the Act.

Issue-wise Detailed Analysis:

1. Inclusion of Interest Income and Job Receipts for Section 80IB Deduction:

The department objected to the inclusion of interest income from FD, AVVNL, and job receipts for computing deduction under section 80IB. The Assessing Officer (AO) disallowed these amounts, but the CIT (A) held that while the interest income from AVVNL was rightly reduced, the interest on FDR and job receipts should not be reduced as they are income derived from the undertaking. The Tribunal agreed with the CIT (A), noting that the FD was obtained for margin money against loan facilities, and there was a direct nexus between interest payment and earning. Therefore, netting of the same was allowed. Regarding job receipts, the Tribunal upheld CIT (A)'s finding that job receipts were integral to the manufacturing process and hence eligible for deduction under section 80IB.

2. Bifurcation of Expenses Between Two Units:

The department objected to the inclusion of Rs. 12,64,763/- without bifurcating the expenses between two units for computing deduction under section 80IB. The AO had allocated these expenses based on turnover, but the CIT (A) disagreed, noting that the assessee maintained separate books of account for each unit, and the salary paid to directors was specific to each unit. The Tribunal found no reason to interfere with CIT (A)'s findings, confirming that allocation based on turnover was illogical and uncalled for, especially when separate accounts were maintained.

3. Deletion of Addition Under Section 40(a)(ia):

The department objected to the deletion of Rs. 8,66,365/- made under section 40(a)(ia) of the Act. The AO had disallowed this amount, considering it liable for TDS under section 194C. However, the CIT (A) found that these were reimbursement payments to Clearing and Forwarding Agents and not subject to TDS. The Tribunal agreed with CIT (A), referencing the Delhi High Court's decision in Grandprix Fab Pvt. Ltd., which held that reimbursement of expenses does not constitute income in the hands of the payee and hence no TDS liability arises.

Conclusion:

The Tribunal dismissed the department's appeal, upholding CIT (A)'s findings on all issues. The interest on FD and job receipts were rightly included for section 80IB deduction, expenses were correctly not bifurcated based on turnover, and the reimbursement payments were not subject to TDS under section 194C.