2013 (9) TMI 1114 - AT - Income Tax

Deduction of the assessee u/s. 80IB - Held that - We are of the considered opinion that Ld. CIT(A) was justified in holding that for claiming deduction u/s. 80IB no separate books of account were required to be maintained for different undertakings. Since basis of allocation of expenses was accepted by the revenue over the past so many years therefore it cannot be rejected in this year. The other contention of the AO regarding huge losses incurred in non-eligible unit was also found not on sound basis by the Ld. CIT(A) as cattle feed plant was physically separate unit and allocation of common expenses out of dairy business with it did not arise. The AO had disallowed the expenses on estimated basis only without finding any specific defect in the allocation of expenses done by the assessee which was done by the assessee on the same line as was done in earlier years which were accepted by the revenue over the years so applying the rule of consistency Ld. CIT(A) has rightly directed the AO to delete the disallowance rejecting the claim of deduction of the assessee u/s. 80IB of the Act. Disallowance of deduction u/s. 80P(2)(d) - Held that - The only requirement was that income should be received from investment in co-operative societies and co-operative banks. Since in the present case, it was undisputed fact that income claimed u/s. 80P(2)(d) was received from the investment made in co-operative societies and co-operative banks, therefore assessee was eligible for deduction u/s. 80P(2)(d) of the Act. We further find that even otherwise since assessee was having mixed funds and the interest free funds were more than investment in co-operative banks and co-operative societies no disallowance was called for from eligible deduction u/s 80P(2(d) of the Act.

Issues Involved:
1. Deletion of disallowance under Section 80IB of the Income Tax Act.
2. Deletion of disallowance under Section 80P(2)(d) of the Income Tax Act.

Detailed Analysis:

Issue 1: Deletion of Disallowance under Section 80IB

Facts: The assessee, a manufacturer of various milk products, claimed deductions under Section 80IB for three units: Paneer, Shrikhand, and Dahi. The Assessing Officer (AO) disallowed 50% of the claimed deduction amounting to Rs. 1,41,90,816, citing non-maintenance of separate audited Profit and Loss accounts and Balance Sheets for each undertaking, continuous losses in non-eligible units, and arbitrary allocation of expenses.

Assessee's Argument: The assessee contended that there is no statutory requirement under Section 80IB to maintain separate Profit and Loss accounts and Balance Sheets for each unit. The assessee had filed the prescribed Form No. 10CCB and division-wise Profit and Loss accounts, which complied with the provisions of the Act. The allocation method of expenses was consistent with previous years, which were accepted by the revenue. The losses in the cattle feed plant, a physically separate unit, were genuine and not a tax avoidance device.

CIT(A) Decision: The CIT(A) sided with the assessee, stating that the requirement for separate books of accounts was not mandated by Section 80IB. The allocation method used by the assessee was consistent and previously accepted by the revenue. The AO's disallowance was based on estimates without specific defects in the allocation method.

Tribunal's Ruling: The Tribunal upheld the CIT(A)'s decision, confirming that no separate books of accounts were required for different undertakings under Section 80IB. The consistent allocation method over the years and the lack of specific defects in the AO's findings justified the deletion of the disallowance. The AO's contention regarding losses in non-eligible units was also dismissed as the cattle feed plant was a separate entity with no common expenses from the dairy business.

Issue 2: Deletion of Disallowance under Section 80P(2)(d)

Facts: The AO disallowed 50% of the deduction claimed under Section 80P(2)(d) amounting to Rs. 1,42,19,515, arguing that the assessee did not furnish details of the exact source of investment and had substantial interest-bearing borrowings.

Assessee's Argument: The assessee argued that it had sufficient interest-free funds amounting to Rs. 50.19 crore, which were more than the fixed deposits of Rs. 36.28 crore with cooperative banks and societies. The investment was presumed to be made from non-interest-bearing funds. The assessee cited the Supreme Court decision in Mungal Sales Corporation and the Bombay High Court decision in Reliance Utilities and Power Ltd, which supported their claim.

CIT(A) Decision: The CIT(A) deleted the disallowance, stating that the plain language of Section 80P(2)(d) did not require scrutiny of the source of funds. The only requirement was that the income should be received from investments in cooperative societies and banks, which was undisputed in this case.

Tribunal's Ruling: The Tribunal upheld the CIT(A)'s decision, agreeing that the assessee had sufficient interest-free funds and that the income was indeed from investments in cooperative societies and banks. The AO's disallowance was not warranted as the funds were mixed, and the interest-free funds exceeded the investments.

Conclusion: The Tribunal dismissed the revenue's appeal and the assessee's cross-objection, upholding the CIT(A)'s decisions on both issues. The deletion of disallowances under Sections 80IB and 80P(2)(d) was justified based on consistent accounting practices, compliance with statutory requirements, and the nature of the funds used for investments.

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