2016 (4) TMI 1137 - AT - Income Tax

Allowability of deduction under sec. 80-IB(4) on sales-tax incentive - Held that - Similar issue had come up before this Tribunal in the case of ACIT Vs. M/s. Coral Clinical Systems 2015 (10) TMI 2182 - ITAT PANAJI wherein held there is an inextricable link between the manufacturing activity, the payment of sales tax and the sales tax incentive. Therefore, in our opinion, such sales tax incentive which has been retained by the assessee from the Sales Tax collected has to be held as derived from the industrial undertaking and consequently is eligible for deduction u/s 80-IB of the Act - Decided in favour of assessee. Disallowance of assets written off - claim of the assessee that writing off was strictly in accordance with sec. 43(6)(c)(i)(B) - Held that - After considering the rival submissions and perusing the material available on record, we are of the considered opinion that if the loss on account of assets written off has not been allowed to the assessee by the Assessing Officer considering it to be a capital loss, then he should have allowed depreciation on the WDV of the assets. We, therefore, set aside the orders of the lower authorities and remand back to the file of the Assessing Officer to re-adjudicate the issue, afresh after verification as per law. - Decided in favour of assessee for statistical purpose. Disallowance under section 14A read with rule 8D - Held that - Question of satisfaction is provided in section 14A and rule 8D(1), that relates to the accounts of the assessee. Thus, it is not the total investment at the beginning of the year and at the end of the year, which is to be considered but it is the average of the value of investments which has given rise to the income which does not form part of the total income which is to be considered. A question may arise as to why the term average of the value of investment is then used. The term average of the value of investment would be to take care of cases where there is the issue of dividend striping. In any case, as we have already held that the assessee has not incurred any expenditure by way of interest during the previous year, which is not directly attributable to any particular income. As the Assessing Officer has not considered the above therefore, we set aside the orders of the lower authorities and remand back to the file of the Assessing Officer for adjudicating the issue, afresh in the light of the observations made hereinabove after allowing reasonable opportunity of being heard to the assessee - Decided in favour of assessee for statistical purpose.

Summary

Issues Involved:
1. Disallowance of deduction under Section 80-IB(4) of the Income Tax Act.
2. Disallowance of assets written off.
3. Disallowance under Section 14A read with Rule 8D of the Income Tax Rules.
4. Charging of interest under Sections 234B, 234C, and 234D of the Income Tax Act.

Detailed Analysis:

1. Disallowance of Deduction under Section 80-IB(4):
The appellant contested the disallowance of deduction under Section 80-IB(4) related to sales-tax incentive. The assessee, engaged in manufacturing packaging materials, claimed a deduction of ?30,95,163/- for sales-tax incentive. The Assessing Officer disallowed this deduction based on Supreme Court decisions in Sterling Foods Vs. CIT and Pandian Chemicals Ltd. Vs. CIT, which were upheld by the Commissioner of Income Tax (Appeals) citing Liberty India Vs. CIT. However, the assessee referenced the Supreme Court decision in CIT Vs. Meghalaya Steels Ltd., arguing that subsidies reducing production costs are "profits derived from the business" and thus eligible for deduction. The Tribunal found a similar precedent in ACIT Vs. M/s. Coral Clinical Systems and concluded that sales-tax incentives have a direct nexus with manufacturing activities. Consequently, the Tribunal set aside the lower authorities' orders, allowing the deduction under Section 80-IB for the sales-tax incentive.

2. Disallowance of Assets Written Off:
The assessee claimed a deduction of ?6,86,413/- for assets written off, which the Assessing Officer disallowed, treating it as a capital loss not deductible under Section 37. The Commissioner of Income Tax (Appeals) upheld this decision. The assessee argued that if the loss was not allowed, depreciation should have been permitted. The Tribunal agreed that if the loss was considered capital, depreciation should have been allowed, and thus remanded the issue back to the Assessing Officer for re-adjudication, allowing the appeal for statistical purposes.

3. Disallowance under Section 14A read with Rule 8D:
The Assessing Officer disallowed ?3,87,977/- under Section 14A read with Rule 8D, attributing it to investments earning tax-exempt dividend income. The Commissioner of Income Tax (Appeals) confirmed this disallowance. The Tribunal found that the Assessing Officer had incorrectly considered all investments rather than only those generating exempt income. Citing the Panaji Bench decision in DCIT Vs. M/s. Sesa Goa Ltd., the Tribunal remanded the issue back to the Assessing Officer for re-adjudication in line with the correct interpretation of Rule 8D, allowing the appeal for statistical purposes.

4. Charging of Interest under Sections 234B, 234C, and 234D:
The assessee made no submissions regarding the interest charged under Sections 234B, 234C, and 234D. Consequently, the Tribunal held that the charging of interest is consequential and dismissed this ground of appeal.

Conclusion:
The appeal was partly allowed for statistical purposes, with specific issues remanded for re-adjudication and others dismissed or allowed as per the detailed analysis above. The Tribunal's order was pronounced on April 27, 2016, in Goa.