2011 (8) TMI 1211 - AT - Income Tax

Summary

Issues Involved:
1. Re-opening of assessment u/s 147.
2. Computation of deduction u/s 80 HHC.
3. Allowability of deduction u/s 80IB.

Summary:

1. Re-opening of assessment u/s 147:
The assessee challenged the re-opening of the assessment u/s 147, arguing it was based on a change of opinion without fresh material. The Tribunal noted that the original assessment was completed u/s 143(3) and later re-opened within four years due to excess claims of deductions u/s 80 HHC and 80IB. The AO had not considered the application of provisions of Explanation (baa) to other income (interest, rent, etc.) in the original assessment. The Tribunal held that since the AO had not formed any opinion on this issue initially, the re-opening was not based on a change of opinion and was legally valid.

2. Computation of deduction u/s 80 HHC:
The AO deducted 90% of other income (interest, rent, etc.) from the business profits, resulting in no income available for deduction u/s 80 HHC. The assessee argued that certain incomes (sales tax set off, excise duty refund, sundry balance written back) were directly related to manufacturing activities and should not be excluded. The Tribunal held that while sales tax set off, excise duty refund, and sundry balance written back are integral to business profits and should not be reduced, interest and rental income must be reduced as per Explanation (baa). Consequently, the AO's decision to disallow the deduction of Rs. 8,05,666/- u/s 80 HHC was upheld.

3. Allowability of deduction u/s 80IB:
The assessee contended that all items of other income should be considered for deduction u/s 80IB. The Tribunal referred to the Supreme Court's ruling in Liberty India Ltd., which stated that only profits directly derived from the business of the undertaking are eligible for deduction u/s 80IB. Hence, interest and rental income, being incidental business income, were not eligible for deduction. However, income from sales tax set off, excise duty refund, and sundry balance written back, arising from business operations, were considered eligible for deduction u/s 80IB.

Conclusion:
The appeal was partly allowed, affirming the re-opening of assessment and disallowance of deductions u/s 80 HHC and 80IB for interest and rental income, while allowing deductions for other business-related incomes.