2012 (2) TMI 604 - AT - Income Tax

Deduction u/s 80IA - Company formed with the objective of dealing in finance and investment - Held that - Absence of any nexus between the impugned interest income and the industrial undertaking the claim for deduction under section 80IA of the Act is untenable. subsidy received being in the nature of capital receipt - disallowance of foreign travel expenses

Summary

Issues Involved:
1. Deduction under section 80IA of the Income-tax Act, 1961.
2. Treatment of Sales Tax Incentive.
3. Deduction of bank interest under section 80IA.
4. Disallowance of foreign travel expenses.

Issue-wise Detailed Analysis:

1. Deduction under section 80IA of the Income-tax Act, 1961:

The assessee claimed a deduction of Rs. 96,63,009 under section 80IA for profits derived from power generation through Windmills. The Assessing Officer disallowed the claim, which was upheld by the Commissioner of Income-tax (Appeals). The Tribunal found that the issue was covered in favor of the assessee by the decision in the case of Serum International Ltd. Pune v. Addl. CIT Rnge-6, Pune, where it was held that the initial assessment year for section 80IA(5) purposes is the first year in which the assessee claimed the deduction after exercising the option under section 80IA(2). It was also held that only losses from the initial assessment year are to be brought forward and not earlier years' losses already set off. The Tribunal directed the Assessing Officer to allow the deduction without bringing forward notional losses from earlier years.

2. Treatment of Sales Tax Incentive:

The assessee received Rs. 56,87,500 from the transfer of Sales Tax Incentive and claimed it as a capital receipt exempt from tax. The Tribunal referred to its earlier decision in Rasiklal M Dhariwal (HUF) v. DCIT, where it was held that such incentives are revenue receipts. The Tribunal noted that the sales-tax benefit is linked to achieving operational efficiencies and is intended to support units to perform more efficiently and profitably, rather than for creating new assets. Consequently, the claim was dismissed, and the amount was held to be a revenue receipt.

3. Deduction of bank interest under section 80IA:

The assessee claimed a deduction for bank interest of Rs. 1,93,915 received on fixed deposits kept for availing loan for Windmill installation. The lower authorities denied the claim, citing a lack of direct nexus with the eligible undertaking, supported by the Supreme Court's decision in Pandian Chemicals Ltd. v. CIT. The Tribunal upheld the lower authorities' decision, affirming that the interest income did not qualify for deduction under section 80IA.

4. Disallowance of foreign travel expenses:

The assessee claimed foreign travel expenses of Rs. 2,18,712 for a director's trip to the USA, purportedly for exploring business opportunities. The Assessing Officer and Commissioner of Income-tax (Appeals) disallowed the claim, citing a lack of evidence to substantiate that the expenses were incurred for business purposes. The Tribunal acknowledged the necessity of evidence but also recognized the bona fides of the claim. It deemed it appropriate to restrict the disallowance to 50% of the claimed amount, directing the Assessing Officer to retain an addition of Rs. 1,09,356.

Conclusion:

The appeal was partly allowed. The Tribunal directed the Assessing Officer to allow the deduction under section 80IA without bringing forward notional losses from earlier years and to restrict the disallowance of foreign travel expenses to 50%. The claims regarding the Sales Tax Incentive and bank interest were dismissed.