2016 (9) TMI 1301 - AT - Income Tax

Deduction u/s 80IC in relation to the profits earned in Haridwar Unit - Held that - AO and the DRP have merely noted the difference in the figures without appreciating reconciliation and the unit-wise computation of net income made by the assessee, which is in conformity with the methodology accepted in the past in the income-tax returns filed by the assessee. On this aspect, in our view, there is an apparent mistake made by the Assessing Officer in computing the amount of deduction allowable to the assessee under section 80IC of the Act. Pertinently, the basis of allocation of administrative, sales and interest expenses, etc. adopted by the assessee to arrive at the eligible deduction under section 80IC is similar to that adopted for computing the deduction under section 80IB of the Act. Whereas, the Assessing Officer accepts the working of deduction under section 80IB of the Act as determined by the assessee, while on the other hand, determination of deduction under section 80IC of the Act has been tinkered with. This reflects inherent inconsistency on the part of the Assessing Officer on the issue of allocation of transactions of Head office and on account of administrative, sales and interest expenditure, etc. to the other manufacturing units, including those eligible for deduction under section 80 IB and 80 IC of the Act. For the said reasons, we deem it fit and proper to set-aside the matter back to the file of Assessing Officer, who shall revisit the computation of deduction allowable to the assessee under section 80IC of the Act afresh.

Summary

Issues Involved
1. General assessment of total income.
2. Transfer pricing adjustments.
3. Deduction under section 80IC of the Income Tax Act.
4. Short credit granted in respect of Tax Deducted at Source.
5. Levy of Interest under section 234B of the Act.
6. Initiation of penalty proceedings under section 271(1)(c) of the Act.

Detailed Analysis

General Assessment of Total Income
Issue: The assessee contested the assessment of total income at ?70,36,92,880 as against the Nil income computed by the appellant under the normal provisions of the Act.

Judgment: This issue was deemed general in nature and did not require specific adjudication.

Transfer Pricing Adjustments
Issue: The appellant raised multiple grounds related to the determination of arm's length price for the international transaction of payment of royalty to its Associated Enterprise (AE).

Judgment: The appellant did not press these grounds in view of the Mutual Agreement Procedure (MAP) order dated 07/07/2014. Consequently, these grounds were dismissed as not pressed.

Deduction under Section 80IC of the Income Tax Act
Issue: The appellant contested the restriction of the deduction under section 80IC to ?53,59,76,608 as against ?158,02,82,213 claimed for the Haridwar Unit. Several sub-issues were raised regarding the computation and exclusion of various incomes and expenses.

Judgment:
1. General Methodology: The court noted discrepancies in the computation of the deduction under section 80IC by the Assessing Officer, particularly the incorrect starting point and exclusion of certain incomes and expenses. The matter was remanded back to the Assessing Officer to recompute the total income based on the unit-wise computation of income made by the assessee, following the methodology accepted in previous years.

2. Interest and Rent Income: The exclusion of interest and rental income was contested. The court directed the Assessing Officer to verify and exclude these incomes only to the extent they pertain to the Haridwar Unit.

3. Scrap Sales: The exclusion of scrap sales income was also contested. The court directed that the correct figure of scrap sales pertaining to the Haridwar Unit be included for the benefit of section 80IC.

4. Miscellaneous Income: The exclusion of miscellaneous income was contested. The court directed the Assessing Officer to exclude only the miscellaneous income pertaining to the Haridwar Unit.

5. Trading Profits: The exclusion of trading profits was contested. The court directed the Assessing Officer to verify and exclude trading profits relating to the Haridwar Unit only.

6. Central Excise Incentive: This ground was not pressed by the appellant and was dismissed as not pressed.

Short Credit Granted in Respect of Tax Deducted at Source
Issue: The appellant contested the non-grant of credit for tax deducted at source amounting to ?59,79,929.

Judgment: The court remanded the matter back to the Assessing Officer with directions to dispose of the plea expeditiously as per law.

Levy of Interest under Section 234B of the Act
Issue: The appellant contested the levy of interest under section 234B amounting to ?6,89,75,151.

Judgment: The court noted that this issue was consequential in nature.

Initiation of Penalty Proceedings under Section 271(1)(c) of the Act
Issue: The appellant contested the initiation of penalty proceedings under section 271(1)(c).

Judgment: This ground was dismissed as being premature in nature.

Conclusion
The appeal was partly allowed, with several issues remanded back to the Assessing Officer for fresh verification and adjudication. The court directed that the assessee be given an appropriate opportunity of being heard before recomputing the eligible deduction under section 80IC of the Act. The order was pronounced in the open court on 23/09/2016.