2012 (5) TMI 307 - AT - Income Tax

Deduction u/s. 80I - 4th stage of expansion of unit - Held that - unless the deduction is withdrawn or rejected in the initial assessment year, the same cannot be withdrawn in the subsequent assessment years - Decided in favor of the assessee

Issues Involved:
1. Denial of deduction under Section 80I of the Income Tax Act.
2. Disallowance of expenditure towards social obligations.
3. Disallowance of excise duty under Section 43B.
4. Inclusion of sale of waste oil/scrap drum in total turnover for deduction under Section 80HHC.
5. Exclusion of interest income as income from other sources.
6. Exclusion of sales tax refund and miscellaneous income while computing profits for deduction under Section 80HHC.

Issue-wise Detailed Analysis:

1. Denial of Deduction under Section 80I:
The assessee challenged the denial of a deduction of Rs. 2,73,42,767/- under Section 80I for the expansion of the Dispersant unit. The Assessing Officer (A.O.) disallowed the deduction, reasoning that the expansion did not constitute a new industrial unit but merely an increase in capacity using existing plant and machinery. The A.O. cited that the expansion involved balancing equipment rather than setting up a new unit, thus not meeting the criteria under Section 80I(2). The CIT (A) upheld this view. However, the Tribunal found that the deduction was initially allowed in A.Y. 1991-92, and subsequent disallowance without withdrawing the initial deduction was misplaced. The Tribunal allowed the deduction, referencing precedents from CIT vs. Paul Brothers and Saurashtra Cement and Chemicals Industries Ltd.

2. Disallowance of Expenditure towards Social Obligations:
The assessee's claim of Rs. 4,59,278/- towards social obligations was disallowed. The Tribunal noted that similar claims were allowed in previous assessment years (1992-93, 1996-97, and 1997-98) by the Tribunal. Following these precedents, the Tribunal allowed the expenditure.

3. Disallowance of Excise Duty under Section 43B:
The A.O. disallowed excise duty of Rs. 26,84,261/- under Section 43B. The Tribunal set aside this issue to the A.O. for verification, directing that if the excise duty was paid before the due date of filing the return, it should be allowed.

4. Inclusion of Sale of Waste Oil/Scrap Drum in Total Turnover for Deduction under Section 80HHC:
The assessee contested the inclusion of Rs. 52,43,907/- from the sale of waste oil/scrap in the total turnover for computing deduction under Section 80HHC. The Tribunal upheld the CIT (A)'s decision, referencing the Supreme Court's ruling in K. Ravindranathan Nair, which mandated such inclusion.

5. Exclusion of Interest Income as Income from Other Sources:
The A.O. treated interest income as income from other sources, excluding it from business profits for Section 80HHC deduction. The Tribunal confirmed this exclusion, citing the jurisdictional High Court's decision in CIT vs. Asian Star Co. Ltd.

6. Exclusion of Sales Tax Refund and Miscellaneous Income while Computing Profits for Deduction under Section 80HHC:
The A.O. excluded 90% of sales tax refund and miscellaneous income (liquidated damages, rent, insurance claims) from business profits for Section 80HHC deduction. The Tribunal ruled:
- Sales tax refund should be excluded from business profits based on the Supreme Court's decision in Lakshmi Machine Works.
- Liquidated damages issue was restored to the A.O. for reconsideration.
- Rent exclusion was upheld based on prior Tribunal decisions.
- Insurance claim issue was restored to the A.O. to determine if it related to stock-in-trade, referencing CIT vs. Pifzer Ltd.

Conclusion:
The appeal was partly allowed for statistical purposes, with directions for certain issues to be reconsidered by the A.O. and others allowed based on precedents and legal principles. The judgment emphasized the importance of consistency in applying deductions and the need for clear verification of claims.

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