2012 (11) TMI 414 - AT - Income Tax

Interest on FDR - disallowance as income derived is not from industrial undertaking u/s 10(B) - Held that - The Excise Department has issued security bond after lien of 5% of FDR & assessee was required to keep a security deposit with the Central Excise Department for smooth export-business, but the interest earned on such security deposit could not be said to be derived from industrial undertaking - against assessee. Disallowance of balance written off - Held that - Written off of sundry balances could not be attributed to the previous year and relates to the earlier years and could not be said to be related to the business income or income derived from export activities of the assessee - against assessee. Disallowance of building material sale - Held that - the sale of building material could not be accepted to be derived from industrial undertaking eligible for deduction under section 10(B) of the Act - against assessee.

Summary

Issues:
1. Disallowance of interest on FDR
2. Disallowance of balance written off
3. Disallowance of building material sale

Analysis:
1. The first issue pertains to the disallowance of interest on Fixed Deposit Receipts (FDR). The appellant contended that the interest earned on a security deposit with the Central Excise Department should be considered as income derived from an industrial undertaking eligible for deduction under Section 10(B) of the Act. However, the Tribunal held that the interest on FDR did not qualify as income derived from an industrial undertaking. The Excise Department had issued a security bond after lien of 5% of FDR, but the interest earned could not be linked to industrial activities. Therefore, the order of the CIT(A) disallowing the deduction was upheld, and the appellant's first ground was dismissed.

2. The second issue revolves around the disallowance of balance written off. The appellant argued that the written off sundry balances should be considered as profit derived from an industrial undertaking eligible for deduction under Section 10(B) of the Act. However, the Tribunal found that the sundry balance written off did not pertain to the relevant accounting year and was not directly related to the business income or export activities. Consequently, the Tribunal affirmed the CIT(A)'s decision that the written off balances could not be accepted as derived from an industrial undertaking for the purpose of deduction under Section 10(B). Therefore, the appellant's second ground was dismissed.

3. The final issue concerns the disallowance of income from the sale of un-utilized building material. The appellant contended that the sale proceeds should be considered as income derived from an industrial undertaking eligible for deduction under Section 10(B) of the Act. However, the Tribunal held that the sale of un-utilized building material was a windfall receipt and treated it as residual income under the head "income from other sources." Since the appellant did not incur any cost for the material, it could not be linked to industrial activities for the purpose of deduction. Accordingly, the Tribunal upheld the CIT(A)'s decision to disallow the deduction, and the appellant's third ground was dismissed.

In conclusion, the Tribunal dismissed the appeal of the assessee after thorough consideration of the arguments presented and the relevant provisions of the Income Tax Act.