2012 (12) TMI 670 - AT - Income Tax

Deduction u/s 80IA - whether the assessee is entitled to deduction u/s 80IA of the Act on the net interest income on employees loans & advances, interest on margin money and interest income on dues towards income tax refund adjustment from Essar Project Ltd. - held that - the issue is covered by the decision of Apex Court in the case of Liberty India 2009 (8) TMI 63 - SUPREME COURT - assessee is not entitled to the deduction u/s 80IA of the Act on the interest - Decided against the assessee. Addition on account of provision for Income Tax Recoverable - reimbursement of income-tax - held that - the amount paid by the power purchasers by way of tax on the amount of tariff charges received by the assessee can be treated as the income of the assessee. It cannot be overlooked that the said amount is nothing but a tax upon the payments received by the assessee. By virtue of the obligation undertaken by the power purchasers to reimburse the tax to the assessee does not mean that it is not the income in the hands of the assessee. - payment of tax received by the assessee is a part of tariff charges as per agreements and, hence, it is an income in the hands of the assessee and, therefore, the said amount without allowing any deduction is liable to be included in the income of the assessee. - Decided against the assessee. Minimum alternate tax - Addition to book profit - Section 115JB - held that - There is no dispute that under clause (i) of Explanation 1 to section 115JB of the Act there is a retrospective amendment made by Finance (2) Act, 2009 w.e.f. 1-4-2001, therefore, the book profit has to be recomputed in accordance with the above clause (i) of Explanation 1 to section 115Jb of the Act. - matter remanded back on this issue.

Issues Involved:
1. Deduction under Section 80IA on net interest income.
2. Addition towards provision for Income Tax Recoverable.
3. Interest income classification under various heads.
4. Allowing interest paid based on average cost of funds.
5. Addition while computing book profit under Section 115JB.

Detailed Analysis:

1. Deduction under Section 80IA on Net Interest Income:
The assessee claimed deduction under Section 80IA for interest income from employee loans, margin money, and dues towards income tax refund adjustment. The AO assessed these as 'income from other sources' rather than business income. The CIT(A) upheld this but denied the deduction under Section 80IA. The Tribunal referenced the Supreme Court decision in Liberty India, which stated that such incomes do not qualify for Section 80IA deductions as they constitute an independent source of income beyond the first-degree nexus with the industrial undertaking. Thus, the Tribunal rejected the assessee's claim for deduction under Section 80IA on these interest incomes.

2. Addition towards Provision for Income Tax Recoverable:
The AO added Rs. 11.07 crores shown as provision for tax recoverable from Gujarat Electricity Board (GEB) and Essar Steel Ltd. to the total income, treating it as revenue receipt. The CIT(A) upheld this, stating that the reimbursement is part of the sales invoice for power supply and thus a revenue receipt. The Tribunal agreed, stating that the reimbursement of income tax is part of the tariff charged and not merely a reimbursement of expenses. Therefore, it is taxable as income in the hands of the assessee.

3. Interest Income Classification under Various Heads:
The AO classified interest income from Essar Projects Ltd., employee loans, margin deposits, ICD, and sales tax refund as 'income from other sources'. The CIT(A) partially reversed this, treating interest on margin money and employee loans as business income, but upheld the AO's classification for other interest incomes. The Tribunal upheld the CIT(A)'s decision, referencing its own previous orders and the Supreme Court's ruling in Liberty India, confirming that these interest incomes do not qualify for business income under Section 80IA.

4. Allowing Interest Paid Based on Average Cost of Funds:
The CIT(A) allowed the assessee's claim of proportionate interest paid based on the average cost of funds against the interest income earned. The Tribunal upheld this decision, referencing its earlier orders for previous assessment years, which allowed such deductions based on the average cost of funds.

5. Addition While Computing Book Profit under Section 115JB:
The AO added Rs. 11.07 crores to the book profit under Section 115JB, treating it as an unascertained liability. The CIT(A) directed the AO to delete this addition, stating that only specified adjustments in the explanation to Section 115JB can be made. The Tribunal noted the retrospective amendment to Section 115JB by the Finance (No. 2) Act, 2009, and remanded the matter back to the AO for fresh consideration in light of this amendment and the Supreme Court's decision in Apollo Tyres Ltd.

Conclusion:
The Tribunal's judgment addressed multiple issues involving the classification and deduction of various interest incomes, the treatment of tax recoverable as income, and the computation of book profits under Section 115JB. The Tribunal upheld the CIT(A)'s decisions in most cases but remanded certain matters back to the AO for reconsideration in light of new legal precedents and amendments.

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