2014 (1) TMI 1408 - HC - Income Tax

Deduction u/s 80IA - Held that - The AO has not examined that whether the receipts and expenditure were derived form manufacturing activity or not - The Tribunal has directed the matter for fresh adjudication with a direction to the AO to look at the scrap sales and labour work and other interest receipts vis-a-vis unit wise for the purpose of computing deduction under Section 80IA.

Summary

Issues:
1. Reduction of claimed deduction under Section 80IA without considering certain expenditure.
2. Payment of interest on interest under Section 244.

Issue 1: The case involved Tax Case (Appeals) by the Revenue challenging the order passed by the Income Tax Appellate Tribunal regarding the claimed deduction under Section 80IA. The respondent/assessee initially filed its return of income for the assessment year 1998-99 without including sales tax collections as part of the total turnover for claiming deduction under Section 80HHC. The Assessing Officer recalculated the deduction after inclusion of the sales tax amount. Additionally, the Assessing Officer excluded 90% of various charges while granting deduction under Section 80HHC. The assessee also claimed deduction under Section 80IA, which led to the recalculated assessment considering the allocation of certain expenditure. The matter was remitted back to the Assessing Officer by the First Appellate Authority for recomputing the deduction under Section 80IA. The Tribunal dismissed the Revenue's appeal, allowing the deduction under Section 80IA and directing the Assessing Officer to examine the receipts derived from manufacturing activities for correct computation of the deduction.

Issue 2: The second issue revolved around the payment of interest on interest under Section 244. The Tribunal held in favor of the assessee, citing the decision of the Hon'ble Supreme Court in the case of Sandvik Asia Ltd. vs. Commissioner of Income Tax. However, in light of a recent decision by the Hon'ble Supreme Court in the case of Commissioner of Income Tax, Gujarat vs. Gujarat Fluoro Chemical, it was clarified that interest on refunds under Section 244A of the Act is the only interest that can be claimed by an assessee, not interest on such statutory interest. The Tribunal's decision was based on the earlier Supreme Court ruling, which was further clarified in the Gujarat Fluoro Chemical case, leading to the resolution of this issue against the assessee.

In conclusion, the High Court upheld the Tribunal's decision on both issues. The matter concerning the deduction under Section 80IA was remanded back to the Assessing Officer for a detailed examination of receipts derived from manufacturing activities for accurate computation. The issue of interest on interest under Section 244 was resolved against the assessee based on the recent Supreme Court decision clarifying the scope of interest claims under the statute.