2015 (8) TMI 428 - HC - Income Tax

Disallowance made under Section 32AB - Investment deposit account - ITAT deleted disallowance - Held that - No perversity with regard to findings of both the Courts below with regard to conclusion arrived at that the income was earned during the course of business activity. The term profits of business or profession is defined under sub-section (3) of Section 32AB. As per that subsection the profit shall be an amount of profit as computed in accordance with the requirements of Part II and III of the Companies Act and increased or reduced by specific inclusion or exclusion provided in 32AB(3) only. The Assessing Officer had no authority to reopen accounts of company which were certified by auditors of company as having been maintained in accordance with the provisions of the Companies Act. The Assessing Officer does not have jurisdiction to go behind net profit shown in profit and loss account except to extent provided in Section 32AB(3). Thus, there is no doubt that the business of the assessee company is an eligible business. The fact that it is shown under a different head of income would not deprive the company of its benefit under Section 32AB. - Decided in favour of assessee.

Issues Involved:
1. Whether the Appellate Tribunal erred in deleting the disallowance made under Section 32AB of the Income-tax Act, 1961.
2. Whether the income from bank interest, interest on FDR, computer service charges, insurance premium, profit on sale of assets, and occupancy charges can be treated as eligible business income under Section 32AB.

Issue-wise Detailed Analysis:

1. Whether the Appellate Tribunal erred in deleting the disallowance made under Section 32AB of the Income-tax Act, 1961:

The Deputy Commissioner of Income-tax challenged the judgment/order dated 13th December 1999 passed by the Income-tax Appellate Tribunal, Ahmedabad Bench. The Tribunal had dismissed the revenue's appeal and allowed the respondent's cross-objections, which involved excluding certain income under Section 32AB of the Income-tax Act, 1961. The primary contention was whether the income excluded by the authorities below should be treated as eligible business income under Section 32AB.

2. Whether the income from bank interest, interest on FDR, computer service charges, insurance premium, profit on sale of assets, and occupancy charges can be treated as eligible business income under Section 32AB:

The respondent-company, engaged in the manufacture of pharmaceuticals, filed a return for the Assessment Year 1990-91. The Assessing Officer rejected the claim of Rs. 34,37,020 as part of business income under Section 32AB, stating that the assessee failed to furnish details of each item, and such income could not be treated as eligible business income.

The Commissioner of Income-tax (Appeals) allowed the respondent's appeal, holding that the respondent-company was entitled to benefits under Section 32AB. This order was upheld by the Income-tax Appellate Tribunal, which dismissed the revenue's appeal and allowed the respondent's cross-objections.

The appellant argued that the Assessing Officer correctly excluded certain incomes (bank interest, interest on FDR, computer service charges, insurance premium, profit on sale of assets, and occupancy charges) from the total income, as these were not earned from business activities. The appellant relied on the Supreme Court's decision in Apollo Tyres Limited v. Commissioner of Income-tax, which emphasized that the assessee must establish that the income is part of its business.

Conversely, the respondent argued that the authorities below had correctly interpreted Section 32AB, allowing the income from various sources to be treated as business income. The respondent cited multiple judgments supporting the inclusion of such income under Section 32AB, including decisions from the Supreme Court and various High Courts, which held that income from interest, rent, and dividends could be included in the profits of eligible business income.

The court examined the relevant provisions of Section 32AB and concluded that the income was earned during the course of business activities. The term "profits of business or profession" under Section 32AB(3) should be computed in accordance with the Companies Act, and the Assessing Officer had no authority to reopen accounts certified by company auditors. The court agreed with the concurrent findings of the authorities below that the business of the assessee company is an eligible business, and the income under different heads does not deprive the company of its benefit under Section 32AB.

Conclusion:

The court dismissed the appeal, upholding the concurrent findings of the Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal. The income from various sources was rightly treated as part of the business income under Section 32AB, and the disallowance made by the Assessing Officer was correctly deleted by the Appellate Tribunal.

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