2015 (11) TMI 737 - AT - Income Tax

Eligibility for deduction u/s 10B - whether DEPB benefits are eligible for deduction under Section 10B? - Held that - The export benefits of DEPB interest should be considered for the purposes of deduction under Section 10B of the Act. Therefore we direct the Assessing Officer to consider the export benefits for the purpose of deduction under Section 10B of the Act. See Principle Commissioner of Income Tax Vs. Universal Precision Screws 2015 (10) TMI 951 - DELHI HIGH COURT and CIT Vs. XLNC Fashions 2015 (10) TMI 1086 - DELHI HIGH COURT and CIT Vs. Hritnik Exports Pvt. Ltd. 2015 (10) TMI 1009 - DELHI HIGH COURT held that the business profit should be considered for the purpose of deduction under Section 10B - Decided in favour of assessee. Addition on account of interest for the investments made on the subsidiary company of the respondent assessee company - Held that - Aggregate share capital and free reserve was stood at ₹ 15,57,04,538/- . The aggregate share capital are more than the investments made in the subsidiary company and it should be presumed that the investments are made out of the interest free funds and therefore, this ground of appeal filed by the Revenue is also dismissed. See Munjal Sales Corporation Vs. Commissioner of Income Tax 2008 (2) TMI 19 - Supreme Court - Decided in favour of assessee. Disallowance on the ground that the interest incurred till the date of assets put to use should be disallowed - Held that - As the assessee company on its own made disallowance of ₹ 7,35,226/- in respect of the interest liability incurred for the acquisition of assets till the date the assets were put to use. This contention had not been dislodged by the Department Representative and no further disallowance is called for. This ground of appeal filed by the Revenue is dismissed.- Decided in favour of assessee. Disallowance under the provisions of Section 14A -contention of the respondent assessee that no expenditure was incurred to earn the dividend income - Held that - The Assessing Officer without giving any reason as to how he is not satisfied with the correctness of the claim of the respondent assessee company had proceeded with the disallowance. The Hon ble Delhi High Court in the case of Maxopp Investment Ltd. Vs. CIT 2011 (11) TMI 267 - Delhi High Court held that no such disallowance was permissible without recording the reasons as to how the claim is incorrect. Therefore, the grounds of appeal filed by the Revenue are dismissed.- Decided in favour of assessee.

Summary

Issues Involved:
1. Eligibility of DEPB benefits for deduction under Section 10B of the Income Tax Act.
2. Deletion of interest disallowance of Rs. 3,90,000/- on investments made for non-business purposes.
3. Disallowance of interest liability of Rs. 65,07,805/- under Section 36(1)(iii) of the Income Tax Act.
4. Direction to recompute book profit under Section 115JB of the Income Tax Act.
5. Disallowance under Section 14A of the Income Tax Act.

Detailed Analysis:

1. Eligibility of DEPB Benefits for Deduction under Section 10B:
The primary issue was whether DEPB benefits qualify for deduction under Section 10B. The Revenue argued that export incentives are not profits derived from the undertakings and cited Supreme Court decisions in Liberty India vs. CIT and CIT vs. Sterling Foods. However, the Tribunal upheld the CIT(A)'s decision, referencing the Delhi High Court rulings in Principal Commissioner of Income Tax vs. Universal Precision Screws and CIT vs. XLNC Fashions, which clarified that export benefits should be considered for deduction under Section 10B. The Tribunal concluded that the CIT(A)'s reasoning was correct and dismissed the Revenue's appeal on this ground.

2. Deletion of Interest Disallowance of Rs. 3,90,000/-:
The second issue was the deletion of interest disallowance on investments in a subsidiary. The Assessing Officer had relied on the Punjab & Haryana High Court's decision in Abhishek Industries, which was later reversed by the Supreme Court in Munjal Sales Corporation vs. CIT. The Tribunal found that the investments were made from interest-free funds, as the share capital and reserves exceeded the investments. Thus, the Tribunal upheld the CIT(A)'s decision and dismissed the Revenue's appeal on this ground.

3. Disallowance of Interest Liability of Rs. 65,07,805/-:
The third issue involved disallowance of interest incurred until the assets were put to use. The respondent had already disallowed Rs. 7,35,226/- on its own. The Tribunal found that no further disallowance was justified as the Department did not disprove the respondent's claim. Therefore, this ground of appeal was also dismissed.

4. Direction to Recompute Book Profit under Section 115JB:
The fourth issue was the CIT(A)'s direction to verify the amount of deduction eligible under Section 10B. The Tribunal found this direction to be in line with established legal principles and concluded that no prejudice was caused to the Revenue. Hence, this ground of appeal was dismissed.

5. Disallowance under Section 14A:
For the assessment year 2008-09, the issue was the disallowance of Rs. 17,58,470/- under Section 14A. The Assessing Officer had disallowed this amount without providing reasons for dissatisfaction with the respondent's claim. The Tribunal referenced the Delhi High Court's decision in Maxopp Investment Ltd. vs. CIT, which mandates recording reasons for such disallowance. Consequently, this ground of appeal was dismissed.

Conclusion:
In conclusion, the Tribunal dismissed all grounds of appeal filed by the Revenue for both assessment years 2007-08 and 2008-09, upholding the CIT(A)'s decisions. The Tribunal's decision was pronounced in the open court on 4th November 2015.