2016 (1) TMI 364 - AT - Income Tax

Eligibility for deduction U/s.80IB(4) on freight income not derived from the manufacturing activity - Held that - The assessee would be eligible for deduction U/s. 80IB(4) of the Act for the income earned from the source of manufacturing activity. The assessee would not be eligible for deduction for any income earned which is attributable to the business of the assessee other than manufacturing activity. Therefore the Ld. CIT (A) has rightly held that the income earned from freight charges cannot be allowed for deduction U/s.80-IB of the Act and disallowed 27, 66, 294/-. However we are not sure that whether the amount of 27, 66, 294/- is the gross receipts of freight charges or the income earned from freight charges. Therefore we hereby remit back the matter to the file of the Ld. Assessing Officer for making disallowance only to the extent of the net income earned on freight charges while granting the benefit of Section-80-IB(4) of the Act to the assessee and not on the gross freight charges received. It is ordered accordingly. - Decided partly in favour of assessee for statistical purposes

Summary

Issues Involved:
1. Eligibility for deduction under Section 80-IB(4) of the Income Tax Act for freight income not derived from manufacturing activity.
2. Sustainment of interest charged under Sections 234B & 234C of the Income Tax Act.

Analysis:

Issue 1:
The appeal challenged the decision of the Commissioner of Income Tax (A) regarding the eligibility of the Assessee for deduction under Section 80-IB(4) of the Act concerning freight income not directly linked to manufacturing activity. The Assessee contended that the freight charges were integral to the manufacturing process as they related to delivering manufactured items to clients. The argument emphasized that such income should be considered for the Section 80-IB(4) benefit. In contrast, the Revenue supported the Commissioner's decision. The Tribunal analyzed Section 80-IB, which allows deductions for profits derived from eligible businesses. It noted that the Assessee's business involved manufacturing articles in an industrial backward state. The Tribunal referred to previous decisions, including the Apex Court's rulings in M/s. Pandian Chemicals Ltd. and Cambay Electrical Supply Co. Ltd., distinguishing between "income derived from" and "income attributable to." The Tribunal concluded that the Assessee could claim deductions only for income directly linked to manufacturing activities, not for income incidental to the business. Therefore, the Tribunal remitted the matter to the Assessing Officer to determine the net income from freight charges eligible for Section 80-IB(4) deduction, not the gross receipts.

Issue 2:
Regarding the second ground of interest charged under Sections 234B & 234C of the Act, the Tribunal dismissed the Assessee's challenge, considering such interest charges as consequential. Citing previous decisions, the Tribunal held that this ground had no merit and, therefore, rejected the appeal on this issue. Consequently, the Tribunal partly allowed the Assessee's appeal for statistical purposes, as outlined in the judgment delivered on 20.11.2015.

This comprehensive analysis of the judgment highlights the key legal issues, arguments presented, statutory provisions applied, and the Tribunal's reasoning leading to the final decision on each issue raised in the appeal.