2018 (8) TMI 1846 - HC - Income Tax

Disallowance u/s 80-IA - entitlement to set off interest paid on borrowed funds from interest income earned held to be taxable under the head income from other sources under Section 57(iii) - HELD THAT - Appeal admitted on question 1 and 2 Method of accounting adopted by the assessee with regard to the goods which were lying at the port which had not been exported - HELD THAT - Tribunal title in the goods ready for shipment had not transferred to the foreign buyers. Accordingly, the goods lying at the port ready for shipment was stock in hand that could be valued at cost or market price, at the option and as per regular practice of the assessee. Mere fact that for sales tax purposes the value of the goods lying at the port was taken at the invoice value would not make any difference. Sales tax computation and declaration would be made in accordance of the provision of the Sales Tax Act. Parties are given liberty to file papers/documents which were filed before the Assessing Officer and in the appellate proceedings within a period of six months.

Summary

Issues:
1. Disallowance under Section 80-IA of the Income Tax Act.
2. Set off of interest income against interest paid on borrowed funds.
3. Method of accounting for goods lying at the port.

Analysis:
1. The High Court considered the first issue of whether the order of the Income Tax Appellate Tribunal affirming the deletion of disallowance under Section 80-IA was non-reasoned and perverse. The court framed a substantial question of law on this matter to determine the validity of the Tribunal's decision.

2. The second issue revolved around the entitlement of the assessee to set off interest paid on borrowed funds against interest income earned, which was taxable under the head 'income from other sources' as per Section 57(iii) of the Income Tax Act, 1961. The Tribunal's decision on this matter was questioned, and the court was tasked with assessing the correctness of such a set-off.

3. Regarding the third issue raised by the Revenue on the method of accounting for goods lying at the port, the High Court decided not to frame a substantial question of law. The Tribunal's finding that the title in the goods ready for shipment had not transferred to the foreign buyers was crucial. The goods were considered stock in hand and could be valued at cost or market price based on the assessee's regular practice, irrespective of the value used for sales tax purposes.

4. The court emphasized that the sales tax computation and declaration would be governed by the Sales Tax Act, and the value used for sales tax purposes did not impact the accounting treatment of the goods. The parties were granted six months to submit relevant papers and documents filed during the assessment and appellate proceedings.

5. The case was categorized as a 'Regular Matter' for further proceedings, allowing the parties to present additional evidence within the specified timeframe. The judgment provided clarity on the issues raised, addressing each point with legal analysis and referencing the relevant provisions of the Income Tax Act and Sales Tax Act where applicable.