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2014 (4) TMI 1260 - AT - Income TaxCharacterization of income - Income from interest against the inter corporate deposit - Business income or income from other sources - HELD THAT - Giving the surplus money on interest has no relation with the business of the assessee. In any case the Hon'ble Delhi High Court in case of CIT Vs. Shri Ram Honda Power Equip 2007 (1) TMI 86 - HIGH COURT, DELHI has clearly observed that when the surplus funds are borrowed from the bank or other entity then interest earned thereon can only be categorized as income from other sources. Therefore we find nothing wrong with the order of the Ld. CIT (A) and confirm the same. Accordingly this ground is rejected. Deduction u/s 80IB - HELD THAT - Interest Interest income is not eligible for deduction because Hon'ble Supreme Court in case of Pandian Chemicals Ltd Vs. CIT 2003 (4) TMI 3 - SUPREME COURT Provision written back - Most of these items pertain to expenditure earlier provided and now written back. This means that profit was reduced in the earlier years and now the same has gone up, therefore this is part of the Revenue receipts relating to business hence on these items the assessee should be allowed deduction. Sundry Balance written back - From details it is not clear whether these balances pertain to the Revenue account or capital account. Therefore we set aside the order of the Ld. CIT(A) and remit the matter back to the file of Assessing officer for re-examining of the issue. If the balance have been written back on account of Revenue receipts then deduction may be allowed otherwise in accordance with the provisions of the Act. Misc Receipts - As far as Duty Drawback is concerned the Ld. D.R. for the Revenue is right in pointing out that this item is not eligible for deduction in view of the decision of Hon'ble Supreme Court in case of Liberty India Vs. CIT 2009 (8) TMI 63 - SUPREME COURT . In that case it was clearly held that Duty Drawback benefits did not form part of the profit for the purpose of deduction u/s 801A/801B, therefore following this decision we hold that no deduction is eligible on DDB Rebate and discount and sale of samples - both receipts are of the nature of Revenue and are related to normal business of the assessee, therefore on these two items the assessee is eligible to deduction. Accordingly we set aside the order of the Ld. CIT (A) and direct the Assessing officer to allow deduction u/s 801B on these two items. Deducting deduction u/s 80HHC AO has reduced deduction u/s 80IB - This issue is squarely covered against the assessee. Deduction u/s 80HHC - HELD THAT - As far as items of sundry balances is concerned, nature of the amount written back has not been examined by the Assessing officer and was not available before us, therefore we set aside the order of the Ld. CIT (A) and remit the matter back to the file of Assessing officer with a direction to first examine the nature of items and then decide the issue. As far as provision no longer required is concerned, we have already seen the nature of these items while adjudicating ground no. 2 and find that these items relate to provision written back on account of various expenses which were no longer required. These items have got nothing to do with the items provided in clause (baa) of sub-sec (4c) of Sec 80HHC and therefore they should not be reduced. As far as misc receipts are concerned, rebate and discount and sale of samples cannot be reduced but the DDB has to be reduced but same is required to be added again to the profits u/s sub -sec (3) of Sec 80HHC and Assessing officer should decide the issue considering these observations. Total turnover while computing deduction - We find the decision in case of CIT Vs. Bicycle Wheels (India) 2010 (10) TMI 496 - PUNJAB AND HARYANA HIGH COURT relate to inclusion of sale of scrap in the total turnover. Hon'ble High Court held that scrap is to be included in the total turnover. So this case has not relevance to the case of the see. However, at the same time we agree that various items can be included in the total turnover only if they have some sale element. Since nature of the items has not been discussed in the detail, we set aside the order of the Ld. CIT(A) and remit the matter back to the file of Assessing officer with a direction to first ascertain the nature of the items and then given appropriate treatment in accordance with law. Exclusion of 90% of the gross interest from the profits for the purpose of computing deduction u/s 80HHC - HELD THAT - As relying on M/S ACG ASSOCIATED CAPSULES PVT. LTD 2012 (2) TMI 101 - SUPREME COURT only net interest has to be reduced from the aside the computing deduction u/s 80HHC, therefore we set profits for order of the Ld. CIT (A) and direct the Assessing officer to reduce net interest from the profits for computing deduction u/s 80HHC. Duty Drawback which has been reduced @ 90% of the profits should be again added back to the profits in terms of Sec 80HHC (3) - Assessing officer is directed to add written back amount of Duty Drawback as per Sec 80HHC(3) to the profits before computing deduction.
Issues Involved:
1. Classification of interest income under "Income from other sources" vs. "Income from business and profession." 2. Denial of deduction under Section 80IB on various income items. 3. Reduction of deduction under Section 80IB from eligible profits for calculating deduction under Section 80HHC. 4. Reduction of 90% of certain income items from eligible profits for the purpose of calculating deduction under Section 80HHC. 5. Inclusion of miscellaneous income in the total turnover for calculating deduction under Section 80HHC. 6. Exclusion of 90% of gross interest income instead of net interest income for calculating deduction under Section 80HHC. 7. Non-admission of an additional ground of appeal regarding deduction under proviso to Section 80HHC(3) on duty drawback. Detailed Analysis: Issue 1: Classification of Interest Income - The assessee argued that interest earned from inter-corporate deposits should be treated as business income since giving surplus money on interest was an object of the company. - The Revenue countered with the Delhi High Court's decision in CIT vs. Shri Ram Honda Power Equip, stating that surplus funds borrowed from banks or other entities resulting in interest income should be categorized as "Income from other sources." - The Tribunal upheld the Revenue's view, confirming that the interest income had no direct relation to the assessee's business and should be classified under "Income from other sources." Issue 2: Denial of Deduction under Section 80IB - The Assessing Officer denied deduction under Section 80IB on interest income, provisions written back, sundry balances written back, and miscellaneous receipts, asserting these were not derived from the industrial undertaking. - The Tribunal upheld the denial for interest income, citing the Supreme Court's decision in Pandian Chemicals Ltd vs. CIT, which emphasized that income must have a direct nexus with the industrial undertaking to qualify for deduction. - For provisions written back, the Tribunal allowed the deduction, noting these were related to earlier expenses, thus forming part of revenue receipts. - Regarding sundry balances written back, the Tribunal remitted the matter back to the Assessing Officer to determine if these balances pertained to revenue or capital accounts. - For miscellaneous receipts, the Tribunal allowed deductions for rebate and discount and sale of samples but denied it for duty drawback, referencing the Supreme Court's decision in Liberty India vs. CIT. Issue 3: Reduction of Deduction under Section 80IB for Section 80HHC Calculation - The Tribunal noted that the issue was covered against the assessee by the Punjab and Haryana High Court's decision in Broadways Overseas Ltd vs. CIT, which held that deduction under Section 80HHC should be computed after reducing the profits on which deduction under Section 80IB has already been availed. - The Tribunal followed this precedent and decided the issue against the assessee. Issue 4: Reduction of 90% of Certain Income Items for Section 80HHC Calculation - The Tribunal remitted the matter back to the Assessing Officer to examine the nature of sundry balances written back. - It allowed the deduction for provisions no longer required, as these were related to earlier expenses. - For miscellaneous receipts, the Tribunal reiterated that rebate and discount and sale of samples should not be reduced, but duty drawback should be reduced and then added back to profits as per Section 80HHC(3). Issue 5: Inclusion of Miscellaneous Income in Total Turnover - The Tribunal remitted the matter back to the Assessing Officer to ascertain the nature of the items included in the total turnover and to give appropriate treatment based on whether they had a sale element. Issue 6: Exclusion of 90% of Gross Interest Income Instead of Net Interest Income - The Tribunal referred to the Supreme Court's decision in ACG Associated Capsules Pvt Ltd vs. CIT, which held that only net interest should be deducted from profits for calculating deduction under Section 80HHC. - The Tribunal directed the Assessing Officer to reduce net interest from profits for this calculation. Issue 7: Non-Admission of Additional Ground of Appeal - The Tribunal reiterated that duty drawback should be reduced by 90% from profits but then added back as per Section 80HHC(3) before computing the deduction. Conclusion: The appeal was partly allowed, with the Tribunal providing specific directions on each issue, remitting certain matters back to the Assessing Officer for further examination, and upholding or denying deductions based on established legal precedents. The order was pronounced in open court on 28.4.2014.
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