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2016 (2) TMI 1279 - AT - Income TaxDeduction u/s 80lC - interest income - HELD THAT - The deduction u/s. 80IC on the impugned interest income can be allowed only if it is established that it is arose on account of compulsion of business. Therefore, the issues are set aside to the file of the AO for fresh adjudication for examining the assessee s claim of nexus of interest income with business. The AO shall provide proper opportunity to the assessee. Accordingly, the ground no. 4 5 are allowed for statistical purposes. Entitled to exemption u/s 80 IC - whether assessee has satisfied all the conditions specified in the section and that there is substantial expansion during the year as per requirement of the section - HELD THAT - As decided in LPG Industries Ltd. vs. DCIT 2014 (1) TMI 1689 - ITAT DELHI on a plain reading of the section and interpretation of the term initial Assessment Year, we conclude that the claim of the assessee is admissible. Even if a view is taken that there is some ambiguity in the language of the section, then, being an incentive provision - benefit given to the assessee. We also make it clear that the deduction cannot be extended beyond the period of 10 years from the A.Y. 2004-05. - Decided in favour of assessee.
Issues Involved:
1. Deduction under Section 80IC of the Income Tax Act, 1961 at 30% instead of 100%. 2. Deduction under Section 80IC on an amount of Rs. 2,67,33,841/- instead of Rs. 9,26,57,160/-. 3. Entitlement to 100% deduction under Section 80IC for the seventh assessment year. 4. Deduction under Section 80IC on interest income of Rs. 35,44,359/-. 5. Classification of interest income as income from other sources instead of business income. Issue-wise Detailed Analysis: 1. Deduction under Section 80IC of the Income Tax Act, 1961 at 30% instead of 100%: The assessee claimed a deduction of 100% of the profits for the seventh assessment year, arguing that substantial expansion was completed again during the Assessment Year 2009-10. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] restricted the deduction to 30%, stating that the initial assessment year was the year 2004-05 when the first substantial expansion was completed. According to the AO, the legislation does not support refixing the initial assessment year upon subsequent expansions. The Tribunal, however, found that there is no restriction on having more than one substantial expansion and thus no restriction on claiming 100% deduction for the year in question, provided the total deduction period does not exceed ten years. 2. Deduction under Section 80IC on an amount of Rs. 2,67,33,841/- instead of Rs. 9,26,57,160/-: The Tribunal reiterated that the deduction claimed by the assessee at 100% of the profits was valid, as the assessee had undertaken substantial expansion again. The Tribunal followed its previous decision in the assessee's own case for the Assessment Year 2009-10, where it was held that the assessee is entitled to claim 100% deduction on substantial expansion without any restriction on the number of expansions. 3. Entitlement to 100% deduction under Section 80IC for the seventh assessment year: The Tribunal emphasized that the term "initial assessment year" as defined in Section 80-IC(8)(v) and "substantial expansion" as defined in Section 80-IC(8)(ix) do not restrict the number of substantial expansions an assessee can undertake. The Tribunal concluded that each substantial expansion can set a new initial assessment year, allowing the assessee to claim 100% deduction for the relevant period. The Tribunal also clarified that the total period for claiming the deduction cannot exceed ten years. 4. Deduction under Section 80IC on interest income of Rs. 35,44,359/-: The Tribunal found that the full facts relating to the issue were not clear from the records. It was noted that the deduction under Section 80IC on the interest income could only be allowed if it was established that the interest income arose due to business compulsion. The Tribunal set aside the issue to the AO for fresh adjudication to examine the nexus of the interest income with the business and to provide the assessee with a proper opportunity to present their case. 5. Classification of interest income as income from other sources instead of business income: The Tribunal directed the AO to re-examine whether the interest income of Rs. 35,44,359/- should be classified as business income or income from other sources. The Tribunal emphasized that the classification depends on whether the interest income was a result of business compulsion, such as placing Fixed Deposit Receipts (FDRs) with the bank as a margin for obtaining a bank guarantee, which was part of the commercial arrangement between the assessee and its supplier. Conclusion: The Tribunal allowed the appeal of the assessee, holding that the assessee is entitled to a 100% deduction under Section 80IC for the seventh assessment year due to substantial expansion. The Tribunal set aside the issue of interest income classification to the AO for fresh adjudication. The appeal was allowed, and the orders of the revenue authorities were quashed.
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