2010 (11) TMI 1102 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of interest u/s 14A.
2. Reduction of insurance claim and cess refund from profits for computing deduction u/s 80HHC.
3. Restriction u/s 80IA(9) while claiming deduction u/s 80HHC and 80IB.
4. Entitlement to deduction u/s 80HHC on export incentives.

Summary:

1. Disallowance of interest u/s 14A:
The assessee contested the disallowance of Rs. 2,01,718/- as interest under section 14A, arguing that no borrowed funds were used for investment in shares. The CIT(A) had confirmed the disallowance based on an incorrect finding of fresh investment during the year. The Tribunal found that no fresh investments were made during the year, and the assessee had sufficient own funds. The Tribunal reversed the CIT(A)'s order, directing the A.O. to allow the amounts, following the principles established by the ITAT in earlier years.

2. Reduction of insurance claim and cess refund from profits for computing deduction u/s 80HHC:
The assessee received Rs. 82,296/- as an insurance claim and Rs. 1,05,875/- as a municipal cess refund. The A.O. excluded these amounts while computing the deduction u/s 80HHC. The Tribunal noted that these amounts were business receipts and should not be excluded. The Tribunal directed the A.O. to treat these amounts as profits of business while working out the deduction u/s 80HHC, following the principles established by the Hon'ble Bombay High Court in CIT vs. Pfizer Ltd. 233 CTR (Bom) 521.

3. Restriction u/s 80IA(9) while claiming deduction u/s 80HHC and 80IB:
The A.O. excluded amounts claimed u/s 80HHC while working out deductions u/s 80IB. Both parties agreed that the issue should be reconsidered by the A.O. in light of the ITAT Special Bench decision in ACIT vs. Hindustan Mint & Agro Products P. Ltd. 315 ITR (AT) 401 (Del) (SB). The Tribunal restored the issue to the A.O. for reconsideration.

4. Entitlement to deduction u/s 80HHC on export incentives:
The assessee raised an additional ground regarding the entitlement to deduction u/s 80HHC on export incentives. The Tribunal rejected this ground, following the decision of the Hon'ble Bombay High Court in Kalpataru Colours and Chemicals ITA No. 2887 of 2009 and the ITAT's order in A.Y. 2003-04 in ITA No. 1887/Mum/2007.

Conclusion:
The assessee's appeal was partly allowed, with specific directions to the A.O. on the issues of disallowance of interest u/s 14A, treatment of insurance claim and cess refund for deduction u/s 80HHC, and reconsideration of restrictions u/s 80IA(9) while claiming deductions u/s 80HHC and 80IB. The additional ground regarding export incentives was rejected.