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2014 (2) TMI 1377 - AT - Income TaxDisallowance of deduction claimed u/s 80IA - income represented by other sales of the Indore division and the Moraiya division - CIT(A) allowed the claim of the assessee on the ground that they are eligible for deduction u/s 8-IA as they form part and parcel of the industrial activity carried on by the assessee and that the sale of these items goes to reduce the cost of production and the cost of the same was debited in the accounts - HELD THAT - As decided in own case undisputed position that the issues are covered by a decision of this Court in the case of Dy. CIT Vs. Harijivandas Juthabhai Zaveri 1999 (12) TMI 5 - GUJARAT HIGH COURT in which the court upheld the decision of the Tribunal granting benefit of deduction under section 80I of the Act on various incomes such as job work receipt sale of empty soda ash bardan sale of empty barrels and plastic waste. Such questions are therefore not required to be considered. Deduction u/s 80HHC on export profits arrived at on the basis of the export turnover and the total turnover exclusive of the receipts of excise duty and sale tax - HELD THAT - the issue is now settled in favour of the assessee by the decision of the Hon ble Supreme Court in the case of CIT Vs. Lakshmi Machine Works 2007 (4) TMI 202 - SUPREME COURT wherein it was held that sales tax and excise duty don t have any element of turnover and that excise duty and sales tax are indirect costs which are recovered by the assessee on behalf of the Government and if they are made relatable to exports the formula u/s 80HHC would become unworkable. Therefore this ground of appeal of the Revenue is dismissed. Disallowance of deduction u/s 80IA/80IB on other sales viz. Iron Scrap Sale Misc Sales and Metal Scrap Sales - HELD THAT - Set aside the orders of lower authorities and remand the matter back to the file of the Assessing Officer to readjudicate the issue afresh as per law after taking into consideration the above quoted decision of the Hon ble Supreme Court in the case of Associated Capsules Private Limited. 2012 (2) TMI 101 - SUPREME COURT Disallowance of late payment of Provident Fund and ESI u/s 43B - HELD THAT - Issue was now covered in favour of the assessee by the decision of Hon ble Supreme Court in the case of CIT Vs. Alom Extrusions Limited 2009 (11) TMI 27 - SUPREME COURT wherein it was held that if the contribution to PF and ESI was deposited by the assessee before the due date of filing of return under the Income Tax Act then the assessee would be entitled to deduction. Therefore we confirm the order of the Ld. CIT(A) and dismiss this ground of appeal of the Revenue. Disallowance out of other expenses on account of provisions of section 37(1) - HELD THAT - This issue is covered in favour of the assessee by the order of the Tribunal in Assessment Year 1999-2000. Disallowance of prior period expenses - HELD THAT - As gone through the observations of the assessing officer in the assessment order. The assessing officer has not examined the issue in detail. For deciding the allowability of these expenses each item will have to be examined and it will have to be seen when the liability has arisen/crystallized/ascertained and whether such expenses are allowable u/s 37(1). Having considered the facts of the case the assessing officer is directed to verify when the liability has arisen. If the liability to pay the same has arisen during the year under consideration and if the expenses are allowable as per the provisions of the Act the A.O. is directed to allow the same as the appellant company is following mercantile system of accounting. If the same has not arisen during the year under consideration or otherwise not allowable the same should not be allowed. Deduction u/s 80IA on account of income from Trikampura Unit - HELD THAT - In the instant case no material could be brought before us to show that any part of the manufacturing activity was carried out by the assessee at Trikampura Unit. In the above circumstances we do not find any good reason to interfere with the order of the lower authorities. Therefore this ground of appeal of the assessee is dismissed. Deduction u/s 80HHC - HELD THAT - We find that it is not in dispute that interest income earned by the assessee is assessable under the head profits and gains of business and as evidenced by the fact that Assessing Officer has excluded 90% of the gross interest income for computing profits of business out of the income under the head profits and gains of business. We therefore set aside the orders of lower authorities and direct the Assessing Officer to reduce 90% of net interest income while computing deduction u/s 80HHC. Charge interest u/s 234C of the Act while computing the income of the assessee u/s 115JB. Disallowance of interest claimed as Revenue expenditure u/s 36(1)(iii) - HELD THAT - It is no doubt that the assessee is engaged in the business of manufacture of soap and the soda ash and lab so produced is used by way of captive consumption. When such facts viewed in light of the findings of the CIT (Appeals) and the Tribunal we have no reason to interfere with the ultimate conclusion. Had it been a case of entirely a new project undertaken by the assessee as canvassed by the counsel for the Revenue a serious question of claiming pre-operative expenditure of interest by way of revenue expenditure would arise. However when the authorities below found that it was an expansion of the existing business applying the tests laid down by this Court in the case of Alembic Glass Industries Ltd. 1975 (11) TMI 42 - GUJARAT HIGH COURT in view of the decision of the Supreme Court in the case of Deputy CIT v. Core Health Care Ltd 2008 (2) TMI 8 - SUPREME COURT the fact whether the borrowing is capital or revenue expenditure would be of no consequence.
Issues Involved:
1. Disallowance of deduction claimed under section 80IA of the Income Tax Act, 1961. 2. Computation of deduction under section 80HHC on export profits. 3. Reduction of deduction under section 80IA from profits for computing deduction under section 80HHC. 4. Disallowance of late payment of Provident Fund and ESI under section 43B. 5. Disallowance of other expenses under section 37(1). 6. Prior period expenses claimed for A.Y. 2002-03 and 2003-04. 7. Disallowance of deduction under section 80IA and 80IB for Trikampura division. 8. Exclusion of 90% on gross interest income for deduction under section 80HHC. 9. Charging of interest under section 234C on income computed under section 115JB. 10. Disallowance of interest claimed as revenue expenditure under section 36(1)(iii). Detailed Analysis: 1. Disallowance of Deduction Claimed Under Section 80IA: The Assessing Officer disallowed the deduction under section 80IA for Indore Division, Moraiya Division, and Windfarm Division, stating that other sales (e.g., waste wrapper, waste plastic, iron scrap) did not qualify for the deduction. The CIT(A) restricted the disallowance, allowing the claim on the grounds that these items formed part of the industrial activity. The Tribunal upheld the CIT(A)'s order, citing the Gujarat High Court decision in the assessee's favor. 2. Computation of Deduction Under Section 80HHC: The issue pertained to whether excise duty and sales tax should be included in the total turnover for computing export profits under section 80HHC. Both parties agreed that the Supreme Court's decision in CIT vs. Lakshmi Machine Works, which excluded excise duty and sales tax from the total turnover, settled the issue in favor of the assessee. 3. Reduction of Deduction Under Section 80IA From Profits for Computing Deduction Under Section 80HHC: The CIT(A) directed the Assessing Officer to reduce the profits of the business by the deduction under section 80IA. The Tribunal, following the Bombay High Court's decision in Associated Capsules Private Limited, held that section 80IA(9) affects the liability of deduction and not the computation of deduction. The matter was remanded to the Assessing Officer for reconsideration. 4. Disallowance of Late Payment of Provident Fund and ESI Under Section 43B: The Assessing Officer disallowed the deduction for late payments of Provident Fund and ESI. The CIT(A) allowed the deduction if the payments were made within the relevant previous year. The Tribunal upheld the CIT(A)'s order, referencing the Supreme Court's decision in CIT vs. Alom Extrusions Limited, which allowed deductions if payments were made before the due date of filing the return. 5. Disallowance of Other Expenses Under Section 37(1): The Assessing Officer disallowed various expenses (e.g., Diwali expenses, hotel expenses, entertainment expenses) on the grounds that they were not wholly and exclusively for business purposes. The CIT(A) deleted the disallowance, noting that the expenses were made on an ad-hoc basis without specific evidence. The Tribunal upheld the CIT(A)'s order, citing consistency with previous years' decisions. 6. Prior Period Expenses Claimed for A.Y. 2002-03 and 2003-04: The Assessing Officer disallowed prior period expenses claimed for A.Y. 2002-03 and 2003-04, stating that the assessee failed to furnish requisite details. The CIT(A) directed the Assessing Officer to verify the liability's arising period and allow the expenses if they pertained to the relevant year. The Tribunal upheld the CIT(A)'s order. 7. Disallowance of Deduction Under Section 80IA and 80IB for Trikampura Division: The Assessing Officer disallowed the deduction, stating that the Trikampura Division ceased to be an industrial undertaking after leasing out its operations. The CIT(A) confirmed the disallowance, noting that the unit did not meet the conditions for deduction under section 80IB. The Tribunal upheld the CIT(A)'s order, finding no evidence that the assessee controlled or supervised the manufacturing activities. 8. Exclusion of 90% on Gross Interest Income for Deduction Under Section 80HHC: The Assessing Officer excluded 90% of gross interest income for computing deduction under section 80HHC. The CIT(A) directed to exclude 90% of net interest income if there was a nexus between interest receipts and payments. The Tribunal upheld the CIT(A)'s order, referencing the Supreme Court's decision in ACG Associated Capsules (P) Ltd. vs. CIT. 9. Charging of Interest Under Section 234C on Income Computed Under Section 115JB: The Assessing Officer charged interest under section 234C on income computed under section 115JB. The CIT(A) upheld this, and the Tribunal confirmed, referencing the Supreme Court's decision in JCIT vs. Rolta India Ltd., which held that interest under section 234C is applicable to MAT companies. 10. Disallowance of Interest Claimed as Revenue Expenditure Under Section 36(1)(iii): The Assessing Officer disallowed interest expenses claimed as revenue expenditure, stating that the assessee failed to furnish details. The CIT(A) allowed the claim, referencing the Gujarat High Court's decision in the assessee's favor. The Tribunal upheld the CIT(A)'s order, allowing the interest as revenue expenditure. Conclusion: The Tribunal dismissed the Revenue's appeal and partly allowed the assessee's appeal, providing detailed reasons and referencing relevant judicial decisions to support its conclusions.
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