2014 (11) TMI 1231 - AT - Income Tax

Disallowance of deduction u/s 10B on miscellaneous income earned by the assessee from sale of scrap - Whether CIT(A) has erred in holding the miscellaneous income earned from sale of scrap as main business activity - HELD THAT - It is not the case of AO that these incomes are assessable under some other head of income and not as income from business. Under these circumstances, we are of the considered opinion that the order of the first appellate authority has to be upheld by applying the decision of the special bench of the Tribunal in the case of Maral Overseas Ld. 2012 (4) TMI 345 - ITAT INDORE where it is held that in the case of Liberty India 2009 (8) TMI 63 - SUPREME COURT the Hon ble Supreme Court has dealt with the provisions of section 80IA/80IB of the Act and not section 10B where a formula has been prescribed u/s 10B(4), the application of which would result in arriving at the figure of profits and gains that are to be considered as derived by the 100% EOU, for the purpose of computing exemption u/s 10B (1) Thus a disallowance on the ground that a particular income is not derived from the business is bad in law as the same does not confirm to the formula prescribed under the Act. CIT(A) admitting an additional claim of the assessee - assessee has made a claim u/s 10B in the return of income - HELD THAT - It is only a case where the claim u/s 10B was sought to be recomputed. It is not a fresh claim and hence in our view the judgment of the Hon ble Supreme Court in the case of Goetze (India) Ltd. 2006 (3) TMI 75 - SUPREME COURT does not apply. Be it as it may, this is a legal ground and all the facts relatable to this ground are on record. Thus in view of the decision of Hon ble Supreme Court in the case of NTPC Ltd. 1996 (12) TMI 7 - SUPREME COURT we do not find any infirmity in the action of the first appellate authority. As far as computation of relief u/s 10B is concerned the Ld. DR could not not controvert the factual finding of the Ld. CIT(A) and hence the same is upheld. Hence these two ground Nos. 3 4 are dismissed. Disallowance of interest on interest free loan advanced to a subsidiary company - HELD THAT - Factual position is that the assessee had purchased shares of a subsidiary company for the purpose of having control over it. The amount in question is investment made and not a loan advanced. As there is no interest free loan given we uphold the findings in para 5.2 of the CIT(A) order and dismiss ground No. 1 of the revenue.

Summary

Issues:
1. Disallowance of deduction under section 10B of the Income Tax Act on miscellaneous income earned by the assessee from the sale of scrap.
2. Admitting an additional claim of the assessee regarding deduction under section 10B.
3. Disallowance of interest on an interest-free loan advanced to a subsidiary company.
4. Holding miscellaneous income earned from the sale of scrap as the main business activity.

Issue 1: Disallowance of deduction under section 10B:
The appeal by the revenue challenged the deletion of an addition made by the Assessing Officer on account of disallowance of deduction under section 10B of the Income Tax Act for miscellaneous income earned by the assessee from the sale of scrap. The CIT(A) allowed the claim of the assessee to include miscellaneous income in business profits for computing the deduction under section 10B. The Tribunal upheld the CIT(A)'s decision, citing the application of a formula prescribed under the Act and previous judicial precedents. The grounds raised by the revenue were dismissed.

Issue 2: Admitting an additional claim under section 10B:
The revenue's appeal also contested the Ld. CIT(A) admitting an additional claim of the assessee under section 10B. The Tribunal noted that the claim was a recomputation and not a fresh claim, thus the judgment of the Supreme Court in a relevant case did not apply. The Tribunal found no infirmity in the CIT(A)'s action and upheld the factual findings, dismissing the grounds raised by the revenue.

Issue 3: Disallowance of interest on an interest-free loan:
Regarding the disallowance of interest on an interest-free loan advanced to a subsidiary company, the CIT(A) had ruled in favor of the assessee, stating that no interest-free advance was given, but it was an investment made by the assessee to acquire control over the subsidiary. The Tribunal upheld the CIT(A)'s findings and dismissed the revenue's ground challenging the disallowance.

Issue 4: Holding miscellaneous income as the main business activity:
The revenue's appeal also raised concerns about holding the miscellaneous income earned from the sale of scrap as the main business activity. The Tribunal dismissed this ground, emphasizing that the income from the sale of scrap was assessed under the head "income from business profession," and thus, no disallowance could be made based on the special bench's proposition. The Tribunal further dismissed other general grounds raised by the revenue.

In conclusion, the Tribunal dismissed all the appeals by the revenue, upholding the decisions made by the CIT(A) in favor of the assessee on various issues related to deduction under section 10B and the treatment of income and investments. The judgment was pronounced on November 20, 2014.