2010 (3) TMI 1268 - AT - Income Tax

Summary

Issues Involved:
1. Deduction u/s 80HHC of the Income-tax Act, 1961.
2. Disallowance of ESIC payments.
3. Addition of unutilized Modvat credit.
4. Disallowance of depreciation on assets of a closed unit.
5. Classification of rental income.
6. Charging of interest u/s 234D.

Summary:

1. Deduction u/s 80HHC:
The issue pertains to whether 90% of the transit claim and cash discount should be excluded from business income for the purpose of deduction u/s 80HHC. The CIT(A) and the A.O. had excluded these amounts, considering them incidental to business activity. However, following earlier ITAT orders, it was directed that transit income and cash discount are to be considered as part of business profits for the deduction u/s 80HHC. The ground was allowed.

2. Disallowance of ESIC Payments:
The A.O. disallowed ESIC payments amounting to Rs. 60,110, stating they were paid beyond the due date. The CIT(A) upheld this based on the auditor's report. The ITAT directed the A.O. to verify the actual payment dates and allow the deduction if payments were made within the grace period or before filing the return, as per relevant legal precedents. The ground was allowed for statistical purposes.

3. Addition of Unutilized Modvat Credit:
The A.O. added Rs. 59.56 lakhs as unutilized Modvat credit in the closing stock. The CIT(A) directed adjustments as per section 145A. The ITAT instructed the A.O. to reconsider the issue in light of decisions by the Delhi High Court and Bombay High Court, making necessary adjustments. The ground was allowed for statistical purposes.

4. Disallowance of Depreciation on Closed Unit Assets:
The A.O. disallowed depreciation on Ankleshwar Unit assets, stating they were not used during the year. The CIT(A) upheld this. The ITAT, referencing earlier decisions and legal principles, held that once assets are part of a block of assets, individual usage need not be examined. The A.O. was directed to allow depreciation. The ground was allowed.

5. Classification of Rental Income:
The issue was whether rental income from sub-leasing should be classified as business income or income from house property. Following earlier ITAT decisions, it was directed that the income be treated as income from house property. The ground was allowed.

6. Charging of Interest u/s 234D:
The issue was whether interest u/s 234D could be charged on refunds granted before the section's introduction on June 1, 2003. The ITAT, following the Special Bench decision in ITO vs. Ekta Promoters P. Ltd., directed the A.O. to withdraw the interest levied for the period before 01.06.2003. The ground was allowed.

Conclusion:
The appeal was considered allowed for statistical purposes. The order was pronounced in the open court on 18th March 2010.