2010 (10) TMI 1239 - AT - Income Tax

Summary

Issues Involved:
1. Deduction u/s 80IB on profit derived from goods manufactured by loan licensees.
2. Levy of interest u/s 234A, 234B, and 234C.
3. Exclusion of profit on contract work and interest income from the computation of deduction u/s 80IB.

Summary:

1. Deduction u/s 80IB on profit derived from goods manufactured by loan licensees:
The assessee's appeal was dismissed as the learned AR sought permission to withdraw it, which was not objected to by the learned DR. Therefore, the appeal filed by the assessee in ITA no.4374/Ahd/2007 was dismissed.

2. Levy of interest u/s 234A, 234B, and 234C:
This issue was not specifically addressed in the judgment as the assessee's appeal was dismissed upon withdrawal.

3. Exclusion of profit on contract work and interest income from the computation of deduction u/s 80IB:
The Revenue's appeal focused on the CIT(A)'s direction to not exclude profit on contract work and interest income from the computation of deduction u/s 80IB. The Tribunal upheld the CIT(A)'s decision regarding the job work income of Rs.6,90,693/-, stating it was derived from the activities of the industrial undertaking and thus eligible for deduction u/s 80IB. The Tribunal cited several precedents supporting this view, including CIT vs. J.B. Kharwar & Sons and CIT v. Northern Aromatics Ltd.

Regarding the interest income of Rs.14,09,265/-, the Tribunal found no material establishing the nexus of any expenditure with the interest income. The CIT(A) had allowed the deduction on the entire interest income without proper findings. The Tribunal upheld the deduction for interest recovered from debtors on delayed payments (Rs.13,274/-) based on the decision in Nirma Industries vs. DCIT. However, for the interest recovered from M/s Clarion (Rs.5,22,233/-), the Tribunal remanded the issue back to the CIT(A) for a fresh decision with a speaking order.

For the remaining interest income (interest on FDRs, recurring account, and other interest), the Tribunal found no evidence of a direct nexus with the business of the industrial undertaking. Citing several Supreme Court decisions, including Tuticorin Alkali Chemicals and Fertilizers Ltd. and Pandian Chemicals Ltd. v. CIT, the Tribunal concluded that such interest income does not qualify for deduction u/s 80IB. Therefore, the Tribunal set aside the CIT(A)'s order and restored the AO's order denying the deduction on these receipts.

Conclusion:
The assessee's appeal was dismissed, and the Revenue's appeal was partly allowed for statistical purposes. The Tribunal upheld the CIT(A)'s decision on job work income but remanded the issue of interest income from M/s Clarion for a fresh decision. The Tribunal denied the deduction u/s 80IB on interest from FDRs, recurring accounts, and other interest, restoring the AO's order.