2011 (2) TMI 1624 - AT - Income Tax

Summary

Issues Involved:
The judgment involves the interpretation of deduction u/s 80IB of the IT Act on various income sources like sale of empty barrels, interest on delayed payments, and written back amounts. The key issues include the eligibility of these incomes for deduction u/s 80IB and the synchronization of business income with the term of manufacture as per the IT Act.

Issue I: Deduction u/s 80IB on Various Incomes:
The Revenue appealed against the CIT[A]'s decision to grant deduction u/s 80IB on income from the sale of empty barrels, interest on delayed payments, and written back amounts. The AO contended that these items were not derived from the industrial undertaking, thus not eligible for the deduction u/s 80IB. However, the CIT[A] allowed the deduction on certain items after considering the submissions and relevant material.

Issue II: Synchronization of Business Income with Manufacturing Term:
The Revenue challenged the CIT[A]'s decision to grant the assessee's claim for deduction u/s 80IB, arguing that the business income did not synchronize with the term of manufacture as per the IT Act. The CIT[A] held that while the assessee was not entitled to deduction u/s 80IB on interest from fixed deposits, other items qualified for the deduction based on the nature of the income derived from the industrial undertaking.

Detailed Judgment:
The ITAT Mumbai, comprising Shri T.R. Sood and Shri Vijay Pal Rao, proceeded ex parte as the assessee did not appear despite notices. The Revenue raised common grounds challenging the CIT[A]'s decision on deduction u/s 80IB. The CIT[A] had allowed deduction on certain items like cash discounts and sale of empty barrels but disallowed on interest from fixed deposits. The ITAT found discrepancies in the amounts recorded by the AO and CIT[A], indicating improper examination of the issue.

In the detailed analysis for AY 2004-05 and 2005-06, the CIT[A] justified the deduction on cash discounts, sale of empty barrels, and interest on delayed payments as income derived from the business of the industrial undertaking. The ITAT referred to relevant case laws and emphasized the direct connection of interest from delayed payments with the industrial business, citing the Madras High Court's decision. Additionally, the ITAT rejected the assessee's argument on the applicability of different sections, citing the Supreme Court's observation on deductions linked to profits.

The ITAT set aside the CIT[A]'s order and directed the AO to verify the interest received on delayed payments for deduction u/s 80IB. It also instructed a re-examination of issues related to empty barrels, discounts, and written back amounts after obtaining necessary details. Ultimately, the Revenue appeals were allowed for statistical purposes on February 11, 2011.