2016 (11) TMI 116 - AT - Income Tax

MAT applicability - Held that - Section 115JB is applicable to the assessee company and therefore, the ground of the assessee is required to be dismissed and we accordingly dismiss this ground in respect of all the appeals. See Amin Merchant Versus Chairman, Central Board of Excise & Revenue & Others 2016 (7) TMI 1063 - SUPREME COURT Deduction U/s 80-IC - sale of scrap - Held that - Both the provisions apply and operates in different fields. Whereas in Section 80HHC revolves around, the issue of export benefit on the turnover whereas in the case of 80-IC the benefit is to be calculated on the profit and loss of an undertaking qualifying as per Section 80-IC(2) of the Act. The treatment of the scrap for the purposes of manufacturing activity is required to be appreciated in the context that the sale of scrap which will goes to reduce the input cost of the undertaking and thereby decline the profit margin of the undertaking whereas in the case of 80HHC if the sale scrap is made a part of the turnover the export benefit of the undertaking will increase and therefore to different effects are therefore for treating the sale being part of the turnover and also treating the receipt of sale scrap being part and parcel of the activity being proximate to the activities of the industrial undertaking while computing the deduction u/s 80-IC of the Act. For the reasons stated above, we uphold the order passed by the ld CIT(A) and dismiss the appeals of the revenue on this ground. We hold that the sale of scrap being part and parcel of the activities of the undertaking and the gains derived from the said activity is arising out of core activity of the assessee and therefore, is required to be taken into consideration for the purposes of computation the deduction under the provisions. Interest on sale invoices - Held that - The assessee has claimed that the interest charged on account of delayed payment from the purchaser in respect of the manufactured goods sold to them, is required to be allowed as deduction u/s 80-IC of the Act. However, the assessee itself is engaged in manufacturing activities and trading of goods, therefore, the assessee has itself offered amount for taxation. The assessee has not filed bifurcation of the interest received under the manufacturing and trading activities, considering the complicity, the ld Assessing Officer has allowed 50% of interest received are in respect of trading item and 50% of the interest received/in respect of manufacturing item. Thus, the ld Assessing Officer has allowed the deduction of 50% of ₹ 67,114/- in respect of assessment year 2008-09. Deduction u/s 80-IC - Held that - The contention of the ld AR of the assessee that the credit balance of ₹ 48,875/- is required to be reduced from deduction u/s 80-IC of the Act, in our view, is required to be set aside to the file of the Assessing Officer, as the assessee has failed to prove the nexus between the amount of the credit balance of ₹ 48,875/- for the A.Y. 2010-11 and ₹ 70,670/- for A.Y. 2011-12 with that of the manufacturing activities. The assessee is directed to produce all the evidences before the Assessing Officer. In this regard, the Assessing Officer is directed to examine the same and after examination, the Assessing Officer, if found that the creditors were associated with the manufacturing activities of the assessee, then he shall reduce the credit balance from the deduction u/s 80-IC of the Act. Hence, this ground of appeals is allowed for statistical purposes only.

Issues Involved:

1. Reopening of assessment under section 147 of the Income Tax Act.
2. Applicability of Minimum Alternate Tax (MAT) under section 115JB.
3. Deduction under section 80-IC for various incomes.
4. Treatment of interest on Fixed Deposits (FD) and sale invoices.
5. Sale of scrap and its eligibility for deduction under section 80-IC.
6. Sundry creditors balance written back and its treatment under section 80-IC.

Detailed Analysis:

1. Reopening of Assessment under Section 147:
The assessee contested the reopening of the assessment by the Assessing Officer (AO) under section 147, arguing it was a mere change of opinion since the AO had already examined the MAT provisions during the original assessment. The Tribunal upheld the reopening, citing that the AO had not fully considered the MAT applicability during the original assessment. The Tribunal emphasized that the reopening was justified due to the assessee's misleading information and incorrect claims regarding the interim order from the Uttarakhand High Court, which had already been dismissed.

2. Applicability of MAT under Section 115JB:
The core issue was whether the income eligible for 100% deduction under section 80-IC should be subject to MAT under section 115JB. The Tribunal upheld the applicability of MAT, referencing the Uttarakhand High Court's decision, which stated that section 115JB applies to companies even if they are entitled to deductions under section 80-IC. The Tribunal also dismissed the argument based on promissory estoppel, noting that the legislative provisions of section 115JB were clear and overriding.

3. Deduction under Section 80-IC for Various Incomes:
The Tribunal addressed the reduction of deductions under section 80-IC for purchases from sister concerns. The AO had disallowed deductions, suspecting inflated profits due to transactions with sister concerns at cost price. The Tribunal remanded the matter back to the AO to verify whether the purchases were genuinely at market price and whether the sister concerns manufactured the raw materials or packing materials. The Tribunal directed the AO to re-examine the records and verify the claims before disallowing deductions.

4. Treatment of Interest on FD and Sale Invoices:
The AO had disallowed a portion of the interest received on sale invoices, attributing it partly to trading activities. The Tribunal remanded this issue back to the AO for verification of the turnover of trading versus manufactured goods. The AO was directed to disallow interest only in respect of the manufactured goods if applicable.

5. Sale of Scrap and Its Eligibility for Deduction under Section 80-IC:
The Tribunal upheld the CIT(A)'s decision that the sale of scrap, being part of the manufacturing process, should be included in the deduction under section 80-IC. The Tribunal referenced various judgments supporting the inclusion of scrap sales in the profits derived from the industrial undertaking, thereby allowing the deduction.

6. Sundry Creditors Balance Written Back:
The AO had disallowed deductions for sundry creditors' balances written back, arguing they were not related to manufacturing activities. The Tribunal remanded this issue back to the AO, directing the assessee to provide evidence linking the creditors' balances to manufacturing activities. The AO was instructed to allow deductions if the nexus was proven.

Conclusion:
The Tribunal's judgment addressed multiple issues, primarily focusing on the applicability of MAT under section 115JB and the deductions under section 80-IC. The Tribunal upheld the reopening of assessments and the applicability of MAT, while remanding several issues back to the AO for further verification and proper examination of facts. The judgment emphasized the need for accurate and truthful information from the assessee and thorough scrutiny by the AO.

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