2017 (2) TMI 858 - AT - Income Tax

Deduction allowable to the assessee u/s. 80IA(4)(iv)(c) - Held that - Interest income is independent income and it is not reimbursement of manufacturing or selling expenses and hence it cannot be said to be income derived from an industrial undertaking. Similarly profit on sale of stores also is an independent income and it also cannot be accepted as reimbursement of manufacturing or selling expenses and as a consequence it is also not an income derived from an industrial undertaking. Misc. receipts from trading also is an independent income and it also cannot be accepted as reimbursement of manufacturing or selling expenses and as a consequence it is also not an income derived from an industrial undertaking. Rental income also is an independent income and it also cannot be accepted as reimbursement of manufacturing or selling expenses in the absence of this fact that assessee was paying rent of staff quarters which was debited to Profit 431.07 lakhs unclaimed balance o/s of 264.25 lakhs and difference between the WDV and books value of released asset of 96.77 lakhs. These 3 items are neither any income derived from an industrial undertaking nor a realization to reduce the cost of manufacturing/cost of sale of assessee and therefore these 3 items are rightly reduced from the profit of the assessee for the purpose of computing deduction allowable u/s. 80IA(4)(iv)(c). Regarding the balance items such as dept. exam fees sale of dept. books and sale of forms sale of scrap/stock excess found meter reading testing charges and BBC theft ca collected etc. in our considered opinion these receipts reduce the cost of assessee which are debited to Profit 40, 22, 860/- which should not be reduced from profit of the assessee for computing deduction allowable to the assessee u/s. 80IA(4)(iv)(c).

Summary

Issues Involved:
1. Legality of invoking Section 263 of the Income Tax Act.
2. Eligibility for deduction under Section 80IA(4)(iv)(c) on miscellaneous income.
3. Classification of various types of miscellaneous income.
4. Levy of interest under Sections 234C and 234D of the Income Tax Act.

Detailed Analysis:

1. Legality of Invoking Section 263 of the Income Tax Act:
The assessee contested the Commissioner of Income Tax's (CIT) invocation of Section 263, arguing that the assessment order passed under Section 143(3) was neither erroneous nor prejudicial to the interest of the revenue. However, the Tribunal noted that the appeal against the CIT's order under Section 263 was dismissed due to late filing, thereby making the CIT's order final. Consequently, the Assessing Officer (AO) merely followed the CIT's directive, and no relief could be granted to the assessee for the assessment year (AY) 2006-07.

2. Eligibility for Deduction under Section 80IA(4)(iv)(c) on Miscellaneous Income:
The CIT denied the deduction under Section 80IA(4)(iv)(c) on miscellaneous income, which the assessee claimed was earned during regular business activities. The Tribunal examined the nature of the miscellaneous income, considering the judgments in *Liberty India v. CIT* and *CIT v. M/s. Meghalaya Steels Ltd.*. It was held that income reducing manufacturing or selling costs should not be excluded from business profits for Section 80IA(4)(iv)(c) deductions. However, independent income not derived from industrial undertakings should be excluded.

3. Classification of Various Types of Miscellaneous Income:
The Tribunal detailed the classification of miscellaneous income into categories such as interest income, profit on sale of stores, rental income, and various recoveries. The Tribunal held that:
- Interest income, profit on sale of stores, and rental income were independent incomes and not eligible for deduction.
- Sale of scrap and excess found on physical verification of material stock reduced costs and were eligible for deduction.
- Penalty recovered from suppliers, unclaimed balances, and differences between WDV/book value of released assets were independent incomes and excluded from deductions.
- Miscellaneous recoveries from employees were independent incomes and excluded from deductions.

4. Levy of Interest under Sections 234C and 234D:
The assessee also contested the levy of interest under Sections 234C and 234D. The Tribunal upheld the CIT(A)'s decision regarding the interest levied under these sections, finding no grounds to interfere with the lower authorities' orders.

Conclusion:
- AY 2006-07: The appeal was dismissed as the CIT's order under Section 263 had attained finality.
- AY 2007-08 and 2008-09: Partly allowed. The Tribunal allowed deductions for certain types of miscellaneous income that reduced manufacturing or selling costs but excluded independent income types from deductions.

The judgment was pronounced on February 17, 2017, and the appeals were disposed of accordingly.