2018 (1) TMI 1004 - HC - Income Tax

Computation of deduction under Section 80 HHC - as per tribunal for the purposes of applying explanation (baa) below Sub-Section 4B of Section 80HHC only the 90% of the net interest remain after allowing a set off of interest paid - held that - This question of law is covered by decision of this Court in Commissioner of Income Tax Etc. v. Shri Ram Honda Powers Equipment Ltd. (2007 (1) TMI 86 - HIGH COURT, DELHI) and ACG Associated Capsules P. Ltd. v. The Commissioner of Income Tax, Central-IV Mumbai (2012 (2) TMI 101 - SUPREME COURT OF INDIA). The Assessing Officer will apply their ratio on applicability and effect of Explanation (baa) and compute deduction under Section 80 HHC. Addition u/s 41(1) - Tribunal deleted the addition - Held that - No error in the findings and reasons given by the Tribunal. The respondent assessee is a company and accounts were audited as per the mandate of the Companies Act. In the accounts, the respondent assessee had accepted and acknowledged its liability. The creditors can rely on the said acknowledgment - many of the creditors were paid, adjusted or eased in the subsequent years as accepted by the Commissioner of Income Tax (Appeals) and the Tribunal. No special facts or reasons were given by the Assessing Officer to hold and observe that the liabilities had ceased and amounts should be added under Section 41(1) - Decided in favour of assessee

Summary

Issues:
1. Interpretation of Explanation (baa) under Sub-Section 4B of Section 80HHC for deduction calculation.
2. Application of Section 41(1) of the Act regarding addition of old creditors' balances.

Interpretation of Explanation (baa) under Sub-Section 4B of Section 80HHC:
The appeal involved the issue of interpreting Explanation (baa) under Sub-Section 4B of Section 80HHC for calculating deductions. The Tribunal was questioned for its approach in deducting 90% of interest receipts from business profits. The court referred to previous decisions and held that the Assessing Officer should apply the ratio of relevant cases to compute deductions accurately under Section 80HHC.

Application of Section 41(1) of the Act regarding old creditors' balances:
The second issue revolved around the application of Section 41(1) of the Act concerning the addition of old creditors' balances. The Assessing Officer had added a specific amount under this section due to no transactions with old creditors for an extended period. The Commissioner of Income Tax (Appeal) partially confirmed this addition, emphasizing the need for verification and rectification by the Assessing Officer. However, the Income Tax Appellate Tribunal ruled in favor of the assessee, stating that the balances were carried forward from previous years, some were written off, and liabilities were acknowledged by the debtor. The court upheld the Tribunal's decision, emphasizing that the creditors could rely on the acknowledgment in audited accounts, and no special reasons were provided by the Assessing Officer to add the amounts under Section 41(1) of the Act.

In conclusion, the court decided in favor of the assessee on both issues, ruling against the revenue. The appeal was disposed of without any costs incurred by either party.