2018 (9) TMI 1165 - AT - Income Tax

Deduction u/s 80IC - deduction @ 100% of profit derived from manufacturing activities of unit - Held that - We do not agree to the above contention raised by the Revenue at this stage. A perusal of the order of the Assessing officer reveals that the Assessing officer has not disputed that the assessee unit has carried out substantial expansion as provided under clause (b) of sub section (2) read with clause (ix) of sub section (7) of section 80IC of the Act. Almost similar view has also been taken in the case of M/s Stovekraft India vs. Commissioner of Income Tax 2017 (12) TMI 69 - HIMACHAL PRADESH HIGH COURT as held Revenue has not disputed, (a) the units having carried out substantial expansion within the definition of the Section, (b) their entitlement and extent of deduction would be dependent upon interpretation of the relevant provisions. Eligibility for deduction u/s 80IC in respect of interest income - Held that - We restore the issue relating ground No.2 to the limited extent that if the interest expenditure incurred by the assessee has nexus with the interest income earned by the assessee, the assessee will be eligible for netting off/setting off of the same against the interest income. The matter is, therefore, restored to the file of the Assessing Officer to decide this issue afresh on this limited point. - Appeal of the assessee is treated as allowed for statistical purposes.

Summary

Issues:
1. Deduction under section 80IC of the Income Tax Act for substantial expansion.
2. Addition of interest amount in the assessment.

Analysis:

Issue 1: Deduction under section 80IC for substantial expansion
The appellant contested the denial of 100% deduction for profit derived from manufacturing activities due to substantial expansion during the financial year 2009-10. The Assessing Officer disallowed the deduction under section 80IC, citing that the appellant was not entitled to 100% deduction for substantial expansion after availing it at the unit's establishment. The Ld. CIT(A) upheld this decision, referring to the Tribunal's ruling in a similar case. The appellant argued that the issue of substantial expansion was settled by the Hon'ble Himachal Pradesh High Court, which allowed the benefit of section 80IC to units undertaking substantial expansion. The High Court's decision emphasized that substantial expansion could occur multiple times within the stipulated period, entitling units to deductions at varying rates. The Tribunal concurred with the appellant, directing the Assessing Officer to grant 100% deduction in line with the High Court's ruling.

Issue 2: Addition of interest amount
Regarding the addition of interest amount, the appellant acknowledged ineligibility for deduction under section 80IC for interest income. However, they requested set off of interest expenditure against interest income. Both parties agreed that this specific issue was not addressed by the Assessing Officer or Ld. CIT(A). Consequently, the Tribunal remanded the matter to the Assessing Officer to determine if the interest expenditure was linked to interest income, allowing for netting off or setting off accordingly. The Tribunal allowed the appeal for statistical purposes, providing relief on the deduction issue and remanding the interest-related matter for further examination by the Assessing Officer.

In conclusion, the Tribunal's judgment favored the appellant on the deduction issue related to substantial expansion under section 80IC, aligning with the High Court's decision. The interest-related matter was remanded for fresh consideration, emphasizing the need for a nexus between interest income and expenditure for set off.