2018 (10) TMI 921 - AT - Income Tax

Exclusion of claim on account of interest for computing deduction u/s 10B - As decided in assessee s own case for Assessment Year 2009-10 2015 (2) TMI 102 - ITAT DELHI interest income having close nexus with the business activity of the assessee is assessable as income from business and, hence, eligible for the benefit u/s 10A and section 10B. In view of the above discussion, we hold that the assessee is entitled to deduction u/s 10B of the Act in respect of the interest income earned on FDRs made for the purposes of keeping margin money or for availing any other credit facility from banks. The impugned order on the issue of deduction u/s 10B is set aside and the matter is sent back to the AO for computing deduction u/s 10B afresh in conformity with our above findings and conclusions. Non exclusion of the amount claimed as interest paid on loan used for the purpose of construction of property while computing the business income - Held that - Undisputedly the assessee has paid the interest on loan utilized for the construction of property had shown its income under the head income from house property , interest thereon is allowable deduction u/s 24B of the Act. So following the decision rendered by co-ordinate bench of Tribunal in its own case for Assessment Year 2009-10 2015 (2) TMI 102 - ITAT DELHI , we direct the AO to allow the deduction claimed by the assess after verifying the amount of loan utilized, interest paid thereon and thereafter assess the income from the house property earned by the assessee, by providing opportunity of being heard. So ground determined in favour of the assessee. Non exclusion of the scrap sale from turn over as well as total turnover while computing the deduction u/s 10B - Held that - The amount of sale of scrap is not includable in the total turnover or local turn over as the assessee is not into the business of scraps, so we find no illegality or perversity in the findings returned by the ld. CIT(A), hence ground determined against the assessee.

Issues Involved:
1. Validity of the CIT(A) order.
2. Confirmation of various additions and disallowances by the AO.
3. Restriction of exemption under Section 10B.
4. Exclusion of interest income while computing deduction under Section 10B.
5. Non-exclusion of interest paid on loan used for construction of property in business income computation.
6. Consideration of total turnover for computing exemption under Section 10B.
7. Exclusion of scrap sale from total turnover while computing deduction under Section 10B.
8. Disallowance of interest claimed under Section 24(b) while computing income from house property.
9. Adhoc disallowance of 10% of entertainment, traveling, and conveyance expenses.
10. Adhoc disallowance of various other expenses.
11. Adhoc disallowance of Diwali expenses.

Comprehensive Issue-wise Detailed Analysis:

1. Validity of the CIT(A) order:
The appellant claimed that the CIT(A) erred in law and on facts by confirming various additions and disallowances made by the AO, ignoring the precedent set by the ITAT in the appellant's own case for the earlier year.

2. Confirmation of various additions and disallowances by the AO:
The appellant argued that the CIT(A) wrongly upheld the AO's additions and disallowances, contrary to the ITAT's earlier ruling in the appellant's favor. However, the grounds were not pressed by the appellant's representative during the hearing.

3. Restriction of exemption under Section 10B:
The appellant contended that the CIT(A) erred in restricting the exemption under Section 10B to ?52,34,341/- instead of ?70,03,995/- claimed by the appellant. This ground was not pressed during the hearing.

4. Exclusion of interest income while computing deduction under Section 10B:
The AO and CIT(A) excluded ?14,21,719/- on account of interest while computing deduction under Section 10B. The appellant argued that this interest income was inextricably linked with the business undertaking and should be part of business profits. The ITAT, referencing its own decision in the appellant's case for AY 2009-10, ruled in favor of the appellant, directing the AO to recompute the deduction under Section 10B, including the interest income.

5. Non-exclusion of interest paid on loan used for construction of property in business income computation:
The AO and CIT(A) did not exclude ?14,29,186/- of interest paid on a loan used for constructing property while computing business income. The ITAT, following its earlier decision in the appellant's case for AY 2009-10, directed the AO to allow the deduction under Section 24(b) after verifying the loan amount and interest paid.

6. Consideration of total turnover for computing exemption under Section 10B:
This ground was not pressed by the appellant's representative due to the meager amount involved.

7. Exclusion of scrap sale from total turnover while computing deduction under Section 10B:
The AO and CIT(A) did not exclude the scrap sale from the total turnover while computing deduction under Section 10B. The ITAT, referencing its earlier decision in the appellant's case for AY 2009-10, affirmed by the Delhi High Court, ruled that the sale of scrap should not be included in the total turnover as the appellant was not engaged in the business of scrap. Thus, this ground was determined against the appellant.

8. Disallowance of interest claimed under Section 24(b) while computing income from house property:
The AO and CIT(A) did not allow the deduction of ?14,29,186/- of interest paid on a loan used for constructing let-out property. The ITAT, following its earlier decision, directed the AO to allow the deduction after verifying the loan amount and interest paid.

9. Adhoc disallowance of 10% of entertainment, traveling, and conveyance expenses:
The appellant did not press this ground due to the meager amount involved.

10. Adhoc disallowance of various other expenses:
The appellant did not press this ground due to the meager amount involved.

11. Adhoc disallowance of Diwali expenses:
The appellant did not press this ground due to the meager amount involved.

Conclusion:
The ITAT partly allowed the appeal, directing the AO to recompute the deduction under Section 10B, including the interest income, and to allow the deduction under Section 24(b) after verifying the loan amount and interest paid. The grounds not pressed by the appellant were not adjudicated.

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