2019 (1) TMI 458 - AT - Income Tax

Eligible for deduction u/s 80IA - income derived from business activities - Held that - CIT(A) has decided the identical issue in favour of the assessee in assessee s own appeal for the assessment year 2010-11 holding that the income from rent received by the assessee is directly related to the main business of the assessee and the amount is eligible for deduction u/s 80IA. DR did not point out any difference of facts in the assessee s case for both the years. Admittedly, the issues involved in AY 2010-11 and the assessment year under consideration are identical. Moreover, the CIT(A) has not given any reason for taking a view inconsistent with the view taken in the earlier year on the identical issue. No reason to agree with the Ld. CIT(A). Moreover, the facts relied upon by the CIT(A) is different from the facts of the present case. The assessee had to make deposits under business compulsion. The revenue has not brought to our notice any decision contrary to the findings aforesaid rendered in similar set of facts. Hence, we respectively following the decision of the Cuttack Bench of the Tribunal allow this ground of appeal and direct the AO to allow the interest so earned by the assessee for the purpose of deduction u/s 80IA. AO is further directed to compute the amount after netting off the interest paid and interest received by the assessee during the year relevant to the assessment year under consideration. As regards sundry credit balance written off AO has rejected the claim of the assessee without giving any reason as to how the amounts in question are not eligible for the claim u/s 80IA. Similarly, the CIT(A) has affirmed the findings of the AO discussing the general principles of the law without giving specific reasons as to why the amounts in question cannot be treated as profits and gains derived from the eligible business of the assessee. Moreover, CIT(A) has not given any reason for taking a view contrary to the view already taken in the assessee s appeal pertaining to the assessment year 2010-11 in the similar set of facts. Therefore, we are of the considered view that the findings of the Ld. CIT(A) are not based on cogent and convincing reasons. Hence, keeping in view the nature of income earned by the assessee in this case i.e., balance written back and miscellaneous income, we hold that the said amounts should be treated as profits and gains derived from the eligible business. Accordingly, we set aside the findings of the CIT(A) and direct the AO to treat the said amounts as profits and gains derived from the eligible business of the assessee. Interest received by the assessee on the TDS refund should be netted off against the interest expenditure for the purpose of computing profits and gains derived from the eligible unit of the assessee.

Summary

Issues Involved:
1. Deduction under Section 80IA of the Income Tax Act, 1961 for rental income.
2. Deduction under Section 80IA for interest income on fixed deposits.
3. Deduction under Section 80IA for balance written back and miscellaneous income.
4. Deduction under Section 80IA for interest on income tax refund.

Issue-wise Detailed Analysis:

1. Deduction under Section 80IA for Rental Income:

The assessee, engaged in operating a container freight station, claimed a deduction under Section 80IA of the Income Tax Act, 1961 for rental income. The AO disallowed the deduction, relying on Supreme Court judgments in the cases of Sterling Foods and Orissa State Warehousing Corporation, stating that the income was not derived from business activities. The CIT(A) upheld this disallowance. However, the Tribunal noted that for the assessment year 2010-11, the CIT(A) had allowed the deduction for rental income, recognizing it as directly related to the main business. Since the facts were identical for both years and no reasons were given for a contrary view, the Tribunal directed the AO to delete the disallowance for rental income.

2. Deduction under Section 80IA for Interest Income on Fixed Deposits:

The assessee argued that interest on fixed deposits pledged with Sales Tax and Customs Authorities should be eligible for deduction under Section 80IA, citing a decision by the ITAT Cuttack Bench in ACIT vs. Maxcare Laboratories Ltd. The AO and CIT(A) had disallowed this deduction, stating that the interest income was assessed under the head "income from other sources." The Tribunal, following the precedent set by the ITAT Cuttack Bench, held that interest earned on deposits made under business compulsions has a direct and proximate connection with the business. Therefore, the Tribunal directed the AO to allow the deduction after netting off the interest paid and received.

3. Deduction under Section 80IA for Balance Written Back and Miscellaneous Income:

The assessee claimed deductions for amounts written back and miscellaneous income, which were disallowed by the AO and CIT(A). The Tribunal observed that for the assessment year 2010-11, the CIT(A) had allowed these deductions, recognizing them as related to the assessee's business activities. The Tribunal found no cogent reasons for the contrary view taken for the assessment year 2009-10 and directed the AO to treat these amounts as profits and gains derived from the eligible business, allowing the deductions under Section 80IA.

4. Deduction under Section 80IA for Interest on Income Tax Refund:

For the assessment year 2010-11, the assessee claimed a deduction for interest received on an income tax refund, arguing it was related to business activities. The CIT(A) disallowed this claim. The Tribunal, referencing a decision by the Mumbai Tribunal in ITO vs. Hiranandani Builders, held that interest on TDS refunds should be netted off against interest expenditure for computing profits and gains derived from the business. The Tribunal directed the AO to compute the profits and gains after netting off the interest against the interest expenditure, allowing the deduction under Section 80IA.

Conclusion:

In conclusion, the appeals filed by the assessee for the assessment years 2009-2010 and 2010-2011 were partly allowed. The Tribunal directed the AO to delete disallowances and allow deductions under Section 80IA for rental income, interest on fixed deposits, balance written back, miscellaneous income, and interest on income tax refunds, following the principles and precedents set in similar cases.