2022 (12) TMI 206 - AT - Income Tax

Disallowance for 80IC deduction - fulfilling necessary conditions for claiming deduction - AO observed that, there was no proof that the new unit is an independent separate unit from the old one - Reliance on the statement of two employees one being a brand new employee and the other too low level employee and definitely not authorized to convey information in regard to the assessee - HELD THAT - As seen that the employees whose statements have been relied upon were admittedly not the authorized personnel, hence not competent to comment. The report, accordingly, is a meaningless exercise. The fact that it was carried out on 29.03.2013 and the Report was filed on 30.03.2013 and was made available to the assessee also on the very same day and was somehow replied to scantily by the assessee also on 31.03.2013 leading to the passing of the order also on 31.03.2013, we find does not inspire any confidence in the fairness of the decision making process and hence is questionable. Effective and a fair hearing on the issues was denied to the assessee by the AB. The facts as thrashed out by the CIT(A) referring to the supporting evidences culled out from the assessment order itself taken into consideration by the CIT(A), we find are not rebutted by the Revenue. We find that the unrebutted facts on record are that the unit has duly been set up in the leased premises, electricity usage demonstrates the claim of the assessee, machinery has been purchased by the new unit. These facts are not disputed by the Revenue, ACs have been manufactured and sold. These have also been accepted by the AO Excise Tax records and all contemporaneous evidence remains unassailed on record. Accordingly, in the facts as they stand, we find that the facts as available on record cannot be faulted with. Being satisfied by the reasoning and conclusion drawn by the ld. CIT(A), the ground No. 2 raised by the Revenue is dismissed. Disallowance u/s. 36(1)(iii) - investment was made in the sister concern - HELD THAT - The facts taken into consideration available on record namely that the assessee had sufficient interest free funds available sources in the year under consideration and the availability also in the year when the amount was advanced to M/s. Amber Enterprises which advance admittedly was not in the year under consideration are all relevant and cogent facts. These we find have not been assailed. Being satisfied with the detailed finding on facts based on evidences available on record, which have been considered by the First Appellate Authority. In the absence of any infirmity in the conclusion arrived at we find no good reason to interfere with the order. Ordered accordingly. Accordingly, the ground of the Revenue is dismissed.

Summary

Issues Involved:
1. Disallowance of interest under Section 36(1)(iii) of the Income Tax Act, 1961.
2. Denial of deduction under Section 80IC of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Disallowance of Interest under Section 36(1)(iii):
The Revenue challenged the deletion of the disallowance of interest by the CIT(A), arguing that the assessee had failed to provide details of all direct/indirect expenses incurred and that funds utilized in machinery and building came from a common pool, including interest-bearing funds. The AO had disallowed interest expenses on the grounds that the assessee was claiming more expenses in non-exempted units and less in exempted units, thereby transferring profits from non-exempted units to exempted units.

The assessee countered that the investments in building under construction and machinery were made from its own funds, which were sufficient and interest-free, amounting to Rs. 88.13 crores. It was also argued that the assessee had followed a systematic accounting method and had capitalized interest wherever required. The CIT(A) found that the AO had not established a nexus between borrowed funds and the investments in building and machinery. The CIT(A) deleted the disallowance, citing sufficient interest-free funds and systematic accounting by the assessee.

The Tribunal upheld the CIT(A)'s decision, noting that the assessee had sufficient interest-free funds and that the AO had not proved any nexus between borrowed funds and the investments. The Tribunal also noted that the assessee had not made any fresh investments in the year under consideration and had sufficient own funds in earlier years.

2. Denial of Deduction under Section 80IC:
The Revenue contended that the assessee's Kala Amb Unit did not fulfill the necessary conditions for claiming deduction under Section 80IC, arguing that the unit was not an integrated and independent unit and had used old machinery from its sister concern, M/s. Amrit Aircon System Pvt. Ltd. The AO had disallowed the deduction, citing various reasons including the use of old machinery, shared electricity connection, and the lack of clear demarcation between the units.

The assessee argued that the Kala Amb Unit was a new and independent unit with an investment of Rs. 94 lakhs in machinery, and had obtained necessary clearances and registrations. The assessee also contended that the AO's observations were based on assumptions and that the unit had commenced operations with new machinery. The CIT(A) found that the AO's conclusions were not supported by cogent evidence and that the assessee had met the eligibility conditions for deduction under Section 80IC.

The Tribunal upheld the CIT(A)'s decision, noting that the AO's observations were based on assumptions and that the assessee had provided sufficient evidence to support its claim. The Tribunal also noted that the AO had not doubted the assessee's sales and purchases and that the assessee had complied with necessary legal clearances and registrations.

Conclusion:
The Tribunal dismissed the Revenue's appeals, upholding the CIT(A)'s decisions on both issues. The Tribunal found that the disallowance of interest under Section 36(1)(iii) was not justified as the assessee had sufficient interest-free funds and had followed systematic accounting. Similarly, the denial of deduction under Section 80IC was not justified as the assessee had met the eligibility conditions and provided sufficient evidence to support its claim.