2022 (12) TMI 638 - AT - Income Tax

Deduction u/s 80HHC - interest paid on security direct nexus with the interest received by the appellant - Whether CIT(A) has erred in not considering deduction of 90% of interest while working out deduction u/s 80HHC? - HELD THAT - We find that now it is a settled proposition as held in the case of Vikas Kalra 2012 (2) TMI 99 - SUPREME COURT as well as in the case of ACG Associated Capsules Pvt. Ltd 2012 (2) TMI 101 - SUPREME COURT that 90% of net interest interest paid (minus) interest received has to be reduced for the purpose of calculation of deduction u/s 80HHC of the Act. CIT(A) failed to take note of these judgments and emphasised more on the issue of nexus which no longer survives after the verdict of the Hon ble Apex Court. We find merit in this contention of assessee and direct AO to reduce 90% of the net interest received from the net profit for the purpose of calculating deduction u/s 80HHC of the Act. In the result, Ground Nos. 1 2 of the assessee are allowed. Correctness of interest charged u/s 234B - Assumption of date of filing of return - assessee has contended that the regular assessment u/s 143(3) of the Act was completed on 29/12/2006 and, therefore, the cut-off date for charging the interest would be December, 2006, whereas the CIT(A) has confirmed the action of the AO charging the interest up to March, 2007 - HELD THAT - We find that the ld. CIT(A) has referred to Section 234B(3) of the Act, which relates to the order of re-assessment or re-computation u/s 147 or Section 153A of the Act. However, in the instant case, the order of the ld. Assessing Officer is not framed u/s 147 or 153A of the Act. On the other hand, Section 234B(4) of the Act refers to the order u/s 154/155/250/254/260/262/263/264 of the Act and in the case of the assessee, the assessment order has been framed u/s 143(3)/251/254/263/254 of the Act. So, prima facie there remains no dispute to the fact that that in the case of the assessee interest should have been charged as per the provisions of Section 234B(4) of the Act i.e., up to December, 2006. We, therefore, fail to find any merit in the findings of the ld. CIT(A) and the same is reversed and Ground Nos. 3, 4 5, raised by the assessee are allowed. Calculation of interest u/s 234B - Contention made by the ld. Counsel for the assessee has substantial merit because in the assessment order framed on 21/12/2009, interest u/s 234B of the Act has been charged at Rs.12,92,191/- where as in the order dt. 23/12/2010, interest of Rs.19,12,454/- has been charged So far as the difference in the total income assessed is concerned, there is only an increase of Rs.45,393/-, in the order dt. 23/12/2010 as against the order dt. 21/12/2009. There is apparently a calculation error/mistake which needs necessary rectification. Therefore, we restore the issues raised in Ground Nos. 6 7 to the ld. Assessing Officer for necessary verification. Thus, both these grounds are allowed for statistical purposes.

Summary

Issues:
1. Deduction u/s 80HHC of the Act - Interest paid on security deposit not allowed for netting purpose.
2. Correctness of interest charged u/s 234B of the Act - Cut-off date for charging interest and application of relevant sections.

Analysis:

Deduction u/s 80HHC of the Act:
The assessee, engaged in manufacturing pharmaceutical products, claimed deduction u/s 80HHC. The Assessing Officer disallowed interest paid on security deposit for netting purpose, stating lack of direct nexus with interest bearing assets. The ld. CIT(A) upheld this decision. The Tribunal, citing judgments by the Hon'ble Supreme Court, directed the Assessing Officer to reduce 90% of net interest received for calculating deduction u/s 80HHC, allowing the appeal.

Correctness of interest charged u/s 234B of the Act:
The dispute arose regarding the cut-off date for charging interest u/s 234B. The Assessing Officer charged interest up to March 2007, post-completion of regular assessment in December 2006. The ld. CIT(A) relied on Section 234B(3) instead of Section 234B(4), which was applicable. The Tribunal reversed this decision, stating that interest should have been charged up to December 2006. Additionally, a calculation error was noted in the interest charged in different assessment orders, leading to the matter being referred back to the Assessing Officer for verification.

In conclusion, the Tribunal allowed the appeal partially, directing correct application of provisions for deduction u/s 80HHC and interest charged u/s 234B. The delay in pronouncing the order was acknowledged, attributing it to unavoidable circumstances.