2010 (4) TMI 12 - HC - Income Tax

Bad Debts Deduction u/s 80IB - In re-assessment proceedings the Assessing Officer had disallowed the bad debts as also deduction under Section 80 IB of the Income-tax Act 1961 - ) in respect of interest received from trade debtors. The Commissioner of Income-tax (Appeals) allowed the appeal filed by the assessee and held against the revenue ITAT upheld the order if CIT(A) - The tribunal came to the conclusion that the bad debts issue had already been considered in the original proceedings under Section 143(3) and therefore the same could not be reopened in reassessment proceedings in respect of deduction under Section 80 IB of the said Act the Tribunal held that the interest income received on delayed realisation of sale proceeds took the character of sale proceeds and after placing reliance on the decision of the Madras High court in the case of Commissioner of Income-tax v. Indomatsushita Co. Ltd 2008 -TMI - 9851 - MADRAS High Court held that the said interest income could be excluded from the purview of deduction under Section 80 IB of the said Act - held that - We find no infirmity in the view taken by the Tribunal on this aspect of bad debts - interest becomes part of the sale price and therefore would be clearly derived from the sales made and was not divorced therefrom. Consequently it was held that such interest would be the direct result of the sale of goods and the income would definitely fall within the expression derived from the business of industrial undertaking as appearing in Section 80 IB of the said Act. - Decision of Supreme Court in the matter of Liberty India v. Commissioner of Income-tax 2009 -TMI - 34471 - SUPREME COURT followed

Summary

Issues:
1. Whether bad debts and deduction under Section 80 IB of the Income-tax Act, 1961 should be allowed in reassessment proceedings?
2. Whether interest income received on delayed realisation of sale proceeds can be excluded from the purview of deduction under Section 80 IB of the Income-tax Act, 1961?

Analysis:
1. The appeal filed by the revenue challenged the order passed by the Income-tax Appellate Tribunal regarding the disallowance of bad debts and deduction under Section 80 IB for the assessment year 2002-03. The Commissioner of Income-tax (Appeals) had allowed the appeal filed by the assessee. The Tribunal dismissed the revenue's appeal, stating that the bad debts issue had already been considered in the original proceedings under Section 143(3) and could not be reopened in reassessment proceedings. The Court upheld the Tribunal's decision on this matter, finding no infirmity in their view.

2. The Tribunal also addressed the issue of whether interest income received on delayed realisation of sale proceeds could be excluded from the deduction under Section 80 IB. Relying on the decision of the Madras High Court, the Tribunal held that such interest income could be excluded. The Court referred to various High Court decisions, including the Gujarat High Court, and the Supreme Court's decision in Liberty India v. Commissioner of Income-tax. The Court agreed with the Gujarat High Court's view that interest on delayed payment was part of the sale price, directly derived from the sales made, and fell within the expression "derived from" the business of an industrial undertaking under Section 80 IB. Consequently, the Court affirmed the Tribunal's decision, stating that the interest income should be excluded from the deduction under Section 80 IB.

In conclusion, the Court found that no substantial question of law arose for consideration and dismissed the appeal, affirming the Tribunal's decision.