2013 (7) TMI 614 - AT - Income Tax

Deduction under Section 80IB of the Income Tax Act, 1961 - The assessee firm has five units. Out of five units, two units are existing in exempted zones and three are existing in taxable zones - Assessee has debited the entire interest in the books of taxable units - Partners in the Assessee s firm have interest free capitals of Rs. 82.12 crores as on 31.3.2009 and the investments in Tax free units is Rs. 63.67 crores - Held that - Following the principle of consistency in deleting the addition made by the Assessing Officer. No change in facts from the earlier years have been brought on record As per the decision in the case of DCIT vs. Delhi Press Samachar Patra 2006 (3) TMI 218 - ITAT DELHI-E , apportionment of expenses between different units without any investigation and collection any material is arbitrary. - No disallowance in this regard has been made in the past and as such even in view of rule of consistency, the disallowance made is not tenable Decided against the Revenue Interest received on FDR - Unclaimed creditors written back - Insurance claim Held that - Interest was received on FDR purchased for bank guarantee and as such the income is derived from industrial undertaking relying upon the decision in the case of Orchid Chemicals & Pharmaceuticals Ltd 2005 (7) TMI 334 - ITAT MADRAS-B ; Sundry creditors were outstanding for business transaction. Hence, it cannot be said that income in this regard was not derived from the industrial undertaking relying upon the decision of C.I.T. vs. Abdul Rehman Industries 2006 (12) TMI 114 - MADRAS High Court ; If the insurance is claimed in the realm of revenue transaction, it will be allowed as deduction. However, if the same is on capital field, the same cannot be sold out The issue is remitted to the Assessing Officer Decided against the Revenue.

Summary

Issues:
1. Disallowance of deduction of 80IB by Assessing Officer.
2. Disallowance of deduction u/s. 80IB on certain receipts by Assessing Officer.

Analysis:
Issue 1: Disallowance of deduction of 80IB by Assessing Officer
The Assessing Officer disallowed a deduction of Rs. 26,88,182 under section 80IB, alleging that interest amounting to this sum was allocated to exempted units, reducing the claim of deduction. The Commissioner of Income Tax (Appeals) noted that no bank loan was taken in the exempted units, and the investments in these units were funded by interest-free partner capital. The Commissioner held that there was no evidence to support the contention that interest from loans of tax-free units was diverted to taxable units. Consequently, the disallowance of the claim under section 80IB was deleted.

Issue 2: Disallowance of deduction u/s. 80IB on certain receipts by Assessing Officer
The Assessing Officer reduced the deduction under section 80IB by Rs. 97,597, contending that certain receipts like interest on FDR, unclaimed creditors written back, and insurance claim were not derived from the industrial undertaking. However, the Commissioner of Income Tax (Appeals) found that these receipts were related to the business activities of the unit and overturned the disallowance. The Tribunal agreed with the Commissioner, stating that the interest on FDR purchased for bank guarantee and other receipts were indeed derived from the industrial undertaking. The Tribunal remitted the issue of the insurance claim back to the Assessing Officer for further examination to determine its nature as a revenue or capital item.

In conclusion, the Tribunal upheld the Commissioner's decision to delete the disallowance of deduction under section 80IB in both issues, finding no infirmity in the orders. The appeal by the Revenue was partly allowed for statistical purposes.