2013 (8) TMI 633 - AT - Income Tax

Deduction claim u/s 80IB of the Income Tax Act - Karaikal Unit in respect of which the impugned deduction u/s 80IB of the Act is claimed by the assessee for the year under consideration was set up in the year 1996 by EID Parry (India) Ltd. and the same was taken over by the assessee - No deduction u/s 80IB of the Act was claimed by EID Parry (India) Ltd. in respect of the said unit in the initial years and even by the assessee up to the immediately preceding year - Due to the continuing losses suffered by the said unit in the earlier years, no deduction u/s 80IB of the Act was claimed as stated by the assessee and the year under consideration was the first year where there was an occasion to claim such deduction Held that - The issue as to whether the said unit is eligible for deduction u/s 80IB of the Act or not is required to be established with reference to the initial year and the onus on this regard is on the assessee to establish by producing the relevant documentary evidence to establish that the eligibility conditions stipulated for claiming the deduction u/s 80IB of the Act were duly satisfied in the initial year - It is also required for the A.O. to point out to the assessee as to what exactly is the documentary evidence required to establish its case if the documentary evidence produced by the assessee is found to be not satisfactory by him Matter remitted to the file of the A.O. with a direction to decide the same afresh after giving the assessee proper opportunity of being heard. Disallowance made u/s 36(1)(va) on account of deposit of employees contribution to PF/ESTC made beyond the due date Held that - Relying upon the decision of Hon ble Kerala High Court in the case of Commissioner of Income-tax v. South India Corporation Ltd. 1999 (10) TMI 44 - KERALA High Court and that of Hon ble Madras High Court in the case of Commissioner of Income-tax v. Shri Ganapathy Mills Company Ltd. 1999 (2) TMI 26 - MADRAS High Court , it was held that due date of payment under the relevant Act is inclusive of the grace period allowed under the said Act Decided against the Revenue. Explanation to Section 43(1) of the Income Tax Act - Disallowance on account of interest attributable to the borrowed funds utilized for acquiring the office premises Assessee made payment of Rs. 13.56 crores for the purchase of office premises. The said amount was paid by the assessee from the loan taken from UTI Bank Ltd Held that - The interest paid on the borrowed funds utilized for acquiring such capital asset is allowable as revenue expenditure as per the main provisions contained in section 36(1)(iii) of the Act - Assessee acquired the capital asset of office premises for the purpose of its existing business and not for any extension of its existing business Decided against the Revenue.

Issues Involved:
1. Disallowance of assessee's claim for deduction under section 80IB of the Income Tax Act, 1962 for Karaikal Unit.
2. Disallowance made under section 36(1)(va) on account of delayed deposit of employees' contribution to PF/ESIC.
3. Disallowance of interest attributable to borrowed funds utilized for acquiring office premises.

Detailed Analysis:

1. Disallowance of Deduction under Section 80IB for Karaikal Unit:
- The main issue was whether the Karaikal Unit, purchased by the assessee from EID Parry (India) Ltd., was eligible for deduction under section 80IB of the Income Tax Act, 1962.
- The assessee claimed the unit was eligible for the deduction as it was established in 1996 and was in its 9th year of operation.
- The AO disallowed the claim, noting that there was no evidence that EID Parry (India) Ltd. had claimed the deduction in prior years, and the assessee failed to prove the unit's eligibility.
- The CIT(A) allowed the claim, stating that the unit was purchased as a running concern and met the conditions of section 80IB.
- The Tribunal observed that eligibility must be established with reference to the initial year and the onus was on the assessee to provide relevant documentary evidence. The matter was remanded to the AO for fresh consideration with specific directions to provide the assessee with an opportunity to furnish the required evidence.

2. Disallowance under Section 36(1)(va) on Account of Delayed Deposit of Employees' Contribution to PF/ESIC:
- The issue involved the disallowance of employees' contribution to PF/ESIC deposited beyond the due date but within the grace period.
- The CIT(A) deleted the disallowance, relying on judicial precedents which held that the due date under the relevant Act includes the grace period.
- The Tribunal upheld the CIT(A)'s decision, following the judicial pronouncements of the Hon'ble Kerala High Court and Hon'ble Madras High Court, and dismissed the Revenue's ground on this issue.

3. Disallowance of Interest Attributable to Borrowed Funds Utilized for Acquiring Office Premises:
- The AO disallowed the interest attributable to the borrowed funds used for acquiring office premises, stating that the premises had not been put to use during the year and capitalized the interest.
- The CIT(A) deleted the disallowance, noting that the office premises were acquired for the existing business and not for the extension of the business, thus the proviso to section 36(1)(iii) was not applicable.
- The Tribunal agreed with the CIT(A), emphasizing that the allowability of interest expenditure is governed by section 36(1)(iii) and since the asset was acquired for the existing business, the interest was allowable as revenue expenditure. The Tribunal dismissed the Revenue's ground on this issue.

Conclusion:
- The appeal for A.Y. 2004-05 was allowed for statistical purposes, with the matter remanded to the AO for fresh consideration of the deduction under section 80IB.
- The appeal for A.Y. 2005-06 was partly allowed for statistical purposes, with the deduction under section 80IB remanded for fresh consideration, while the disallowances under sections 36(1)(va) and 36(1)(iii) were upheld in favor of the assessee.

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