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2013 (11) TMI 196 - AT - Income TaxAssessee s Appeal Disallowance of Deduction u/s 80I and 80 HH - Held that - AR of the assessee fairly conceded that regarding allowability of deduction under these two Sections in respect of the income on account of FD interest, the issue was covered against the assessee as per the decision in respect of FD interest income, for this income on account of interest on loan also, the AO was directed to allow benefit of netting if the assessee can established the nexus between interest expenditure and interest income and in that situation, only net interest income should be excluded from business profit for the purpose of allowing deduction under these two Sections Relying upon Lalsons Enterprises v. DCIT 2004 (2) TMI 294 - ITAT DELHI-E . The two issues of discount and transport income were covered in favour of assessee there was no reason to take a contrary view in the present year and therefore, for these two items, we decide the issue in favour of assessee by following the Tribunal s orders in earlier years. For all the remaining items, the main aspect i.e. allowability of these deductions for these incomes is decided against the assessee but for these remaining items, the issue was restored to the file of AO for granting benefit of netting income to assessee in case the assessee was able to establish nexus between expenses incurred, if any, for earning these income. In that situation, only net income should be excluded from the business profit for the purpose of computing deduction allowable to assessee under these two Sections Decided against Assessee. Disallowance of Interest Expense - Held that - Disallowance of small amount of interest was not justified - All the business payments were also made from the same bank accounts and business receipts were credited in the same bank account, it cannot be said conclusively that overdraft in the bank account on the date of payment of advance tax was on account of payment of advance tax and not on account of other business payments made on the same date or preceding dates - Considering all these facts, we feel that in the fact of the present case, the disallowance was not justified and we, therefore, delete the same Decided in favour of Assessee. Allowability of Deduction u/s. 80I on Gross Profit Held that - Following CIT v. Amod Stamping 2004 (1) TMI 15 - GUJARAT High Court and Joint Commissioner of Income-tax Versus Mandideep Engineering And Packing India P. Limited 2006 (4) TMI 75 - SUPREME Court - while computing the profits for the purpose of availing of deduction under section 80-I, the profits and gains of the assessee s business were not required to be reduced by the deduction admissible under section 80HH Decided against Revenue. Allowability of Deduction u/s 80-I / 90IA / 80HH Allowability of Deduction u/s 80J / 80JA / 80HH/ 80I / 80HH / - held that - Following DCIT v, Harjivandas Juthabhai Zaveri And Another 1999 (12) TMI 5 - GUJARAT High Court The same goes to reduce cost and as a result, the profit remained same and therefore, deduction allowable to the assessee u/s. 80I of the Act was not required to be reduced on account of this receipt For the benefit the assessee had to establish nexus between truck hire charges received and truck hire charges paid by showing that for the same income, expenses was incurred by the assessee and in that situation, the AO should exclude only net income on account of truck hire charges from profit of Mandali Division for computing deduction allowable to the assessee u/s. 80I, 80A and 80HH of the Act - it was not required to be excluded from business profit but if the assessee was not able to establish that all these receipts were nothing but reimbursement of expenses, then also the Assessing Officer should examine the alternative claim of the assessee i.e. benefit of netting should be allowed to the assessee - Decided against Revenue. Disallowance of Entertainment Expenses - Held that - The issue should also go back to the file of Assessing Officer for fresh decision and if assessee can establish the amount of expenditure incurred for tea and coffee for employees, then no disallowance was called for to that extent - He should pass necessary order as per law as per above discussion after providing reasonable opportunity of being heard to assessee Decided in favour of Revenue. Disallowance of Claim of Deduction u/s. 35AB - Order of Ld. CIT(A) was set aside on this issue and the matter was restored back to the file of Assessing Officer for fresh decision after examining the factual aspect and if it is found that this claim of the assessee in the present year was fulfilling this requirement u/s. 35AB of the Act i.e., all the expenditure was incurred by the assessee for acquiring technical know-how on or after 01-04-1986 and if the claim of the assessee is within the period of six years from the year in which the expenditure was incurred and the amount is also equal to 1/6th of such expenditure then the claim of assessee should be allowed. The Assessing Officer should pass necessary order as per law after providing reasonable opportunity of being heard to assessee Decided in favour of Revenue. Disallowance Made u/s 40A(2) - Merely because the price paid to related party is excessive by price of Rs.0.01 per kg. which is less than 2% paid to the outsider, there cannot be any conclusive finding that price paid by the assessee to the related party was excessive or unreasonable without going into this aspect as to whether some other benefit is also received by the assessee or not from the related party as discussed above. Because of smallness of amount, we feel that going into these aspects will be a futile exercise and hence, we decline decline to interfere in the order of Ld. CIT (A) on this issue Decided against Revenue.
Issues Involved:
1. Disallowance of deductions under Sections 80I and 80HH of the Income Tax Act. 2. Confirmation of disallowance of interest expense. 3. Exclusion of income for the purpose of calculating deduction under Section 80HHC. 4. Charging of interest under Section 234B. 5. Deduction under Section 80HH on income from various undertakings. 6. Deduction under Section 80I on gross profit without reducing deduction under Section 80HH. 7. Allowability of various incomes under Sections 80I, 80IA, and 80HH. 8. Disallowance of expenditure on guest house under Section 37(4). 9. Disallowance of entertainment expenses. 10. Disallowance of various expenses such as hotel, distribution, Diwali, and gift expenses. 11. Disallowance of project expenses and lab project expenses. 12. Deduction under Section 35AB. 13. Expenditure paid to Mandaligram Panchayat. 14. Disallowance under Section 40A(2). 15. Addition of income from other sources. 16. Exclusion of 90% of net interest income for deduction under Section 80HHC. 17. Exclusion of 90% of insurance claim, truck hire charges, and transport income for deduction under Section 80HHC. 18. Interest under Section 234C. Detailed Analysis: 1. Disallowance of Deductions under Sections 80I and 80HH: The Tribunal upheld the disallowance of deductions under Sections 80I and 80HH for various incomes such as FD interest, rent income, and interest on loans, but directed the Assessing Officer (AO) to allow the benefit of netting if the assessee can establish the nexus between interest expenditure and interest income. This decision applies to all divisions involved: Mandali, Kanpur, and Indore. 2. Confirmation of Disallowance of Interest Expense: The Tribunal deleted the disallowance of interest expense of Rs. 56,670, noting that the interest expenditure cannot be conclusively correlated to the payment of advance tax. The Tribunal emphasized that business receipts and payments were made from the same bank accounts. 3. Exclusion of Income for Deduction under Section 80HHC: The Tribunal restored the matter to the AO to allow the benefit of netting for various incomes, including miscellaneous income, warehousing income, tank rent, and rent income, if the assessee can establish the nexus between the income and related expenditure. 4. Charging of Interest under Section 234B: The Tribunal held that the charging of interest under Section 234B is consequential and upheld the CIT(A)'s direction to the AO to charge interest accordingly. 5. Deduction under Section 80HH on Income from Various Undertakings: The Tribunal upheld the Revenue's appeal, confirming that the deduction under Section 80HH on income from various undertakings is not allowable, as decided in the assessee's own case for earlier assessment years. 6. Deduction under Section 80I on Gross Profit without Reducing Deduction under Section 80HH: The Tribunal decided in favor of the assessee, following the judgments of the jurisdictional High Court and the Supreme Court, which support the assessee's claim for deduction under Section 80I on gross profit without reducing the deduction under Section 80HH. 7. Allowability of Various Incomes under Sections 80I, 80IA, and 80HH: The Tribunal restored the matter to the AO for fresh decision regarding the allowability of netting for various incomes such as interest on LC, truck hire charges, and insurance claims, directing the AO to allow netting if the nexus between income and expenditure is established. 8. Disallowance of Expenditure on Guest House under Section 37(4): The Tribunal upheld the disallowance of guest house expenses of Rs. 1,28,227, following the Supreme Court's judgment in the case of Britannia Industries Ltd. 9. Disallowance of Entertainment Expenses: The Tribunal restored the matter to the AO to verify and allow the expenditure incurred on tea and coffee for employees, directing the AO to disallow only the amount not substantiated by the assessee. 10. Disallowance of Various Expenses: The Tribunal upheld the CIT(A)'s decision to allow various expenses such as hotel, distribution, Diwali, and gift expenses, noting that these are business expenses and following the Tribunal's decision in the assessee's own case for earlier years. 11. Disallowance of Project Expenses and Lab Project Expenses: The Tribunal restored the matter to the CIT(A) for fresh decision regarding the allowability of project expenses other than interest expenditure, confirming the allowability of interest expenditure following the jurisdictional High Court's decision. 12. Deduction under Section 35AB: The Tribunal restored the matter to the AO to verify the factual aspects and allow the deduction under Section 35AB if the claim fulfills the requirements of the section. 13. Expenditure Paid to Mandaligram Panchayat: The Tribunal upheld the CIT(A)'s decision to allow the expenditure of Rs. 1,85,000 paid to Mandaligram Panchayat, following the Tribunal's decision in the assessee's own case for earlier years. 14. Disallowance under Section 40A(2): The Tribunal upheld the CIT(A)'s decision, noting that the price difference paid to related parties is not excessive or unreasonable, and there may be other benefits accruing to the assessee. 15. Addition of Income from Other Sources: The Tribunal restored the matter to the AO for fresh decision, directing the AO to follow the Tribunal's decision in the assessee's own case for earlier years and verify the contentions of the assessee. 16. Exclusion of 90% of Net Interest Income for Deduction under Section 80HHC: The Tribunal restored the matter to the AO to verify the nexus between interest income and interest expenditure and allow netting accordingly, excluding 90% of net interest income from business profit for deduction under Section 80HHC. 17. Exclusion of 90% of Insurance Claim, Truck Hire Charges, and Transport Income for Deduction under Section 80HHC: The Tribunal restored the matter to the AO to verify the nexus between income and related expenditure and allow netting accordingly, excluding 90% of net income from business profit for deduction under Section 80HHC. 18. Interest under Section 234C: The Tribunal restored the matter to the AO to compute the interest liability under Section 234C, considering the advance tax paid by the amalgamating companies and the income of these companies up to the date of amalgamation. Conclusion: Both the appeals of the assessee and the Revenue were partly allowed for statistical purposes, with several matters restored to the AO for fresh decision and verification of the nexus between income and related expenditure. The Tribunal upheld some disallowances and deductions based on earlier decisions and judicial precedents, ensuring that the AO adheres to legal principles in re-evaluating the claims.
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