2015 (3) TMI 457 - HC - Income Tax

Entitlement to the deduction under Section 80IB - surrendered amount though utilized for the business of the appellant - Held that - Adverting to the judgments relied upon by the counsel for the assessee, it may be noticed that in those cases, either the Tribunal had recorded the finding that the surrendered income was derived from the industrial undertaking or they were based on individual fact situation involved therein. Thus, the assessee cannot derive any benefit from those judgments. Though the income surrendered is assessed by the Assessing Officer as business income, however, its nexus with the industrial undertaking is left to be established. There is nothing on record relied upon by the assessee to show that in the course of survey, any evidence of unaccounted turnover, inflation of expenses etc., was discovered, so as to say that the surrenderfed income was directly linked to the business of the industrial undertaking. There is no positive evidence led by the assessee to establish direct nexus with the industrial undertaking and therefore in our considered opinion, the burden cast on the assessee has not been discharged. The findings recorded by the Tribunal that appellant was not entitled to the deduction under Section 80IB on the surrendered amount though utilized for the business of the appellant have not been shown to be illegal or perverse in any manner. - Decided against the assessee.

Issues Involved:
1. Entitlement to deduction under Section 80IB on the surrendered amount.
2. Justification of ITAT's reliance on the judgment in National Legguard Works v. CIT.
3. Perversity and sustainability of ITAT's findings.
4. ITAT's influence by irrelevant factors and erroneous criteria in deciding the deduction claim under Section 80IB.

Issue-wise Detailed Analysis:

1. Entitlement to Deduction under Section 80IB on the Surrendered Amount:
The primary issue was whether the assessee was entitled to a deduction under Section 80IB of the Income Tax Act, 1961, on the surrendered amount of Rs. 1.20 crores, which the assessee claimed was part of its business income. The Tribunal held that for the purposes of computing deduction under Section 80IB, only the profits and gains with a direct nexus to the industrial undertaking are liable to be considered. The Tribunal referenced the Supreme Court's judgment in Cambay Electric Supply Industrial Co. Limited v. CIT and Sterling Foods, which distinguished between income "derived from" and income "attributable to" the business of an industrial undertaking. The Tribunal concluded that the assessee failed to establish a direct nexus between the surrendered amount and the industrial undertaking, thus disqualifying it from the deduction under Section 80IB.

2. Justification of ITAT's Reliance on the Judgment in National Legguard Works v. CIT:
The Tribunal relied on the judgment in National Legguard Works v. CIT, where it was held that the burden of proving that the surrendered amount represented profits eligible for deduction under Chapter VI-A was on the assessee. The Tribunal noted that there could be no presumption that the surrendered income was eligible for Section 80IB benefits. The assessee's claim that the surrendered amount was part of business activities did not suffice to demonstrate the required direct nexus with the industrial undertaking. The Tribunal emphasized that the onus was on the assessee to provide positive evidence linking the surrendered income to the industrial undertaking, which the assessee failed to do.

3. Perversity and Sustainability of ITAT's Findings:
The Tribunal's findings were challenged as being perverse and against the evidence on record. However, the Tribunal meticulously examined the facts and concluded that the assessee did not provide any evidence to establish that the surrendered income was derived from the industrial undertaking. The Tribunal observed that no unaccounted turnover or inflation of expenses was discovered during the survey that could directly link the surrendered income to the business of the industrial undertaking. The Tribunal's decision was based on a thorough analysis of the evidence and applicable legal principles, and thus, its findings were neither perverse nor unsustainable.

4. ITAT's Influence by Irrelevant Factors and Erroneous Criteria:
The assessee argued that the Tribunal was influenced by irrelevant factors and applied erroneous criteria in deciding the deduction claim under Section 80IB. However, the Tribunal's decision was grounded in established legal principles and precedents. The Tribunal correctly applied the criteria that the income must have a direct nexus with the industrial undertaking to qualify for deduction under Section 80IB. The Tribunal's reliance on relevant judgments, including those of the Supreme Court and the jurisdictional High Court, demonstrated that it was not influenced by irrelevant factors but rather adhered to the appropriate legal standards.

Conclusion:
The High Court upheld the Tribunal's decision, noting that the Tribunal had not erred in law or fact. The substantial questions of law were answered against the assessee and in favor of the revenue. The appeal was dismissed, reinforcing the principle that the onus is on the assessee to establish a direct nexus between the surrendered income and the industrial undertaking to claim deductions under Section 80IB.

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