2015 (5) TMI 474 - AT - Income Tax

Deduction under Section 80IC - CIT(A) restricted the deduction holding that profit on sale of undertaking & interest income from FDR is not income derived by an undertaking from any business and as such not eligible for deduction under section 80IC - Held that - The assessee company itself has submitted revised computation of its income before the AO twice, firstly on 27.11.2009 and secondly on 07.12.2009, wherein the short term capital gain on sale of assets and income from FDR interest was reduced from the claim of deduction u/s 80IC. At this juncture, we respectfully take guidance from the decision of Liberty India Ltd. (2009 (8) TMI 63 - SUPREME COURT ) wherein held that the connotation of the words derived from is narrower as compared to words attributable to . Also that by using the expression derived from , the Parliament intended to cover sources not beyond the first degree business activities. From the facts emerged before us, it is vivid that the assessee company sold its business assets and received sale consideration of land and building of ₹ 5,75,00,000/-. The assessee company also earned interest from FDRs by deploying said amount of consideration with the bank in short term fixed deposit account. Therefore, we are inclined to hold that such profits and gains from sale of assets and interest cannot be held as income derived from the activities of the industrial undertaking eligible for deduction u/s 80IC and the word derived from covers the source of income not beyond the first degree activities of the business. Disallowance to claim of deduction u/s 80IC of the Act on the income from sale of business assets and income from interest on short term fixed deposits with the banks confirmed. - Decided against assessee. Computation of short term capital gain - addition has been made rejecting the explanation of the assessee that the sale was a slump sale - Held that - We are included to accept conclusion of the authorities below that sale of assets by the assessee company was not a slump sale in the light of definition given by the statute to the slump sale in section 2(42C) of the Act as the assessee company raised separate bills for each and every asset stating therein value of sale separately assigned to every asset, therefore, the sale of assets by the assessee company cannot be held as slump sale. - Decided against assessee. Prior period expenses disallowed - Held that - Since the assessee itself admitted before the CIT (A) that the impugned expenditure was incurred towards setting up of a new unit and therefore, the same were rightly treated by the AO as capital expenditure. We further observe that the assessee could not substantiated its claim that the assessee incurred said expenditure, which was incurred from December 2006 to March 2007, was actually made as revenue expenditure against the income earned during the year consideration. Thus, we are of the considered view that when the assessee itself admitted that the expenditure in question was incurred towards setting up of a new unit then the same cannot be allowed as expenditure towards the business which was closed and assets were sold on 16.11.2006. - Decided against assessee.

Issues Involved:
1. Restriction of deduction under Section 80IC.
2. Eligibility of profit on sale of undertaking for deduction under Section 80IC.
3. Eligibility of interest income from FDR for deduction under Section 80IC.
4. Computation of short-term capital gain.
5. Disallowance of expenses incurred by the assessee.

Detailed Analysis:

Issue 1: Restriction of Deduction under Section 80IC
The assessee claimed a deduction under Section 80IC amounting to Rs. 5,75,33,565/-, which the Assessing Officer (AO) restricted to Rs. 83,71,889/-. The Commissioner of Income-tax (Appeals) [CIT(A)] confirmed this restriction. The Tribunal noted that the assessee had revised its computation of income twice, ultimately claiming a deduction of Rs. 83,71,889.87 under Section 80IC, excluding short-term capital gain from the sale of business assets. The Tribunal upheld the AO and CIT(A)'s decision, emphasizing that the sale of business assets and interest income from FDRs could not be considered as profits derived from the industrial undertaking.

Issue 2: Eligibility of Profit on Sale of Undertaking for Deduction under Section 80IC
The Tribunal examined whether the profit from the sale of the undertaking qualifies for deduction under Section 80IC. The assessee argued that the profit from the sale of assets and interest from FDRs should be considered as profits derived from the business. However, the Tribunal referenced the Gauhati High Court decision in Pancharatna Cement P. Ltd. vs. UOI, which stated that profits must be directly derived from the business activities of the industrial undertaking. The Tribunal concluded that the sale of business assets did not qualify as a slump sale under Section 2(42C), as separate bills were raised for each asset, and thus, the profit could not be considered for deduction under Section 80IC.

Issue 3: Eligibility of Interest Income from FDR for Deduction under Section 80IC
The Tribunal addressed whether interest income from FDRs qualifies for deduction under Section 80IC. The assessee contended that the interest income was derived from the business as the funds were deployed from the sale proceeds. However, the Tribunal, guided by the Supreme Court decision in Liberty India Ltd., held that the term "derived from" is narrower and does not cover sources beyond the first degree of business activities. Consequently, the Tribunal upheld the AO and CIT(A)'s decision to disallow the deduction on interest income from FDRs under Section 80IC.

Issue 4: Computation of Short-term Capital Gain
The AO computed the short-term capital gain at Rs. 5,14,80,518/- against Rs. 4,90,59,320/- declared by the assessee, rejecting the claim of a slump sale. The Tribunal noted that the assessee raised separate bills for each asset, which contradicted the definition of a slump sale under Section 2(42C). The Tribunal upheld the AO's computation of short-term capital gain, dismissing the assessee's contention.

Issue 5: Disallowance of Expenses Incurred by the Assessee
The assessee claimed expenses of Rs. 6,47,197/- as revenue expenditure, which the AO treated as capital expenditure. The Tribunal noted that the assessee admitted the expenses were incurred for setting up a new unit, not related to the closed business. The Tribunal upheld the CIT(A)'s decision, confirming the AO's treatment of the expenses as capital expenditure.

Conclusion:
The Tribunal dismissed the appeal of the assessee, upholding the decisions of the AO and CIT(A) on all grounds. The Tribunal found no merit in the assessee's claims for deductions under Section 80IC for profits from the sale of business assets and interest income from FDRs, nor in the computation of short-term capital gain and disallowance of expenses. The Tribunal emphasized the importance of the statutory definitions and judicial interpretations in reaching its conclusions.

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