2015 (10) TMI 591 - AT - Income Tax

Claim of deduction of credit balance appearing under the head Settlement Bargain under section 80IB - Held that - In block assessment there was no profit under this head, therefore, reliance of this order cannot be placed in the impugned assessment year. Undisputedly, the orders are placed by the assessee for purchase of raw material and supply of raw material takes some time. When supply is effected at high seas, the rates are fluctuated and profit accrued to the assessee on account of fluctuation rates certainly reduces the cost of raw material, therefore, profit accrued thereon is certainly eligible for deduction under section 80IB of the Act. In the light of these facts, we are of the view that the credit balance accrued on account of settlement of rates is certainly eligible for deduction under section 80IB of the Act and we, therefore, find no infirmity in the order of the ld. CIT(A). Accordingly we confirm his order on this issue. - Decided against revenue. Trade liabilities written off under section 41(1) - CIT(A) deleted addition - Held that - We find that since it is a trade liability which was not required to pay in this year and it was offered as income and deduction was claimed thereon. The Revenue has not brought out anything on record to establish that these liabilities are not trade liabilities. Therefore, we find no merit in the Revenue s appeal on this issue. Accordingly we confirm the order of the ld. CIT(A) on this issue.- Decided against revenue.

Summary

Issues:
1. Claim of deduction of credit balance under section 80IB
2. Treatment of liability written back as income eligible for deduction under section 80IB

Analysis:

Issue 1: Claim of deduction of credit balance under section 80IB
The appeal involved a dispute regarding the deduction of a credit balance under section 80IB of the Income-tax Act. The appellant, engaged in manufacturing and trading activities, claimed a deduction for a sum classified as "Settlement Bargain." The Assessing Officer disallowed the claim, citing lack of convincing explanations from the appellant. However, the ld. CIT(A) re-examined the claim and found that the transactions under "Bargain Settlement" actually pertained to purchases of raw material for the manufacturing process. The ld. CIT(A) held that this income was eligible for deduction under section 80IB as it was derived from industrial undertakings. The Tribunal upheld the ld. CIT(A)'s decision, emphasizing that the profit accrued from fluctuating rates of raw material reduced the cost of production, making it eligible for deduction under section 80IB.

Issue 2: Treatment of liability written back as income eligible for deduction under section 80IB
Another aspect of the appeal concerned a liability of a certain amount written back as income, which the Assessing Officer did not consider as derived from the industrial undertaking. The appellant argued that these trade liabilities, no longer required to be paid, were directly connected to industrial activities and should be treated as income eligible for deduction under section 80IB. The ld. CIT(A) verified the details provided by the appellant and concluded that these trade liabilities, written off under section 41(1) of the Act, were indeed eligible for deduction under section 80IB as they were connected to the industrial undertaking. The Tribunal upheld the ld. CIT(A)'s decision, noting that the Revenue failed to establish that these liabilities were not trade liabilities, confirming the eligibility of the amount for deduction under section 80IB.

In conclusion, the Tribunal dismissed the appeal of the Revenue, upholding the decisions of the ld. CIT(A) regarding both issues. The Tribunal found no infirmity in the ld. CIT(A)'s orders and confirmed that the disputed amounts were indeed eligible for deduction under section 80IB of the Income-tax Act.