9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2016 (1) TMI 397 - AT - Income TaxDeduction u/s 80IC - Bank Interest - CIT(A) deleted the addition - Held that - The assessee has to import raw materials for which it has to open letters of credit(LC). The LC is an integral part of the business activity carried on by the assessee. Since pledging of FDR is necessary for drawing LC, the FDR is also an integral part of the business. The ld.CIT(A) at para 1.4 of his order observes that such FD s had to be made before the raw material could be imported and hence the FD s were inextricable part o the assessee s business. We, do not find any infirmity with the findings of the ld.CIT(A). We therefore uphold the action of the ld.CIT(A) in respect of interest of FD s given as security for LC s. Miscellaneous Income - Held that - In the course of carrying out business operation of the assessee that the assessee had debited this miscellaneous income to the P&L Account and claimed as business expenditure while computing the profits of business which was eligible for deduction u/s 80IC. The ld. CIT(A) observed that the provision for expenses had been made for AY 2007-08 and when the same was not required it was credited back in A.Y. 2008-09 and that such amount has been treated as part of the business income in accordance with provision of section 41 of the I.T. Act. It has been observed by the ld. CIT(A) that the provision has been made in respect of business expenditure and there is no reason why the same should be treated as anything but profit derived from business when part of such liability is returned back as the same is not required anymore.We, do not find any infirmity with the findings of the ld.CIT(A). We therefore uphold the action of the ld.CIT(A) in deleting the addition in respect of the miscellaneous income. Foreign Exchange Gain - Held that - In reality there is no gain or loss. The cost of the purchase either goes up or goes down as the case may be. No doubt, the fluctuation in the cost of the purchase has the effect of reducing or enhancing the profit of business. The ld.CIT(A) held that such fluctuation is an essential and inextricable function of the business and the gain in question cannot be segregated from the profits derived from the business.We therefore uphold the action of the ld.CIT(A) in deleting the addition made by the ld. Assessing Officer in respect of foreign exchange fluctuation. In the light of the decision of Mepco Industries Ltd.(2009 (11) TMI 24 - SUPREME COURT ), one can have no escape from the conclusion that the nature of the subsidy has to be examined by the Court, In each case, in order to determine if as assessee s undertaking is entitled to a particular deduction under sec. 80 IC of the Act.In the present case the issue is whether the interest income, miscellaneous expenses, foreign exchange fluctuation comes within the first degree.In the light if the above discussion, we are therefore of the considered opinion that the decision of the Ld.CIT(A) in deleting the addition made by the ld.AO in respect of Bank Interest, Miscellaneous expenses and Foreign exchange fluctuation gain, do not suffer from any infirmity, legal or factual and can be said to have a direct nexes with the business activity carried on by the assessee. Bank guarantee - Held that - The bank guarantee is a part of the purchase process, and the income arising there from, has to be said to have been derived from the assessee s business. We, therefore, delete the addition made by the ld. Assessing Officer in respect of the interest earned from bank guarantee.
Issues Involved:
1. Eligibility of interest income for deduction under Section 80IC. 2. Eligibility of miscellaneous income for deduction under Section 80IC. 3. Eligibility of foreign exchange fluctuation gain for deduction under Section 80IC. 4. Eligibility of interest income on fixed deposits made for bank guarantees for deduction under Section 80IC. 5. Treatment of foreign exchange fluctuation gain on ECB loan and net interest income on FDRs. Issue-wise Detailed Analysis: 1. Eligibility of Interest Income for Deduction under Section 80IC: The primary issue was whether the interest income earned on FDRs pledged as margin money for letters of credit (LC) was eligible for deduction under Section 80IC. The CIT(A) held that interest on FDs given as security for LCs was eligible for deduction since these FDs were integral to the business operations. However, the interest on FDs for bank guarantees was not considered eligible. The Tribunal upheld the CIT(A)'s decision, agreeing that the FDs for LCs were an inextricable part of the business. 2. Eligibility of Miscellaneous Income for Deduction under Section 80IC: The assessee had credited back an amount representing excess provision for expenditure made in the past, which was shown as miscellaneous income. The CIT(A) observed that since the provision was initially made for business expenditure, its reversal should also be treated as business income. The Tribunal upheld this view, confirming that the credited back provision was part of the business income eligible for deduction under Section 80IC. 3. Eligibility of Foreign Exchange Fluctuation Gain for Deduction under Section 80IC: The assessee recorded a gain due to foreign exchange fluctuation. The CIT(A) noted that such fluctuations are inherent in international transactions and impact the cost of purchases, thereby affecting business profits. The Tribunal agreed, stating that foreign exchange fluctuation gains are an integral part of business operations and eligible for deduction under Section 80IC. 4. Eligibility of Interest Income on Fixed Deposits Made for Bank Guarantees for Deduction under Section 80IC: The CIT(A) initially denied the deduction for interest on FDs made for bank guarantees, considering it not linked to business activities. However, the Tribunal found that providing bank guarantees was a necessary part of the business, as evidenced by the terms of payment requiring such guarantees. Thus, the Tribunal allowed the deduction for interest income from FDs made for bank guarantees, recognizing it as derived from business activities. 5. Treatment of Foreign Exchange Fluctuation Gain on ECB Loan and Net Interest Income on FDRs: The assessee raised additional grounds regarding the treatment of foreign exchange fluctuation gain on ECB loans and the net interest income on FDRs after setting off bank charges. The Tribunal observed that these issues were not adjudicated by the CIT(A) and thus remanded them back to the CIT(A) for adjudication, ensuring that the assessee would be granted an opportunity for a hearing. Conclusion: The Tribunal upheld the CIT(A)'s decisions regarding the eligibility of interest income on FDs for LCs, miscellaneous income, and foreign exchange fluctuation gains for deduction under Section 80IC. It also allowed the deduction for interest income on FDs made for bank guarantees. The additional grounds raised by the assessee were remanded to the CIT(A) for further adjudication. The Revenue's appeal was dismissed, and the assessee's cross-objection was allowed.
|
