2017 (4) TMI 821 - AT - Income Tax

Deduction u/s. 80IC - adjustment made on account of freight charges - Held that - AO stated that the Baddi Unit was purchasing goods from Faridabad unit and not debiting freight charges. The AO has only made presumptions. The assessee has stated that Baddi Unit has incurred ₹ 44,63,799/- on freight and labour in respect of all purchases. Thus, the Ld. CIT(A) has rightly observed that this amount of ₹ 24,53,532/- is not to be reduced from the total deduction claimed and not to be added to the total income, which does not need any interference on our part, hence, we uphold the action of the Ld. CIT(A) on the issue in dispute and accordingly dismiss the ground no. 1 raised by the Revenue. Addition on interest expense - AO made the adjustment stating no interest has been shown in Baddi. - Held that - The assessee stated that funds on which interest was paid was utilized for Faridabad unit. Hence, Ld. CIT(A) found the merit in the contentions of the assessee. The AO has worked out the interest expenses on a presumptive basis which is not correct. Thus, the Ld. CIT(A) has rightly observed that the amount of ₹ 16,64,268/- is not to be reduced from the profits and not to be added to the total income, which does not need any interference on our part, hence, we uphold the action of the Ld. CIT(A) on the issue in dispute and accordingly, dismiss the ground no. 2 raised by the Revenue. Presumptive interest expense on account of loan - Held that - The assessee stated that interest expenses were shown in Baddi unit. . Thus, the Ld. CIT(A) has rightly found the merit in the assessee s contentions. The interest of 12% has been disclosed in the books of account of the Baddi Unit. The addition therefore was rightly deleted by the Ld. CIT(A) and deduction was allowed on this amount, which does not need any interference on our part, hence, we uphold the action of the Ld. CIT(A) on the issue in dispute and accordingly, dismiss the ground no. 3 raised by the Revenue. Un-proportioned expenses - AO stated that rent, training charges and other administrative charges were not considered while computing the figure of common expenses - Held that - The assessee has agreed for ₹ 5,00,970/- but stated that the balance expenses were for the Faridabad Unit only. Hence, the Ld. CIT(A) has rightly accepted the contentions of the assessee and rightly directed to modify the same accordingly and partly allowed, which does not need any interference on our part, hence, we uphold the action of the Ld. CIT(A) on the issue in dispute and accordingly, dismiss the ground no. 4 raised by the Revenue. Addition to interest income - Held that - As per section 80IC the gross total income should include profit and gains derived by an undertaking or enterprise from any business referred to in the section. The interest income clearly is not from the manufacturing or production business of the assessee. Hence, the Ld. CIT(A) has rightly observed that the interest income may be treated as part of business profits and the amount of ₹ 17,46,414/- was rightly directed to be added to the total income of the assessee, which does not need any interference on our part, hence, we uphold the action of the Ld. CIT(A) on the issue

Summary

Issues:
1. Adjustment of freight charges for deduction u/s. 80IC.
2. Adjustment of interest expense for deduction u/s. 80IC.
3. Adjustment of interest on loan for deduction u/s. 80IC.
4. Adjustment of unproportioned expenses for deduction u/s. 80IC.
5. Confirmation of additions made by AO in respect of interest on hundi discounting.

Analysis:

1. Adjustment of Freight Charges for Deduction u/s. 80IC:
The AO presumed that the Baddi Unit did not debit freight charges for goods purchased from the Faridabad unit. However, the appellant argued that the Baddi Unit incurred expenses on freight and labor. The Ld. CIT(A) agreed with the appellant, stating that the amount should not be reduced from the deduction claimed. The Tribunal upheld this decision, dismissing the Revenue's appeal on this issue.

2. Adjustment of Interest Expense for Deduction u/s. 80IC:
The AO adjusted interest expenses of a certain amount, claiming it was not shown in the Baddi unit. The appellant clarified that the funds were used for the Faridabad unit. The Ld. CIT(A) found merit in the appellant's argument, stating the interest expenses were not to be reduced from profits. The Tribunal upheld this decision, dismissing the Revenue's appeal.

3. Adjustment of Interest on Loan for Deduction u/s. 80IC:
The AO contended that no interest charges were booked in the Baddi unit, but the appellant showed interest expenses in the unit. The Ld. CIT(A) agreed with the appellant, allowing the deduction on the disclosed interest. The Tribunal upheld this decision, dismissing the Revenue's appeal on this issue.

4. Adjustment of Unproportioned Expenses for Deduction u/s. 80IC:
The AO added certain expenses to common expenses, which the appellant disagreed with, stating they were for the Faridabad unit only. The Ld. CIT(A) accepted the appellant's contentions and directed modification accordingly. The Tribunal upheld this decision, dismissing the Revenue's appeal.

5. Confirmation of Additions for Interest on Hundi Discounting:
The Ld. CIT(A) confirmed the additions made by the AO regarding interest on hundi discounting. The Tribunal did not interfere with this decision, upholding the Ld. CIT(A)'s order. Both the Revenue's appeal and the Assessee's cross objection were dismissed by the Tribunal.

This detailed analysis of the judgment provides insights into each issue raised, the arguments presented by both parties, and the decisions made by the authorities and the Tribunal, ensuring a comprehensive understanding of the legal aspects involved.