2018 (2) TMI 1529 - HC - Income Tax

Revision u/s 263 - benefit of deduction u/s 80-IA(4)(iv)(c) allowability - Held that - As regards the rental income it is also required to be observed that it is an independent income having no direct nexus towards reimbursement of manufacturing or selling expenses in the absence of the fact that the assessee was paying rent of staff quarters which was debited to profit and loss account. Thus it cannot be construed as income derived from the industrial undertaking. This view of the Tribunal does not call for any interference by this Court. We confirm the finding of the Tribunal on this aspect. Other items namely department exam fees sale of service register/departmental books sale of forms/booklet etc. sale of scrap/stock excess found meter rating testing charges (part of business income) Back Billing Charges (BBC) theft cases collected are already held to be allowable deduction under Section 80-IA(4)(iv)(c) of the Act by the ITAT. We answer the substantial questions of law in favour of the revenue and against the assessee as far as certain items of income are concerned i.e. miscellaneous recovery from employees difference between WDV/book value of released assets commission for collection of electricity duty rental income. Income derived from the items viz. penalty recovered from suppliers/contracts unclaimed balance outstanding pertaining to SD/EMD of contractor written back in the books of accounts rebate from power generators interest income (FD for opening of LC to Power Grid Corporation Ltd. PGCIL) are allowable deduction under Section 80-IA(4)(iv)(c) of the Act the substantial questions of law relating to these items are answered in favour of the assessee. The substantial questions of law relating to the revisional order under Section 263 is held in favour of the assessee and against the Revenue.

Issues Involved:
1. Refusal to adjudicate the appeal on merits due to the finality of the revision order under Section 263.
2. Denial of deduction under Section 80-IA(4)(iv)(c) for certain items of income.
3. Treatment of certain items of income as "other income" instead of "income from profits and gains of business."
4. Non-consideration of the Supreme Court's judgment in CIT Vs. M/s. Meghalaya Steels Ltd. (2016).
5. Dismissal of the appellant's plea for condonation of delay without considering Supreme Court principles.
6. Dismissal of appeal solely on the ground of limitation leading to charging of tax on amounts otherwise eligible for deduction.

Issue-wise Detailed Analysis:

1. Refusal to Adjudicate the Appeal on Merits:
The Tribunal refused to adjudicate the appeal for the assessment year 2006-07 on merits, citing that the revision order under Section 263 had attained finality due to the dismissal of the appeal on limitation grounds. The court found this approach unjustifiable, particularly when the issue was considered on merits while adjudicating the consequential orders. The substantial question of law relating to the revisional order under Section 263 was held in favor of the assessee.

2. Denial of Deduction under Section 80-IA(4)(iv)(c):
The court examined whether the benefit of deduction under Section 80-IA(4)(iv)(c) could be denied to items of income derived by the business undertaking. The court held that certain items like penalty recovered from suppliers/contracts, unclaimed balance outstanding, rebate from power generators, and interest income (FD for opening of LC to Power Grid Corporation Ltd., PGCIL) are allowable deductions under Section 80-IA(4)(iv)(c). However, miscellaneous recovery from employees, difference between WDV/book value of released assets, commission for collection of electricity duty, and rental income were not considered as derived from the industrial undertaking and thus not eligible for deduction.

3. Treatment of Certain Items of Income:
The Tribunal had treated certain items of income as "other income" instead of "income from profits and gains of business." The court found that items like penalty recovered from suppliers/contracts and unclaimed balances should be considered as business income. However, items such as miscellaneous recovery from employees and rental income were rightly treated as "other income."

4. Non-Consideration of Supreme Court's Judgment:
The court noted the relevance of the Supreme Court's judgment in CIT Vs. M/s. Meghalaya Steels Ltd., which held that subsidies and other forms of assistance related to business should be considered under "profits and gains of business or profession" rather than "income from other sources." This principle was applied to determine the treatment of various items of income in the present case.

5. Dismissal of Plea for Condonation of Delay:
The Tribunal dismissed the appellant's plea for condonation of delay without considering the principles enunciated by the Supreme Court. The court found this approach unjustifiable and held that the appeal should have been considered on merits.

6. Dismissal of Appeal on Limitation Grounds:
The court found that the dismissal of the appeal solely on the ground of limitation, leading to the charging of tax on amounts otherwise eligible for deduction, was unjustifiable. The substantial questions of law relating to the revisional order under Section 263 were held in favor of the assessee.

Conclusion:
The appeals were disposed of with the court ruling in favor of the assessee on several substantial questions of law, particularly concerning the revisional order under Section 263 and the treatment of certain items of income under Section 80-IA(4)(iv)(c). However, the court upheld the Tribunal's decision on treating certain items as "other income" and not allowing deductions for them.

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