2019 (5) TMI 842 - AT - Income Tax

Claim for exemption u/s. 10B OR 80HHC - assessee had not opted for benefits u/s. 10B in that year - deduction u/s. 80HHC was not granted on exports made through export houses on the ground that no disclaimer certificates were filed - appeal before CIT(A) dismissed on technical ground which was restored by ITAT - in second round assessee claimed deduction u/s. 10B - HELD THAT - Admittedly, the assessee claimed deduction u/s. 80HHC in the return of income which was duly granted. Subsequently, before the first appellate authority, the assessee made a claim of deduction u/s. 10B in respect of the profit of the CAPs Sea Food Unit which is said to be 100% EOU, without withdrawing the claim u/s. 80HHC . The assessee may exercise his option before the due date of furnishing the return of income u/s 139(1) for the assessment year commencing form 1st April, 1989, furnishes to the Assessing Officer a declaration in writing that the provisions of sub-section (1) of section 10B may be made applicable to it for the relevant assessment year and if it does so, then the provisions of sub-section (1) of section 10B shall be made applicable to it for the relevant assessment year. Accordingly, the provisions of sub-section (4) of section 10B shall also apply while computing the total income of the assessee for the relevant assessment year immediately succeeding the last of such assessment year or in subsequent years. In the present case, the assessee has not opted for the deduction u/s. 10B in its return of income and also has not filed the relevant details so as to avail deduction u/s. 10B before framing of the assessment. As such the assessee cannot be granted deduction u/s. 10B. So long as the assessee has not made available the audit report and other documents pointed out by the CIT(A) in terms of section 10B before framing of the assessment, the claim of deduction u/s. 10B cannot be granted. Further, the assessee cannot claim the exemption u/s. 10B without withdrawing the claim which was already granted u/s. 80HHC - Decided against assessee Addition towards interest u/s. 244A on income tax refund as income from other sources - CIT(A) rejected this ground of the assessee on the reason that since the interest was actually granted to the assessee, the same is taxable irrespective of any pending assessments - HELD THAT - Admittedly, in the present case, the assessee was in receipt of interest on refund. Since the assessee was actively following the mercantile system of accounting and the income was accrued and received by the assessee, the same is to be taxed in the assessment year under consideration. The assessee cannot postpone the liability of payment of tax on the income tax refund on the reason that it would be withdrawn or reduced by the Department subsequently. If there is withdrawal or reduction by the Department, the remedy lies to the assessee elsewhere and not at this stage - Decided against assessee

Summary

Issues Involved:
1. Rejection of claim for exemption under Section 10B.
2. Addition of interest on income tax refund as income from other sources.

Detailed Analysis:

1. Rejection of Claim for Exemption under Section 10B:

The assessee, an exporter of seafood, appealed against the CIT(A)'s decision to reject their claim for exemption under Section 10B of the Income Tax Act. The CIT(A) observed that the assessee had not claimed this deduction in their return of income or before the Assessing Officer. The CIT(A) also noted that the assessee had initially claimed a deduction under Section 80HHC and not Section 10B, which requires specific conditions to be fulfilled from the first year of operation. The CIT(A) found that the assessee had not opted for Section 10B benefits in the year of commencement (AY 1995-96) and had instead claimed Section 80HHC benefits. Therefore, the CIT(A) concluded that the assessee could not switch to claiming benefits under Section 10B in subsequent years, especially without withdrawing the already granted Section 80HHC benefits.

The Tribunal upheld the CIT(A)'s decision, emphasizing that the assessee did not comply with the procedural requirements to claim Section 10B benefits, such as filing the necessary audit report and other documents before the assessment. The Tribunal also noted that the assessee cannot claim exemption under Section 10B without withdrawing the Section 80HHC claim. The Tribunal dismissed the assessee's reliance on the Bombay High Court judgment in the case of Pruthvi Brokers & Shareholders (P) Ltd., stating that it was based on different facts.

2. Addition of Interest on Income Tax Refund as Income from Other Sources:

The assessee contested the addition of ?42,266/- received as interest on income tax refund, which the Assessing Officer had classified as income from other sources. The CIT(A) upheld this addition, stating that interest received in any year is taxable as income from other sources, regardless of the finality of pending assessments.

The assessee argued that the interest should not be taxed until the assessments reach finality and provided a breakdown of the interest amounts. They also contended that the interest granted in earlier years, which was later reduced or withdrawn, should be deducted in computing the income for the relevant assessment year. The assessee maintained that interest should be considered as received only upon the physical receipt of the refund amount.

The Tribunal rejected the assessee's arguments, stating that since the assessee follows the mercantile system of accounting, the interest income accrued and received should be taxed in the year of receipt. The Tribunal noted that any subsequent withdrawal or reduction of interest by the Department does not alter the fact that the income was received and should be taxed accordingly. The Tribunal dismissed this ground of appeal as well.

Conclusion:

The Tribunal dismissed the appeal filed by the assessee, upholding the CIT(A)'s decisions on both the rejection of the Section 10B exemption claim and the addition of interest on income tax refund as income from other sources. The order was pronounced in the open Court on May 8, 2019.