2023 (10) TMI 906 - AT - Income Tax

Deduction u/s. 80IC - Allowability of interest from FDR s kept in four entities on account of power/electricity connection taken to run the factory, FDR against bank guarantee to Uttarakhand Environment Protection Pollution Control Board to get permission to run the plant, FDR for opening LC for import of goods, interest recovered from customers for credit term allowed against LC and bills were discounted on which interest were also paid - HELD THAT - As earning of interest income by the assessee when we consider the preposition render in the case of CIT vs Seshasayee Paper Board Ltd. 1993 (8) TMI 46 - MADRAS HIGH COURT then we clearly find that their Lordship speaking for High Court held that the interest received on deposit kept with electricity board has to be considered and should not be deducted from gross total income while computing deduction admissible u/s. 80I. In the present case the AO himself noted that the interest received by the assessee from four entities was due to FDR s kept with electricity board, environment board, for opening LC therefore, the impugned amount of interest has to be held derived from the eligible business entitle for deduction u/s. 80IC. However, amount of Rs. 54,680/- interest received on insurance claim cannot be held as derived from eligible business thus this part is should be reduced for the claim u/s. 80IC - Accordingly, ground no. 2 of assessee is partly allowed. Disallowance of deduction claimed u/s 80IC - late filling of income tax return - non-filing of return within prescribed time limit u/s. 139(1) - HELD THAT - As the return of income of the assessee for AY 2015- 16 was filed beyond the prescribed time limit u/s 139(1) - CIT(A) has recorded a categorical finding that the assessee was prevented by sufficient cause in filing the return within the prescribed time limit perhaps due to illness of executive partner of assessee. Even in a situation the return of income of the assessee for AY 2015-16 is treated as belated return beyond the prescribed time limit provided u/s 139(1) then also, as per the judgement of case of G.M. Knitting Industries Pvt. Ltd. 2015 (11) TMI 397 - SC ORDER which was followed by Krushi Vibhag Karmchari Vrund Sahakari Pat Sanstha 2022 (10) TMI 348 - ITAT NAGPUR the assessee is very well entitled to claim deduction u/s 80IC of the Act. Therefore, we reach a logical conclusion that the assessee is entitled to get deduction u/s. 80IC of the Act, as the claiming such deduction, which is part of Chapter VI-A of the Act, in the return of income filed within prescribed time limit is not mandatory but directory. Therefore Assessing Officer is directed to allow claim of assessee u/s. 80IC - Decided in favour of assessee.

Issues Involved:
1. Legality of the CIT(A)'s order.
2. Addition of interest income under Section 80IC.
3. Disallowance of deduction claimed under Section 80IC due to late filing of income tax return.
4. Violation of principles of natural justice.

Summary:

Issue 1: Legality of the CIT(A)'s Order
The appellant argued that the order passed by the CIT(A) is bad both in law and on facts. However, this ground was deemed general in nature and did not require specific adjudication.

Issue 2: Addition of Interest Income under Section 80IC
The appellant contended that the CIT(A) erred in confirming the addition of interest income of Rs. 7,01,825/- derived from eligible business, which should not be deducted from gross total income while computing the relief admissible under Section 80IC. The Tribunal, referencing the judgment of the Hon'ble High Court of Madras in CIT vs. Seshasayee Paper & Board Ltd., held that the interest received on deposits kept with entities like the electricity board and environment board is derived from eligible business. Thus, this interest should not be deducted from gross total income. However, the interest of Rs. 54,680/- received on an insurance claim was not considered derived from eligible business and should be reduced. Consequently, ground no. 2 was partly allowed.

Issue 3: Disallowance of Deduction under Section 80IC due to Late Filing
The appellant challenged the disallowance of Rs. 2,00,10,879/- under Section 80IC due to the late filing of the income tax return. The appellant argued that the audit report was filed within the due date, and the delay was due to the critical illness of an executive partner. The Tribunal, referencing the judgment of the Hon'ble Supreme Court in CIT vs. GM Knitting Industries Pvt. Ltd., held that while making a claim for deduction is mandatory, the timing is directory. Therefore, even if the claim is made during the assessment proceedings, it should be allowed. The Tribunal concluded that the appellant is entitled to the deduction under Section 80IC, despite the late filing of the return, as the delay was due to sufficient cause. Thus, grounds no. 3 and 4 were allowed.

Issue 4: Violation of Principles of Natural Justice
The appellant argued that the CIT(A) erred in not deleting the addition made by the AO, which was unlawful and violated principles of natural justice. This issue was addressed within the context of the above discussions.

Conclusion:
The appeal was partly allowed, with the Tribunal directing the AO to allow the claim of the appellant under Section 80IC of the Income Tax Act.

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