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TMI Blog2016 (5) TMI 1251X X X X Extracts X X X X X X X X Extracts X X X X ..... tore the issue back to the file of the Assessing Officer and direct the assessee to produce the details and bills/vouchers in respect of the preoperative expenses and the Assessing Officer is directed to decide the deductibility of the expenses in accordance to law. We also direct the Assessing Officer to provide sufficient opportunity of hearing to the assessee. Decided against assessee for statistical purpose. - ITA No. 1211/Del/2013, ITA No. 480/Del/2014 - - - Dated:- 25-4-2016 - SH. I.C. SUDHIR, JUDICIAL MEMBER AND SH. O.P. KANT, ACCOUNTANT MEMBER For The Appellant : Sh. M.K. Bhatt, CA For The Respondent : Smt. Anima Barnwal, Sr.DR ORDER PER O.P. KANT, A.M.: These appeals of the assessee are preferred against two separate orders dated 03/01/2013 and 20/11/2013 of the Ld. Commissioner of Incometax( Appeals)-XXVIII, New Delhi for assessment years 2009-10 and 2010-11 respectively. The grounds raised in the both the appeals are common, and therefore both the appeals are heard together and disposed of by this consolidated order. ITA No. 1211/Del/2013 for AY: 2009-10 2. Now we take up the appeal in ITA No. 1211/Del/2013. The grounds of appeal r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 1961. (This ground of appeal is applicable only when our ground of appeal number 3 and 4 are not admitted, though the assessee is contesting over the same here before yours honor.) 2. The facts in brief are that the assessee, a partnership firm, was engaged in the business of manufacturing of printing machines, pads and plates from the factory located at Baddi, Himachal Pradesh. The unit of the assessee is located in a notified area, entitling the assessee to deduction under section 80IC of the Income Tax Act, 1961 (for short the the Act ). In the scrutiny assessment completed for the year under consideration under section 143(3) of the Act on 12/12/2011, the Assessing Officer (AO) did not allow the deduction under section 80IC of the Act on the interest income of ₹ 14,135/-, holding the same as not the profit derived from the eligible business. The AO also disallowed the claim of pre-operative expenses of ₹ 86,883/- in absence of any details provided and amount of ₹ 45 claimed under the profit and loss account as short and excess expenses. The assessee could not succeed before the learned Commissioner of Income-tax(Appeals). Aggrieved, the assessee i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #8377; 2,25,000/- was made with the bank on 21/12/2005 and pledged as a security deposit with the VAT Department of Himachal Pradesh government being a prerequisite for getting the VAT registration. The learned AR further submitted that in the case of liberty India Vs. CIT (supra) the issue of duty drawback/DEPB benefit were claimed as receipts derived from the business, which were held by the Hon ble Supreme Court as incentive profits not part of profit derived from the eligible business and they belong to category of ancillary profits of the undertaking, whereas in the case of present assessee registration with the VAT Department, Himachal Pradesh was inevitable for carrying out the activities, incapable being avoided or evaded conditions under which the FDR was made and pledged as security deposit on which the assessee received the interest. The ld. AR submitted that interest on capital being an inevitable one, may be allowed the deduction, the interest on FDR kept as security deposit to get the VAT registration must also be understood as inevitable and coupled with the main object of the business and consequently must be understood derived from the business . Further, the Ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing pages 1 to 47. The only controversy is whether the interest received on the fixed deposit (FDR) pledged with the VAT Department of Himachal Pradesh Government was an income derived from the eligible business or not. The FDR in question was made in the year 2005 and during the year interest of ₹ 14,135/- was received by the assessee. It is argued on behalf of the assessee that making the FDR was prerequisite for getting VAT registration and therefore it was being essential for business, the interest income is also derived from the eligible business of the assessee. In the case of CIT Vs. Sterling Foods , 237 ITR 579, the Hon ble Supreme Court has held that for the profit to be derived from the eligible business there should be nexus of firstdegree between the profit and the eligible business. The relevant para of the judgment is as under: 9. We do not think the source of the import entitlements can be said to be the industrial undertaking of the assessee. The source of the import entitlements can in the circumstances, only be said to be the export promotion scheme of the Central Government whereunder the export entitlements become available. There must be, for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to construe the amount as not derived by it from it's business. In Commissioner of Income Tax, Orissa Vs. Govinda Choudhury Ors., Gosaninuagaon, Orissa, (Supra), the Hon'ble Apex Court held that the interest awarded to the respondent-assessee therein in an arbitration proceeding for delayed payments under a contract executed by him was to be recorded as business income and could not be treated as income from other source . Various High Courts of the country, as has been referred to by the learned Tribunal have held the similar view. 5.7 In background of the above discussion, respectfully following the ratio laid down by the Hon ble Courts in the judgments cited above, we are of the opinion that the interest income earned from the fixed deposit pledged with VAT Department was not having any first degree nexus with the eligible business of the assessee and therefore not a profit derived from the eligible business and accordingly not entitled for deduction under section 80 IC of the Act. Thus, this ground of the appeal is dismissed. 6. In ground No. 3 the assessee has challenged the confirmation of the disallowances of preoperative expenses of ₹ 86,883/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of details supporting the claim of pre-operative expenses written off. It is the duty of the assessee to furnish the details as and when required for assessment of the income. There is no option if such details are not furnished, but to disallow the claim. I have no reason to interfere with the order of the assessment on this issue. Ground raised in appeal is dismissed. 6.2 Before us, the Ld. AR submitted that the assessee was entitled for amortization of the preoperative expenses at the rate of 20% as laid down in section 35D of the Act. 6.3 The ld. Departmental Representative, on the other hand, relied on the orders of the authorities below and submitted that in absence of any details provided by the assessee, the disallowance was rightly made. 6.4 We have heard the rival submissions and perused the material on record. The issue in dispute arose mainly due to non-furnishing of details of the expenses before the AO. In our opinion, there is no doubt that the assessee is entitled for deduction for the preoperative expenses amortized at the rate of 20% as per section 35D of the Act, but it is the responsibility of the assessee to furnish the details and bills and vouche ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowance made by the Learned Assessing officer on account of the interest income while calculating the deduction under section 80IC stating that such income is not directly derived from the business. The interest received on FDR pertains to the interest on Fixed Deposit (With CITI Bank) made and kept as a security Deposit with the VAT Department (Himachal Pradesh) for getting the VAT Registration. Until and unless such sum (Fixed Deposit) is not kept under the lien of VAT Department (Himachal Pradesh) the registration of VAT may never be granted consequently no Business Operation may be carried on. Hence interest so received is an income (First Degree Income) derived from the eligible Business. 4. The CIT (Appeals) has erred in law and on facts, in not allowing necessary additional deduction under section 80IC of Income Tax Act, 1961 on account of disallowance of amortization of Pre Operative Expenses under section 35D. Therefore, necessary directions are to be given to recompute the deduction under section 80IC of The Income Tax Act, 1961. (This ground of appeal is applicable only when our ground of appeal number 2 is not admitted, though the assessee is contesting over the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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