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TMI Blog2017 (3) TMI 1297X X X X Extracts X X X X X X X X Extracts X X X X ..... ted these facts with those involved in hon'ble apex court decision in Liberty India vs. CIT (2009 (8) TMI 63 - SUPREME COURT ) involving DEPB sales figures. We accept assessee's contentions on merits and reject those raised at Revenue's behest supporting the impugned disallowance. Thus assessee is eligible to claim deduction u/s 80IB on the income from discount (kasar) - Decided against revenue Non treating, interest of received from PGVCL, interest subsidy received from Government of Gujarat through district industrial center and interest from FDR eligible for deduction u/s 80IB(llA) - Held that:- As regards interest received from Government of Gujarat issue is squarely covered in favour of assessee in the case of Commissioner of Income Tax vs. Meghalaya Steels [2016 (3) TMI 375 - SUPREME COURT ] as held the subsidies were only in order to reimburse, wholly or partially, costs actually incurred by the assessee in the manufacturing and selling of its products. Examining the facts of the case in the light of above judgment we are of the considered view that assessee has also received interest subsidy from Govt. of Gujarat for the project undertaken by the assessee eligible for deduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the employees contribution to PF is deposited beyond the due date as provided in the statute then such expenses cannot be claimed as deduction against the gross revenue. Respectfully following the judgment of Hon. Jurisdictional High Court in the above case, we find no reason to interfere with the order of ld. Commissioner of Income Tax(A) confirming the disallowance with respect to late payment of employees PF. - Decided against assessee. X X X X Extracts X X X X X X X X Extracts X X X X ..... has erred in law and on facts in confirming the action of Id. AO in initiating penalty proceedings u/s 271(l)(c) of the Act. The appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of the appeal. 2. For the purpose of adjudication we will first take up first ITA No.750/Ahd/2014. 3. Briefly stated facts as culled out from the records are that assessee is a partnership firm engaged in the business of manufacturing of dehydrated onion. E-return of income was filed on 25.09.2010 declaring Nil income after claiming deduction u/s 80IB of the Act of ₹ 15,90,488/-. Case was selected manually for compulsory scrutiny and statutory notice u/s 143(2) followed by notice u/s 142(1) of the Act along with detailed questionnaire was issued and duly served upon the assessee. Necessary details as called for were submitted. Gross turnover of the assessee aggregated to ₹ 2,43,39,737/-. Deduction u/s 80IB of the Act was claimed at 15,90,488/-. During the course of assessment proceedings while examining the claim of assessee u/s 80IB of the Act ld. Assessing Officer observed that assessee has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scussed above i) Interest from GEB ₹ 27,940/- II). Kasar Discount Rs.1,13,499/- III).Interest subsidy Rs.1,96,246/- Asst. Year 2010-11 Interest from FDR . Rs. 10,619/~ iv) Late payment of PF Rs. 31421/- Interest on IDS. Rs. 1452/- Rs.3.81.177/- Total Taxable income of the assessee Rs.3,81,177/-- i.e. ₹ 3,81,180/-- The assessee has income of eligible profit of industrial undertaking an amount of Rs. NIL/-.and amount of ₹ 3,81,180/- is taxable income of the assessee\ and an amount of ₹ 12,44,184/-is taxable income in the hands of the Partners. 4. Aggrieved assessee went in appeal before ld. Commissioner of Income Tax(A) but partly succeeded and now on the remaining grounds on which ld. Commissioner of Income Tax(A) confirmed the action of ld. Assessing Officer assessee is in appeal before the Tribunal. Ground no.1 reads as under :- 1. The learned CIT(A) has erred in law and on the facts of the case in confirming the action of the learned Assessing Officer in not treating the income of kasar (discount) amounting to ₹ 1,13,499/- eligible for deduction u/s 80IB(11A) of the Income Tax Act, 1961 ('the Act') after holding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resulting in increase of manufacturing profits and qualifies for deduction U/s. 80/6 as they are directly derived from the Industrial Undertaking. Copies of Ledger Accounts in regard to discount received from various suppliers of raw materials and consumables used for the manufacturing purpose were submitted to the AO. The appellant submitted before, me a copy of the submission made before the AO along with copy of ledger accounts. It was submitted that the discounts received reduces the manufacturing cost of products sold and hence is directly derived from the industrial undertaking. As regards exclusion of exchange rate difference it was submitted that the issue is squarely covered in favor of the appellant in view of the decision of Gujarat High Court in the case of CIT V/s. Amba Impex reported in 282 ITR 0144. It was requested to direct the AO not to exclude the other income to the tune of ₹ 3,00,295/- while calculating deduction U/s. 80IB. DECISION:- I have carefully perused the facts of the case and the submission made by the appellant along with the observations made by the AO in the assessment order. The judicial rulings are very clear in what constitutes allowabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... treating, interest of ₹ 27,940/- received from PGVCL, interest subsidy of ₹ 1,96,246/- received from Government of Gujarat through district industrial center and interest from FDR of ₹ 10,619/- eligible for deduction u/s 80IB(llA) of the Act after holding that the same is not derived from the eligible undertaking. 9. Brief facts relating to this issue are that ld. Assessing Officer denied deduction u/s 80IB on the following interest income :- Interest on subsidy received from Govt. of Gujarat Rs.1,96,246/- Interest receied from PGVCL Rs. 27,940/- Interest on FDRs Rs. 10,619/- ₹ 2,34,805/- 10. Ld. Authorised Representative submitted that ld. Assessing Officer denied deduction u/s 80IB(11A) on interest income of ₹ 2,34,805/- and the said action has been confirmed by ld.CIT(A) as well. As regards "Interest subsidy", deduction us 80IB(11A) is allowable on the same. Reliance is placed on CIT vs Meghalaya Steels - 383 ITR 217 (SC). As regards "Interest received from PGVCL" and "Interest on FDR", deduction must be denied merely on "Net income". Netting off is well accepted principle in the eye of law and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udgment we are of the considered view that assessee has also received interest subsidy from Govt. of Gujarat of ₹ 1,96,246/- for the project undertaken by the assessee eligible for deduction u/s 80IB(11A) of the Act and, therefore, since subsidy received is also a part of profit and loss account of the industrial undertaking it is eligible for deduction u/s 80IB(11A) of the Act. We, therefore, allow assessee's claim of deduction u/s 80IB of the Act on the interest subsidy received from Government of Gujarat at ₹ 1,96,246/-. 12.1 As regards interest received from PGVCL and interest on FDRs at Rs..27,940/- & ₹ 10,619/- certainly this income does not have direct nexus with the profit and loss of the undertaking but it is also a fact that the deposits with PGVCL and deposit with the bank FDRs have been indirectly carried out in the process of business only with regard to statutory deposits to be made or surplus funds deposited with Bank. Ld. Authorised Representative during the course of hearing has requested for netting of the interest income against interest paid by placing reliance on the judgment of Hon. Supreme Court in the case of ACG Associated Capsules Pv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer notionally reduced the said sum from deduction u/s 80IB(11 A) and this action of ld. Assessing Officer has been confirmed by CIT(A) as well. 14.1 Ld. Authorised Representative further submitted that Assessing Officer and Commissioner of Income Tax(A) failed to appreciate facts in its entirety. Clause 8(IV) of Partnership deed (Pgs.47-56 @ 50 of P/B) specifically provides that the partners shall be entitled to increase or reduce the remuneration and partners may also agree to pay remuneration to other partners. Thus, though the partnership deed contains a provision for interest and remuneration to partners, it is open for the partners to increase or decrease the same or not to pay the same at all. In the assessee's case, it was decided that no interest and remuneration shall be paid and accordingly, neither the same has been paid, nor the same has been debited to Profit & Loss a/c s.36(l)(iii) and s.37 of the Act provide for deduction in respect of expenditure "paid/incurred" by the assessee. Since the "interest" expenditure has neither been paid, nor incurred by the assessee, the same cannot be foisted upon the assessee. s.40 of the Act pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erest and remuneration payable to partners as per partnership deed. We observe that assessee being a partnership firm is carrying on its business under the partnership deed dated 3.6.2008 placed at pages 57 to 69 of the paper book. In this partnership deed as per the clauses 8 & 9 partners are entitled to remuneration and interest on capital. Assessee firm is also enjoying benefits of deduction u/s 80IB(11A) of the Act. During the year under appeal assessee has not charged any amount on account of remuneration and interest to partners. Ld. Assessing Officer on observing this fact was of the view that assessee firm has to adhere as per the clauses of partnership deed and deviation of any nature needs to have been supported by supplementary deed to this partnership deed which was not done in the case of assessee. As a result, ld. Assessing Officer computed the notional amount of interest on partners' capital at ₹ 10,92,653/- and remuneration of ₹ 2,51,634/- which total to ₹ 13,44,287/- and thereby reducing deduction u/s 80IB(11A) of the Act by this amount and held it to be taxable in the hands of partners. When the assessee went in appeal before ld. Commissioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... when it was not mandatory but discretionary for assessee". The said issue was decided in favour of assessee by deciding as follows:- 6.1 have heard the parties and carefully perused the material on record. It is correct that the terms of partnership provided payment of interest at the rate of 12 per cent on capital of partners as well as remuneration to the working partners. The assesses, however, did not make payment thereof to the partners nor made any provision of liability in the books of account The perusal of deed of partnership reveals that the parties on mutual consent could add, amend, vary or alter any of the terms of partnership. This is found so spelled out in clause No. 11 of partnership deed dated 4-4-1998 and adopted in the supplementary deed as well. Front this clause it is evident that the various clauses of partnership which authorised the partners to charge interest on their capitals and remuneration to the working partners could be varied or amended either verbally or even by conduct. It was not necessary for the parties to have reduced such terms in writing in case they desired not to charge any interest or remuneration as such. From the conduct of parti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the guise of share of profits and it is colourable device as held by the Hon'ble Supreme Court in the case of Mc Dowel & Co.Ltd. V/s. Commercial Tax Officer (1985) 154 ITR 48 (SO? [C] Whether on the facts and in the circumstances of the case the Appellate Tribunal was right in accepting assessee's deliberate and unjustified claim of not paying interest to partners and ignoring their obligation to pay interest to the partners which was authorized as per the partnership deed and was due within the parameters of the provisions of section 40(b)(iv) of the IT.Act, 1961 .particularly in background of the fact that the assessee had claimed deduction u/s.80IB of the I. T. Act?" We observe that Hon. Jurisdictional High Court relying on the judgment of the Court in the case of Commissioner of Income Tax vs. Industrial Workwear in Tax Appeal No.1177 of 2005 did not admit the appeal of the Revenue which draws an inference that Hon. Jurisdictional High Court upheld the decision of the Appellate Tribunal in accepting assessee's claim of not paying interest to partners even when it was authorized as the partnership deed. 16.4 Respectfully following the judgment of Hon. Juri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al in nature which needs no adjudication. 22. Ground No.8 is consequential. 23. Ground No.9 is premature. 24. Now we take up assessee's appeal in ITA No.796/Ahd/2014 wherein following grounds have been raised:- 1. The learned CIT(A) has erred in law and on the facts of the case in confirming the action of the learned Assessing Officer in not treating other income amounting to ₹ 1,26,722/- (comprising of ₹ 14,998/- kasar(discount), ₹ 15,595 Misc. income, ₹ 32,451/- earned from selling raw onions and ₹ 63,678/- earned on finished goods) eligible for deduction u/s 80IB(llA) of the Income Tax Act, 1961 ('the Act') after holding that the same are not derived from the eligible industrial undertaking. 2. The learned CIT(A) has erred in law and on the facts of the case in confirming the action of the learned Assessing Officer in not treating, interest of ₹ 4,086/- received from PGVCL eligible for deduction u/s 80IB(11A) of the Act after holding that the same is not derived from the eligible undertaking. 3. The learned CIT(A) has grossly erred in law and on the facts of the case in confirming the action of Id. AO in notionally reducing a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ards Misc. income of ₹ 15,595/-. the same is on account of sale of waste gunny bags and such income is eligible for deduction u/s 80IB(11A) of the Act. Reliance is placed on "DCIT vs. Harjivundas Juthabhai Zaveri and another - 258 ITR 785 (Guj)". Ld. Authorised Representative fairly conceded that as regards "Profit from selling onions" of ₹ 32,451/-, and profit from sale of finished goods of ₹ 63678/- the same is earned out of trading activity and hence, is not eligible for deduction u/s 80IB(11A) . 27. On the other hand, ld. Departmental Representative supported the orders of lower authorities. 28. We have heard the rival contentions and perused the record placed before us. Through this ground assessee has challenged ld. Commissioner of Income Tax(A)'s order confirming action of Assessing Officer of not treating following other income aggregating to ₹ 1,26,722/- being eligible for deduction u/s 80IB(11A) of the Act:- Kasar (Discount) : Rs. 14,998/- Misc. income : Rs. 15,595/- Profit earned from selling raw onions : Rs. 32,45I/- Profit on finished goods : Rs. 63.678/- Total Rs.1,26,722/- 29. During the course of hea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act. it is the "net income" and not the gross receipt which should be excluded. This principle has been laid down by the Supreme Court in case of ACG Associated Capsules Pvt. Ltd. vs. CIT - (2012) 343 ITR 89 (SC) in context of deduction under section 80HHC of the Act. Hon'ble Gujarat High Court in case of CIT vs. Nirma Ltd. - (2014) 367 ITR 12 (Guj.) applied such principle in context of provisions contained in section 801, 80IA, etc. 34. Ld. Departmental Representative supported the orders of lower authorities. 35. We have heard the rival contentions and perused the material placed before us. We observe that similar issue of not treating interest from PGVCL being eligible for deduction u/s 80IB(11A) of the Act has been dealt by us while adjudicating ground no.2 of ITA No.750/Ahd/2014 wherein following the principles laid down by Hon. Apex Court in the case of ACG Associated Capsules Pvt. Ltd. (supra) and duly following the judgment of Hon. Gujarat High Court in the case of Commissioner of Income Tax vs. Nirma Ltd. (supra) we have held that assessee is to be allowed netting off of interest income from surplus business funds or interest from deposits made in the cour ..... X X X X Extracts X X X X X X X X Extracts X X X X
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