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TMI Blog2012 (3) TMI 697X X X X Extracts X X X X X X X X Extracts X X X X ..... nterest on Fixed deposits with bank held to be not eligible for deduction u/s. 80IA on the ground that interest income though business income attributable to business, is not income derived from the eligible business. 2) That the Ld. Commissioner of Income Tax (Appeals) has confirmed the non-allowance of ₹ 2,43,02,346/- in respect of interest on fixed deposits with bank under section 80IA without properly considering, appreciating or rebutting the operative facts of the Trust and Retention Account Agreement ( TRA agreement) and scheme involved. The said interest income is derived from the business in context of the said scheme. 3) That without prejudice to the Ground no. 1 above, the Ld. Commissioner of Income Tax (Appeals) has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9) That the appellant craves leave to add, alter or forego any ground(s) before or at the time of hearing. 3. In this case the assessee company is engaged in the business of power generation and is liable for deduction u/s. 80-IA of the IT Act (subject to the satisfaction of the relevant conditions). Gross total income was calculated by it at ₹ 52,04,10,652/-, against which deduction of equal amount was claimed u/s. 80IA of the IT Act, reducing total income to nil. Tax was, however, paid on book profit of ₹ 74,79,42,659/- as computed under provision of section 115JB. The Assessing Officer noted that the assessee had credited interest income of ₹ 2,43,12,346/- and miscellaneous income of ₹ 12,750/- to the profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R 278 (SC). 4. Against the above order the assessee appealed before the Ld. Commissioner of Income Tax (Appeals). Ld. Commissioner of Income Tax (Appeals) elaborately considered the issue in para 1.5 of the order and held as under:- The next issue for consideration is whether such interest and miscellaneous income should be taken as income from other sources . As discussed above, such a treatment could be possible only if the assessee had surplus funds in the first place and invested the same for purposes of earning return on investment. Here, the case is different. the assessee s own funds were grossly inadequate even for meeting the routine requirements of its business and it had to borrow heavily. The income earned by it by temp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be attributable to business cannot said to be derived from the same. Consequently, the benefit of deduction u/s. 80IA cannot be given to the assessee. However, in para 1.4 of his order Ld. Commissioner of Income Tax (Appeals) held as under:- The next issue for consideration is, even if the assessee could show that borrowed funds had been used for the permitted investments, could it be allowed to adjust the interest income against the interest expenditure. Arithmetically, there should be no objection to such treatment, as the figure of net profit of the business would remain unchanged. There is, however, a problem for the purpose of taxation. It is not disputed that the loans had been taken for purposes of the business and had been u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te sources of income. By doing so, the interest referable to the two receipts would be ₹ 89.41 crores and ₹ 1.01 crores respectively. Even by such pure mathematical calculation, interest expenditure of ₹ 1.01 crore could be allowed to the assessee against the interest income and the balance amount of ₹ 1.43 crores would still be taxable. But, as mentioned above, deduction is based on the provisions of the Income Tax Act, and not pure mathematics. To summarize, no deduction against the interest income can be allowed because:- i) Business operations and investments cannot be treated as two separate sources of income. It was a composite business, interest being incidental to the business. ii) There is nothin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of Income Tax (Appeals) to this extent is upheld. On perusal of Ld. Commissioner of Income Tax (Appeals) s finding extracted supra in paragraph nos. 1.4 1.5 clearly brings out that Ld. Commissioner of Income Tax (Appeals) has passed an inherently contradictory order. While on the one hand he has held that the interest income can be said to be attributable to business and despite holding so, he has held that assessee s argument that the interest expenditure should be netted for computing of its profits and gains of business is not acceptable. This in our considered opinion, is not in accordance with the Ld. Commissioner of Income Tax (Appeals) s adjudication given vide para 1.5 of his order. In para 1.4 of his order even the Ld. Commiss ..... X X X X Extracts X X X X X X X X Extracts X X X X
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