ACIT, New Delhi V. Shri Amit Jain, New Delhi

ITA 1961/DEL/2010

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 3687 (ITAT-DELHI)
• Duration Of Justice: 2 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-07-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 06-07-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 30-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AMRENDRA KUMAR
• Assessee Lawyers: N O N E
• Section: 143(3); 80IC

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH A DELHI BEFORE SHRI RAJPAL YADAV AND SHRI K.G. BANSAL ITA NO.1961(DEL)/2010 ASSESSMENT YEAR: 2006-07 ASSTT. COMMISSIONER OF INCOME SH. AMIT JAIN, PROP. TAX, CIRCLE 27(1), NEW DELHI. VS. ANS H ELECTRONICS, RZ - 1/2, JAIN CHOWK, PALAM NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI AMRENDRA KUMAR, SR. DR RESPONDENT BY: N ONE ORDER PER K.G. BANSAL : AM THIS APPEAL OF THE REVENUE EMANATES FROM THE ORDER OF CIT(APPEALS-XXIV, NEW DELHI, PASSED ON 17.02.2010 IN APPEAL NO. 367/08-09, AND IT PERTAINS TO ASSESSMENT YEAR 2006-07. THE ONLY GROUND TAKEN BY THE REVENUE IN THIS APPEAL IS THA T ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(APPEALS) ERRED IN ALLOWING DEDUCTION U/S 80IC ON DISALLOWANCE OF EXPENSES MADE BY THE AO U/S 43B, AMOUNTING TO RS. 40,70,914/-. 2. THE FACTS OF THE CASE ARE THAT THE ASSESSE E HAD FILED NIL RETURN ON 31.10.2006. ASSESSMENT U/S 143(3) WAS COMPLETED ON 15.12.2008, ITA NO. 1961(DEL)/2010 2 DETERMINING THE INCOME AT RS. 40,70,910/-. WHIL E DOING SO, DEDUCTION WAS NOT ALLOWED TO THE ASSESSEE U/S 80IC IN RE SPECT OF INTEREST PAYABLE TO THE BANK. THE DISALLOWANCE WAS MADE IN VIEW OF T HE PROVISION CONTAINED IN SECTION 43B, UNDER WHICH SUCH INTEREST IS T O BE ALLOWED ONLY ON ACTUAL PAYMENT AND NOT ON THE BASIS OF THE PROVIS ION, IRRESPECTIVE OF THE SYSTEM OF ACCOUNTING FOLLOWED BY THE ASSESSEE. THE LD. CIT(APPEALS) ALLOWED THE DEDUCTION BY STATING THAT -(I) IT CANNOT BE STATED THAT THIS PORTION OF THE INCOME HAS NOT BEEN DERIVED FROM THE INDUSTRIAL UNDERTAKING, AND (II) THE INTENTION OF THE LEGIS LATURE IS TO ENCOURAGE INDUSTRIALIZATION IN THE SPECIFIED AREAS. 3. BEFORE US, THE LD. DR SUBMITTED THAT THE QU ESTION HERE IS WHETHER, A LEGAL DISALLOWANCE COULD BECOME PART OF THE I NCOME DERIVED FROM THE INDUSTRIAL UNDERTAKING? IN THIS CONNECTION, HE RELIED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. STERLING FOODS (1999) 237 ITR 579, IN WHICH IT WAS HELD THAT THE SO URCE OF INCENTIVE WAS EXPORT PROMOTION SCHEME AND NOT THE INDUSTRIAL UN DERTAKING AND, THEREFORE, SUCH INCENTIVE CANNOT BE SAID TO BE THE INCOME DE RIVED FROM THE INDUSTRIAL UNDERTAKING. FURTHER, RELIANCE WAS PLACED ON T HE DECISION OF HONBLE SUPREME COURT IN THE CASE OF PANDIAN CHEMICALS LT D. VS. CIT (2003) 262 ITA NO. 1961(DEL)/2010 3 ITR 278, IN WHICH IT WAS HELD THAT INTEREST EAR NED ON THE DEPOSIT MADE WITH THE ELECTRICITY BOARD FOR SUPPLY OF ELECTRIC ITY MAY HAVE CONNECTION WITH THE INCOME OF THE INDUSTRIAL UNDERTAKING, BUT IT IS NOT INCOME DERIVED FROM THE BUSINESS OF THE UNDERTAKING. THE DECISION IN BOTH THE CASES IS THAT FOR AN INCOME TO QUALIFY FOR DEDUC TION U/S 80HH, IT MUST HAVE PROXIMATE CONNECTION WITH THE BUSINESS OF THE UNDERTAKING AND IF SUCH CONNECTION IS ONE OR MORE STEPS REMOVED FR OM THE BUSINESS, IT CANNOT BE SAID TO BE THE INCOME DERIVED FROM TH E ELIGIBLE UNDERTAKING. NONE ATTENDED ON BEHALF OF THE ASSESSEE. 4. SECTION 80IC PROVIDES FOR THE DEDUCTION OF PR OFITS AND GAINS DERIVED BY AN INDUSTRIAL UNDERTAKING OR AN ENTERPRISE FROM ANY BUSINESS REFERRED TO IN SUB-SECTION (2) FROM THE GROSS TOTAL INC OME. THEREFORE, IN THE FIRST PLACE, THE GROSS TOTAL INCOME OF THE UNDERTAKING HAS TO BE COMPUTED. FROM THIS GROSS TOTAL INCOME, ANY INCOME WHICH IS NOT DERIVED FROM THE UNDERTAKING HAS TO BE EXCLUDED. THE NET SUM HAS TO BE CONSIDERED FOR THE PURPOSE OF THE DEDUCTION. THE PROFIT AND LOSS ACCO UNT OF THE UNDERTAKING SHOWED PROFIT OF RS. 97,57,531/-. THE ASSESSEE ADDED A SUM OF RS. 40,70,914/- TO THIS INCOME ON ACCOUNT OF INTERES T PAYABLE TO THE BANK BUT NOT ACTUALLY PAID AND A FURTHER SUM OF RS. 25, 726/- IN RESPECT OF ITA NO. 1961(DEL)/2010 4 PROVISION FOR LEAVE ENCASHMENT. THUS, THE GROSS TOTAL INCOME WAS COMPUTED AT RS. 1,38,54,171/-. THE WHOLE OF THI S AMOUNT WAS CLAIMED TO BE DEDUCTIBLE U/S 80IC, LEADING TO NIL TOTAL IN COME. THE ASSESSEE HAS NOT INCLUDED ANY INTEREST IN THE GROSS TOTAL INCOME . THEREFORE, THE RATIO OF THE CASE OF STERLING FOODS AND PANDIAN CHEMICALS LTD. (SUPRA) IS NOT APPLICABLE. ON THE CONTRARY, IT HAS NOT CLAIMED THE INTEREST WHICH HAD BECOME PAYABLE TO THE BANK BUT NOT PAID IN VIEW OF THE SPECIFIC PROVISION CONTAINED IN SECTION 43B. THIS LED TO ENHANCEME NT OF THE GROSS TOTAL INCOME BY THE SAME AMOUNT. THE GROSS TOTAL I NCOME COMPUTED BY THE ASSESSEE CONSTITUTED THE PROFITS AND GAINS DERIVE D FROM THE ELIGIBLE UNDERTAKING. THEREFORE, THE FACTS OF THE CASE ARE QUITE DISTINGUISHABLE FROM THE FACTS OF THOSE CASES. IT IS NOT SHOWN TO US THAT ANY PART OF THE GROSS TOTAL INCOME OF RS. 1,38,54,171/- WAS NO T DERIVED FROM THE BUSINESS OF ELIGIBLE UNDERTAKING. 4.1 WE MAY ALSO LOOK AT THE SITUATION FROM ANO THER ANGLE. THE ASSESSEE IS CLAIMING HIGHER DEDUCTION FOR THIS YEA R BECAUSE OF APPLICABILITY OF SECTION 43B. HOWEVER, AS AND WHEN THE INTE REST IS PAID FOR THIS YEAR, THE DEDUCTION WILL BE AVAILABLE IN THE YEAR OF PA YMENT, WHICH WILL DEPRESS ITA NO. 1961(DEL)/2010 5 THE GROSS TOTAL INCOME OF THAT YEAR BY THE AMOUN T OF PAYMENT, LEADING TO LOWER CLAIM IN THAT YEAR. 4.2 THUS, WE DO NOT FIND THAT THERE IS ANY ERROR I N THE ORDER OF THE LD. CIT(APPEALS), WHICH REQUIRES CORRECTION FROM OUR SIDE. 5. IN THE RESULT, THE APPEAL IS DISMISSED. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT ON 9 JULY, 2010. SD/- SD/- (RAJPAL YADAV) (K.G.BANSAL) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE OF ORDER: 9TH JULY,2010. SP SATIA COPY OF THE ORDER FORWARDED TO:- SHRI AMIT JAIN, PROP. ANSH ELECTRONICS, NEW DELHI. ASSTT. CIT, CIRCLE 27(1), NEW DELHI. CIT(A) CIT THE DR, ITAT, NEW DELHI. ASSISTANT REGISTRAR.