2012 (12) TMI 363 - AT - Income Tax

Tribunal Allows Independent Deductions

Assistant Commissioner of Income Tax, Circle-I(3), Chennai Versus M/s. Colour Plus Fashions Pvt. Ltd.

The Tribunal upheld the CIT(A) order, allowing deductions under sections 80HHC and 80IB independently on the gross total income. It also ruled in favor of ... Deduction u/s 80IB - 80HHC – Revenue argued that deduction u/s 80HHC has to be computed only on the profits available after allowing deduction u/s 80IB – Held that:- Following the decision in case of MRF Limited (2009 (10) TMI 653 - MADRAS HIGH COURT) that both the two sections are independent and therefore the deduction can be claimed under both the sections on the gross total income. Issue decides in favour of assessee. Deduction u/s 80IB - Whether Job work charges eligible for deduction u/s 80IB – Held that:- Following the decision in assessee’s own case that for a person to be engaged in manufacturing activity it is not sine qua non that he should undertake all manufacturing activities by himself. It would be enough if he engages himself in a part of manufacturing activity and gets rest of it done through the agency of others. Therefore, the assessee is entitled to deduction u/s 80IB in respect of profits derived from the job work production. Issue decides in favour of assessee Issues:1. Disallowance of expenditure on software2. Restriction of deduction under section 80HHC3. Reduction in deduction under section 80IB4. Disallowance of deduction under section 80IB for duty draw back, interest, miscellaneous income, and gain on foreign exchange5. Disallowance under section 14A for dividend income6. Levy of interest under sections 234B and 234CAnalysis:Issue 1 - Disallowance of expenditure on software:The assessee, a manufacturer of readymade garments, filed an appeal against the assessment order which disallowed expenditure on software as capital in nature. The CIT(A) partly allowed the appeal on various issues, including this one.Issue 2 - Restriction of deduction under section 80HHC:The Revenue appealed against the CIT(A) order on two grounds related to section 80HHC and 80IB deductions. The Revenue argued that deduction under section 80HHC should be computed after allowing deduction under section 80IB. However, the counsel for the assessee cited precedents and judgments to support the claim that both deductions can be claimed on the gross total income independently.Issue 3 - Reduction in deduction under section 80IB:The second ground raised by the Revenue was regarding the eligibility of profits derived from job work charges for deduction under section 80IB. The Revenue contended that such profits should not be eligible for deduction under section 80IB as they were attributable to the business but not derived from it. However, the Tribunal referred to a previous decision in a similar case and upheld that the assessee is entitled to deduction under section 80IB for profits derived from job work charges.Conclusion:The Tribunal upheld the CIT(A) order on both issues. It confirmed that deductions under sections 80HHC and 80IB can be claimed independently on the gross total income. Additionally, it ruled in favor of the assessee, allowing deduction under section 80IB for profits derived from job work charges. The appeal of the Revenue was dismissed as lacking merit.