2014 (1) TMI 1185 - AT - Income Tax

Tribunal Upholds Deduction for Unit II as Separate Industrial Undertaking

The Tribunal upheld the Commissioner (Appeals)'s decision, allowing the deduction under section 80IB for Unit II as a separate industrial undertaking. It ... Deduction allowed u/s 80IB of the Act – Entitlement for 100% deduction - Unit II only Extension of Unit I – Held that:- The decision in Bio-Vet Industries Versus DCIT [2010 (2) TMI 911 - ITAT, Mumbai] deleted - The items produced in Unit-I was mainly taxing which was not very costlier while Unit-II produced mainly Vitamins which were costlier – Unit-II is a separate industrial undertaking which is entitled to deduction u/s.801B - No addition could be made, Assessing Officer could not have made any addition without brining on record any material to show that the entries in this register were not correct - the AO is directed to grant deduction u/s.80IB in respect of Unit-II after apportioning the expenses – the order of the CIT(A) upheld – Decided against Revenue. Classification of Interest receipts – Business income OR Income from other sources - Set-off of interest payment against interest receipts – Held that:-The decision in M/s Liberty India Versus Commissioner of Income Tax [2009 (8) TMI 63 - SUPREME COURT] followed - only the net interest income should be considered for the purpose of computing the deduction under section 80IB and interest payment should be set-off against the interest receipts – thus, the AO is directed to compute the relief to be given – Decided partly in favour of Assessee. Issues:1. Allowance of deduction under section 80IB for Unit II.2. Classification of Unit II as a separate industrial undertaking.3. Apportionment of expenses for Units I and II.4. Treatment of interest receipts and payments for tax assessment.Issue 1: Allowance of deduction under section 80IB for Unit IIThe Revenue challenged the Commissioner (Appeals)'s order allowing a deduction claimed by the assessee under section 80IB for Unit II. The Revenue argued that Unit II, being an extension of Unit I, was not entitled to 100% deduction under section 80IB. The Assessing Officer disallowed the claim based on previous assessments. However, the Commissioner (Appeals) relied on a Tribunal decision stating that Unit II was a separate industrial undertaking. The Tribunal upheld this view, emphasizing the physical separation of the units, distinct machinery, separate production registers, and different products manufactured. Consequently, the Tribunal directed the Assessing Officer to grant the deduction for Unit II after apportioning expenses as per the Tribunal's directions.Issue 2: Classification of Unit II as a separate industrial undertakingThe Tribunal analyzed the nature of Unit II to determine if it qualified as a separate industrial undertaking for deduction under section 80IB. The Tribunal considered physical location, machinery, production registers, product types, licenses, and other factors to conclude that Unit II was distinct from Unit I. The Tribunal upheld the Commissioner (Appeals)'s decision based on these findings, affirming that Unit II was a separate entity eligible for the deduction.Issue 3: Apportionment of expenses for Units I and IIRegarding the apportionment of expenses for Units I and II, the Tribunal addressed the allocation of administrative, selling, and financial expenses. It directed that selling expenses should be apportioned based on turnover, financial expenses on the value of goods manufactured, and administrative expenses on turnover value. The Tribunal reasoned that expenses should align with the revenue generated by each unit to ensure a fair distribution. The Assessing Officer was instructed to calculate the deduction for Unit II while considering the apportioned expenses as directed.Issue 4: Treatment of interest receipts and payments for tax assessmentThe assessee raised a cross objection related to the treatment of interest receipts and payments for tax assessment. The Tribunal dismissed the argument that interest should be treated as business income, citing a Supreme Court decision. However, it agreed that only the net interest income should be considered for computing the deduction under section 80IB, allowing for the set-off of interest payments against receipts. The Assessing Officer was directed to apply the principles established by the Supreme Court in a relevant case for computing the relief accordingly.In conclusion, the Tribunal dismissed the Revenue's appeal while partly allowing the assessee's cross objection. The decision upheld the allowance of deduction for Unit II under section 80IB, classified Unit II as a separate industrial undertaking, directed the apportionment of expenses for Units I and II, and instructed the treatment of interest receipts and payments as per Supreme Court principles.