2014 (10) TMI 396 - HC - Income Tax

Tax Appeal Dismissed in Favor of Assessee, Precedents Followed for Expense Deductions

The Tax Appeal was dismissed, with all issues resolved in favor of the assessee. The Tribunal's decisions aligned with established precedents, allowing ... Tribunal restored the matter - Benefit of netting – Nexus with income – Interest income – Depreciation on expenses - Claim of deduction u/s 80I, 80IA, 80HH and 80HHC - Following the decision in Commissioner of Income Tax -Ahmedabad-III Versus Nirma Ltd. [2014 (10) TMI 388 - GUJARAT HIGH COURT] - whenever certain income is to be excluded for the purpose of deduction under section 80-I, 80-IA and 80HH, etc. gross income is to be excluded or only the net thereof is the question – as decided in M/s ACG Associated Capsules Pvt. Ltd. (Formerly M/s Associated Capsules Pvt. Ltd.) & Others Versus The Commissioner of Income Tax, Central-IV, Mumbai & Others [2012 (2) TMI 101 - SUPREME COURT OF INDIA] - for the purpose section 80HHC of the Act, it is not the entire amount received by the assessee on sale of DEPB credit, but the sale value of less the face value of the DEPB that will represent profit on transfer of DEPB credit by the assessee - even other amounts, interest or rent when are to be excluded for the purpose of explanation (baa) to section 80HHC of the Act - Ninety per cent of not the gross rent or gross interest, but the net thereof shall have be excluded - Revenue gets automatically answered since the amounts referred to in the said question are to be excluded for the purpose of deduction under section 80HHC of the Act - The foundation for the logic for excluding the net profit and not the gross profit from the claim of deduction when it is found that the source of income does not qualify for such deduction u/s 80HHC of the Act – Decided against revenue. Calculation of deduction u/s 80IA - Sale of various items disallowed – Sale of poster paper, iron scrap, gunny bags, LDO sale, soap stone barden. Misc. sales, compound sale, waste paper craft sale, plastic waste sale, barrel sale, HCO sales – Held that:- Following the decision in Commissioner of Income Tax -Ahmedabad-III Versus Nirma Ltd. [2014 (10) TMI 388 - GUJARAT HIGH COURT] – as decided in Deputy CIT v. Harjivandas Juthabhai Zaveri [1999 (12) TMI 5 - GUJARAT High Court] – the benefit of deduction u/s 80I of the Act is to be gratned on various incomes, such as, job work receipt, sale of empty soda ash bardan, sale of empty barrels and plastic waste - Such questions are, therefore not required to be considered – Decided against revenue. Claim of deduction u/s 80HH and 80HHC - Interest from debtors – Held that:- Following the decision in Commissioner of Income Tax -Ahmedabad-III Versus Nirma Ltd. [2014 (10) TMI 388 - GUJARAT HIGH COURT] - the Court upheld the assessee's claim for deduction under section 80I of the Act on the interest received on late payment of sale consideration as amount derived from eligible business. These questions are, therefore, not required to be considered – Decided against revenue. Issues Involved:1. Netting benefits and verification of expenses for various incomes across different divisions.2. Deletion of disallowance of interest from debtors for calculation of deduction under sections 80HH & 80HHC.3. Deletion of disallowance on account of sales of various items for the purpose of calculation of deduction under section 80IA.4. Recalculation of interest expenditure from interest income while working out deductions under sections 80I, 80IA, and 80HH.5. Deletion of disallowance of Soda Ash Project and Lab Project interest expenses.6. Allowance of depreciation on Soda Ash Project and Lab Project expenses if treated as capital expenditure.Detailed Analysis:1. Netting Benefits and Verification of Expenses:The Tribunal restored the issue back to the Assessing Officer (A.O) to decide on granting benefits of the netting to the assessee and directed the A.O to allow expenses after verifying the nexus with various incomes such as job charges, interest on ICD, insurance claims, exchange rate differences, truck hire charges, and other similar incomes for multiple divisions (Mandali, Trikampura, Kanpur, Indore). This decision aligns with the precedent set in CIT v. Nirma Limited, where the court emphasized that net income, not gross income, should be excluded for deductions under sections 80-I, 80-IA, and 80HH.2. Deletion of Disallowance of Interest from Debtors:The Tribunal deleted the disallowance of interest from debtors made by the A.O for calculating deductions under sections 80HH & 80HHC, relying on its own decisions in earlier assessment years. The court upheld this decision, referencing the case of Nirma Industries Limited v. Deputy CIT, which allowed the assessee's claim for deduction on interest received on late payment of sale consideration as an amount derived from eligible business.3. Deletion of Disallowance on Account of Sales for Deduction Calculation:The Tribunal confirmed the order of CIT (A) deleting the disallowance made by the A.O on account of sales of various items (e.g., sale of poster paper, iron scrap, gunny bags, etc.) for the purpose of calculation of deduction under section 80IA. The court noted that these issues were covered by the decision in Deputy CIT v. Harjivandas Juthabhai Zaveri, which upheld the benefit of deduction under section 80I on various incomes such as job work receipt and sale of empty barrels and plastic waste.4. Recalculation of Interest Expenditure:The Tribunal directed the A.O to recalculate interest expenditure from the interest income while working out deductions under sections 80I, 80IA, and 80HH, allowing netting if the assessee could establish the nexus between interest expenditure and interest income. This decision is consistent with the logic applied in ACG Associated Capsules Pvt. Ltd v. CIT, where the Supreme Court held that it is the net interest, not the gross interest, that should be excluded for the purpose of deductions.5. Deletion of Disallowance of Soda Ash and Lab Project Interest Expenses:The Tribunal confirmed the deletion of disallowance of Soda Ash Project and Lab Project interest expenses. The court upheld this decision, referencing CIT v. Alembic Glass Industries Limited and Deputy CIT v. Core Health Care Limited, which supported the view that such expenses were in connection with the expansion of the existing business and thus allowable.6. Allowance of Depreciation on Project Expenses:The Tribunal directed the A.O to allow depreciation on the expenses claimed for the Soda Ash Project and Lab Project if they are treated as capital expenditure. The court agreed with this direction, emphasizing that the expenses were related to the expansion of the existing business, thus qualifying for depreciation.Conclusion:The Tax Appeal was dismissed, with all issues being resolved in favor of the assessee, affirming the Tribunal's decisions and aligning with established precedents.