2015 (12) TMI 907 - HC - Income Tax

Court rulings on deduction under Section 80I and 32AB: one dismissal, one partial allowance.

The High Court ruled against the appellant-assessee in ITA No.49 of 2001, regarding the deduction under Section 80I after reducing the deduction under ... Quantum of deduction under section 80I - CIT(A) reduced the amount of deduction available to the assessee under Section 32AB - Tribunal reversed the decision taken by the CIT(A) holding that deduction under Section 80I of the Act was to be allowed after reducing the deduction allowable to the appellant under Section 32AB - Held that:- Learned counsel for the assessee was unable to demonstrate that the approach of the Tribunal was erroneous or perverse in any manner in allowing deduction under Section 80I of the Act after reducing the deduction allowable to the assessee under Section 32AB of the Act. We endorse the view of the Tribunal and consequently question noticed above is answered against the assessee. Accrual of income - assessee claimed 5% to 10% of the amount as performance security and submitted that the income to that extent had not accrued to it - Held that:- In Sony India (P) Limited's case, (2006 (4) TMI 457 - DELHI HIGH COURT), it was held that the liability arising out of a warranty was an allowable deduction even when the amount payable by the assessee was quantified and discharged in future. Learned counsel for the revenue was not able to rebut the aforesaid contention. Accordingly, this question is answered in favour of the assessee and it is held that the authorities below were not justified in rejecting the claim of the appellant assessee that 5% to 10% of the sale price in each year of supplies does not accrue as income for the year on the basis of terms and conditions attributed to warranty/guarantee/after sale service or on account of non completion of the contractual obligation and the assessee has to offer performance security under the contract. It shall, however, form part of the income to the extent the liability ceases to exist in the year in which the obligation of the assessee stands discharged. The said question is thus answered in favour of the assessee and against the revenue. Deduction u/s 32AB - whether the deduction to be allowed under section 32AB is to be restricted to each profit making unit of the assessee or by taking the utilization of the plant and machinery purchased by the assessee as a whole? - Held that:- Tribunal following the decision of Phoneix Overseas Limited vs. CIT reported in [1995 (10) TMI 75 - ITAT DELHI-D ] directed the Assessing Officer to recompute the claim of the assessee under Section 32AB of the Act in respect of each unit taking the utilization of the plant and machinery purchased by the assessee as a whole and not relate it with each profit making unit of the assessee only. We find the approach of the Tribunal to be in consonance with the provisions of Section 32AB of the Act as there is nothing on the basis of which it could be deduced that deduction is to be allowed only out of the profit of a unit or undertaking where machinery is installed and not out of the profits of the assessee. Nothing was urged by learned counsel for the revenue to raise any challenge to the aforesaid finding of the Tribunal. In the absence of any issue raised by the revenue, no ground for interference by this Court is made out. - Decided in favour of assessee. Issues Involved:1. Deduction under Section 80I after reducing the amount of deduction allowable under Section 32AB.2. Referral to a special bench on the disputed issue.3. Income accrual for performance security withheld against bank guarantees.4. Computation of deduction under Section 32AB on a unit basis or as a whole.Detailed Analysis:Issue 1: Deduction under Section 80I after Reducing Deduction under Section 32ABThe appellant-assessee challenged the Tribunal's decision to allow deduction under Section 80I of the Income Tax Act, 1961, after reducing the deduction allowable under Section 32AB. The Tribunal relied on various judgments, including CIT vs. Loonkar Tools Pvt. Limited and CIT vs. M/s Rajaram Maize Products, which held that deductions under sections like 80HH and 80I should be computed after considering deductions like depreciation and investment allowance. The Tribunal concluded that the deduction under Section 80I must be allowed after reducing the deduction under Section 32AB, aligning with the provisions of Sections 80AB and 80B(5). The High Court endorsed the Tribunal's view, finding no error or perversity in its approach, thereby answering this question against the assessee.Issue 2: Referral to a Special BenchThe appellant contended that the Tribunal should have referred the matter to a special bench. However, the High Court declined this issue, stating it was not a substantial question of law.Issue 3: Income Accrual for Performance Security Withheld Against Bank GuaranteesFor the assessment year 1990-91, the appellant claimed that 5% to 10% of the sale price withheld as performance security did not accrue as income due to incomplete contractual obligations. The Tribunal held that the income had actually accrued and any probable obligation under the warranty clause did not negate this accrual. However, the High Court found merit in the appellant's submission, citing precedents like CIT vs. Jay Bee Industries and CIT vs. Sony India (P) Limited, which treated warranty liabilities as allowable deductions. The High Court concluded that the authorities were not justified in rejecting the appellant's claim, thus answering this question in favor of the assessee.Issue 4: Computation of Deduction under Section 32ABThe revenue challenged the Tribunal's direction to recompute the deduction under Section 32AB by considering the utilization of plant and machinery as a whole rather than restricting it to each profit-making unit. The Tribunal, following the Delhi Bench's decision in Phoneix Overseas Limited vs. CIT, held that Section 32AB did not restrict the deduction to the unit where machinery was installed but allowed it out of the total income of the assessee. The High Court found the Tribunal's approach consistent with Section 32AB and saw no basis for restricting the deduction to individual units. Consequently, this question was answered in favor of the assessee.Conclusion:- ITA No.49 of 2001: The substantial question of law regarding the deduction under Section 80I after reducing the deduction under Section 32AB was answered against the assessee.- ITA No.187 of 2002: The question regarding income accrual for performance security was answered in favor of the assessee.- ITA No.200 of 2002: The question regarding the computation of deduction under Section 32AB was answered in favor of the assessee.As a result, ITA Nos. 49 of 2001 and 200 of 2002 were dismissed, while ITA No.187 of 2002 was partly allowed.