2016 (5) TMI 1251 - AT - Income Tax

Appeal Partly Allowed for Statistical Purposes in Tax Cases

The Tribunal partly allowed the appeal for statistical purposes in ITA No. 1211/Del/2013 for AY 2009-10, remanding the issue of preoperative expenses back ... Disallowance of deduction of interest income under section 80IC - AO held that this interest income was not derived from the eligible business because for falling in the term “derived from” - Held that:- The interest income earned from the fixed deposit pledged with VAT Department was not having any first degree nexus with the eligible business of the assessee and therefore not a profit derived from the eligible business and accordingly not entitled for deduction under section 80 IC of the Act - Decided against assessee. Disallowances of preoperative expenses written off during the year - non-furnishing of details of the expenses before the AO - Held that:- There is no doubt that the assessee is entitled for deduction for the preoperative expenses amortized at the rate of 20% as per section 35D of the Act, but it is the responsibility of the assessee to furnish the details and bills and vouchers of the expenses before the Assessing Officer in scrutiny proceedings, therefore, we find it appropriate to restore the issue back to the file of the Assessing Officer and direct the assessee to produce the details and bills/vouchers in respect of the preoperative expenses and the Assessing Officer is directed to decide the deductibility of the expenses in accordance to law. We also direct the Assessing Officer to provide sufficient opportunity of hearing to the assessee. Decided against assessee for statistical purpose. Issues Involved:1. Disallowance of deduction of interest income under section 80IC.2. Disallowance of preoperative expenses written off.3. Additional deduction under section 80IC due to disallowance of preoperative expenses and short/excess expenses.4. Small amount debited as short and excess expenses.Detailed Analysis:1. Disallowance of Deduction of Interest Income Under Section 80IC:The main issue was whether the interest income of Rs. 14,135/- earned on a fixed deposit (FDR) pledged with the VAT Department of Himachal Pradesh could be considered as income derived from the eligible business under section 80IC. The Assessing Officer (AO) and the Commissioner of Income-tax (Appeals) (CIT(A)) held that the interest income did not have a first-degree nexus with the eligible business and was not derived directly from it. The AO relied on the Supreme Court judgment in Liberty India Vs. CIT, which required a direct nexus between the income and the business. The Tribunal upheld this view, stating that the interest income was incidental and attributable to the business but not derived from it. The Tribunal referenced the Supreme Court's decision in CIT Vs. Sterling Foods and found that the interest income did not meet the criteria for deduction under section 80IC.2. Disallowance of Preoperative Expenses Written Off:The assessee claimed preoperative expenses of Rs. 86,883/- written off during the year, which were disallowed by the AO due to the absence of detailed support. The CIT(A) upheld the AO's decision, emphasizing the requirement for the assessee to furnish detailed support for the expenses. The Tribunal acknowledged that the assessee is entitled to amortize preoperative expenses under section 35D but noted the necessity for the assessee to provide detailed evidence. The Tribunal remanded the issue back to the AO, directing the assessee to furnish the necessary details and the AO to decide the deductibility in accordance with the law, ensuring sufficient opportunity for the assessee to be heard.3. Additional Deduction Under Section 80IC Due to Disallowance of Preoperative Expenses and Short/Excess Expenses:This ground was raised as an alternative plea, contingent on the disallowance of preoperative expenses. Since the issue of preoperative expenses was remanded back to the AO for reconsideration, this ground was rendered infructuous and dismissed.4. Small Amount Debited as Short and Excess Expenses:The assessee claimed a small amount of Rs. 45/- under short and excess expenses, which was not pressed by the assessee's Authorized Representative (AR) during the hearing. Consequently, this ground was dismissed as infructuous.Conclusion:In ITA No. 1211/Del/2013 for AY 2009-10, the appeal was partly allowed for statistical purposes, with the Tribunal remanding the issue of preoperative expenses back to the AO for further examination. The Tribunal dismissed the grounds related to the deduction of interest income under section 80IC and the small amount debited as short and excess expenses. In ITA No. 480/Del/2014 for AY 2010-11, the grounds of appeal were identical to those in ITA No. 1211/Del/2013 and were decided accordingly, resulting in the appeal being partly allowed for statistical purposes. The decision was pronounced in the open court on 25th April 2016.