2017 (11) TMI 1293 - AT - Income Tax

Tribunal upholds tax commissioner's order, directs reassessment. Interest income not deductible under section 80IB.

M/s. Kamakhaya Oil Company, C/o- M/s. RRA Taxindia Versus CIT, Delhi-X, New Delhi

M/s. Kamakhaya Oil Company, C/o- M/s. RRA Taxindia Versus CIT, Delhi-X, New Delhi - Tmi Issues Involved:1. Whether the order passed under section 263 of the Income-tax Act, 1961, was barred by limitation, illegal, without jurisdiction, and contrary to law and facts.2. Whether the Commissioner of Income Tax (CIT) erred in assuming jurisdiction under section 263 and holding that the interest income was not eligible for deduction under section 80IB.3. Whether adequate opportunity of hearing was granted to the assessee.4. Whether the assessment order was erroneous and prejudicial to the interest of revenue.5. Whether the principles of natural justice were violated.Issue-wise Detailed Analysis:1. Limitation, Jurisdiction, and Legality of Order under Section 263:The assessee contended that the order passed under section 263 was barred by limitation, illegal, without jurisdiction, and contrary to law and facts. The Tribunal evaluated the grounds raised and found that the CIT had jurisdiction to pass the order under section 263. The Tribunal did not find the order to be barred by limitation or contrary to law and facts.2. Assumption of Jurisdiction under Section 263 and Interest Income Deduction:The CIT assumed jurisdiction under section 263, holding that the interest income of Rs. 14,74,992/- was not eligible for deduction under section 80IB. The CIT noted that there was no direct nexus between the borrowed funds and the purchase of fixed deposits and that the interest income was not derived from the industrial undertaking. The Tribunal upheld the CIT's view, citing various judgments, including:- India Leather Corporation P. Ltd. Vs CIT (SC) 227 ITR 552: The phrase 'derived from' is different from 'attributable to'.- Pandian Chemicals Ltd. Vs CIT (SC) 262 ITR 278: Interest on deposits with the Electricity Board is not profit 'derived from' the industrial undertaking.- CIT Vs N.S.C. Shoes (Mad) 258 ITR 749: Interest on amounts deposited with the bank as guarantee funds cannot be said to be income 'derived from' an industrial undertaking.- Liberty India Vs CIT (SC) 317 ITR 218: Parliament intended to cover sources not beyond the first degree by using the expression 'derived from'.The Tribunal concluded that the CIT was correct in holding that the interest income was not derived from the industrial undertaking and thus not eligible for deduction under section 80IB.3. Adequate Opportunity of Hearing:The assessee claimed that no adequate opportunity of hearing was granted. The Tribunal found that the CIT had given due adjournments as requested by the assessee, and the authorized representative of the assessee attended and filed written submissions. Thus, the Tribunal concluded that there was no violation of natural justice, and adequate opportunity of hearing was granted.4. Erroneous and Prejudicial Assessment Order:The CIT held that the assessment order was erroneous and prejudicial to the interest of revenue because the Assessing Officer (AO) allowed deduction on interest income without proper inquiry. The Tribunal noted that the AO did not conduct any inquiry regarding the allowability of deduction on interest income under section 80IB. The Tribunal emphasized that no query was raised by the AO on this issue during the original assessment proceedings. The Tribunal upheld the CIT's view that the assessment order was erroneous and prejudicial to the interest of revenue.5. Principles of Natural Justice:The assessee argued that the principles of natural justice were violated. However, the Tribunal found no merit in this argument as the CIT provided adequate opportunity for the assessee to present its case. The Tribunal dismissed this ground.Conclusion:The Tribunal upheld the CIT's order under section 263, setting aside the assessment order and directing the AO to re-compute the income. The Tribunal found that the AO did not conduct any inquiry on the allowability of deduction on interest income and that the CIT was correct in holding that the interest income was not derived from the industrial undertaking. The appeal of the assessee was dismissed.