2019 (2) TMI 800 - AT - Income Tax

Partial Appeal Success: Verify 'Other Incomes' Nexus for Deduction

M/s. Gabriel India Limited Versus Deputy Commissioner of Income-tax-5 (1) (1), Mumbai

M/s. Gabriel India Limited Versus Deputy Commissioner of Income-tax-5 (1) (1), Mumbai - TMI Issues Involved:1. Exclusion of Other Income for deduction under Section 80IC.2. Disallowance of miscellaneous expenses amounting to INR 7,13,304.3. Initiation of penalty under Section 271(1)(c).4. Charge of interest under Section 234C.Detailed Analysis:1. Exclusion of Other Income for Deduction under Section 80IC:The assessee claimed a deduction under Section 80IC amounting to INR 11,03,71,511. The Assessing Officer (AO) noted that the assessee included various items of 'Other Income' such as interest, rent, DEPB income, etc., in the profit computation for the deduction, which were apportioned from the head office and not directly derived from the business operations of the industrial undertaking. Citing decisions from the Supreme Court in cases like CIT v. Sterling Foods and Liberty India v. CIT, the AO disallowed the deduction for these incomes.The CIT(A) upheld the AO's decision, noting that the assessee failed to prove a direct nexus between these incomes and the industrial undertaking. The tribunal, referencing its own previous decisions and the Supreme Court's ruling in Liberty India, upheld the exclusion of interest income, rent income, and DEPB income from the deduction under Section 80IC.However, for other items such as discounts from supplies, excess provision written back, credit balances written back, miscellaneous income, and sale of scrap, the tribunal found that the AO and CIT(A) had not verified whether these incomes had a direct nexus with the industrial undertaking. Therefore, the tribunal remanded the matter back to the AO for verification.2. Disallowance of Miscellaneous Expenses:The AO observed that the assessee debited INR 3,56,65,622 under miscellaneous expenses, including items like repairs, labor charges, and software AMC. The AO made an ad-hoc disallowance of 2% (INR 7,13,304) on the grounds that the veracity of these expenses could not be verified due to a lack of proper vouchers and potential non-compliance with TDS provisions.The CIT(A) confirmed the AO's disallowance. However, the tribunal noted that no incriminating material was brought on record to prove that these expenses were not business-related or were not incurred wholly and exclusively for business purposes. The tribunal found the ad-hoc disallowance unjustified and deleted the disallowance, relying on previous tribunal decisions that disallowed such ad-hoc disallowances without substantial evidence.3. Initiation of Penalty under Section 271(1)(c):The CIT(A) dismissed the ground of appeal regarding the initiation of penalty under Section 271(1)(c) on the presumption that the ground was premature. The tribunal noted that this ground was not pressed by the assessee and dismissed it accordingly.4. Charge of Interest under Section 234C:The CIT(A) did not adjudicate the ground relating to the charge of interest under Section 234C. The tribunal noted that this ground was also not pressed by the assessee and dismissed it.Conclusion:The tribunal partly allowed the appeal, directing the AO to verify the direct nexus of certain 'Other Incomes' with the industrial undertaking for deduction under Section 80IC and deleted the ad-hoc disallowance of miscellaneous expenses. Grounds related to penalty initiation and interest charge were dismissed as they were not pressed by the assessee.