TaxTMI 
TaxTMI 
2013 (9) TMI 44
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....and Misc. income without appreciating the explanation rendered during the course of proceedings before her which is arbitrary and unjustified. 2. That the income earned being intrinsically related to the business activities of the assessee company constitutes income which is eligible for deduct ion u/s 80IC and as such the disallowance sustained is arbitrary and unjustified." 4. The Revenue in ITA No. 702/Cnd/2010 has raised the following grounds of appeal : "1 Ld. CIT(A) has erred in deleting the disallowance of depreciation made by the Assessing Officer on plant and machinery of Rs. 79,07,000/- as the assessee could not prove that plant and machinery was put to use in the Financial Year 2006-07. 2. ld. CIT(A) has erred in deleting the disallowance of interest of Rs. 5,56,800/- made by the Assessing Officer on advance made for purchase of immoveable property which cannot be treated as business expenditure." 5. The brief facts of the case are that assessee was manufacturing tractors and tractor parts. The company started its Unit- I on 31.10.2000 at Plot No. 104- 105, HPSIDC, Baddi and the assessee claimed deduct ion u/s 80IC of the Act for unit No. I for Assessment Year 2001-....
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....y the assessee. The CIT(A) in view of the ratio laid down by the Hon'ble Supreme Court in Liberty India (supra) held that the said income may be attributable to the industrial undertaking but could not be said to have been derived from the eligible business. The CIT(A) further held that the said income was definitely beyond the first degree source and as such the order of the Assessing Officer was confirmed. Further in respect of the advances made for the purchase of immovable property and the interest relatable to such advances in view of the interest being paid on borrowed funds by the assessee, the CIT(A) held that the said amount was advanced for purchase of building which was to be utilized for the assessee-company and consequently there was no justification in disallowance of interest. 8. The assessee is in appeal against the order of ld. CIT(A) in rejecting the deduction claimed u/s 80IC of the Act on other income of Rs. 180.13 Lakhs. The revenue is in appeal against the depreciation allowed on the plant and machinery installed during the year, which as per the Assessing Officer was not put to use in Financial Year 2006-07. The second issue raised by the Revenue is against ....
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.... 80IC of the Act. The ld. DR for the revenue placed reliance on Liberty India V. CIT, {317 ITR 218 (SC)} and CIT V. Sterling Foods, {237 ITR 579 (S.C)}. 11. We have heard the rival contentions and perused the record. In the facts of the present case, the assessee is carrying out the manufacturing of tractor and tractor parts and also casting of tractor parts. The casting unit has been set up by the assessee during the year under consideration. The assessee claimed profits of the undertaking to be eligible for deduct ion u/s 80IC of the Act which were initially denied by the Assessing Officer but was allowed by the ld. CIT(A), against which the Revenue is not in appeal and hence the issue is settled in favour of the assessee. The second aspect of the claim of deduct ion u/s 80IC was in relation to other income earned by the assessee. The breakup of other income earned by the assessee during the year under consideration is placed at page 20 of the paper book i e. Schedule 13 of the Balance Sheet was as under: - Other Income Rs. (In Lakhs) Interest Banks 5.89 Others 161.88 Dividend 0.07 Profit on sale of fixed assets 1.20 Rent -- Processing fee (Income) 4.45 E....
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....ee. The basis for grant of deduct ion u/s 80IC of the Act are the profits and gains 'derived' by an undertaking from the business carried on by it. 15 The Hon'ble Apex Court in Liberty India (supra) has held as under: "The Income-tax Act, 1961, broadly provides for two types of tax incentives, viz, investment -l inked incentives and profit-linked incentives. Chapter VI -A of the Act which provides for incentives in the form of deduct ions essentially belongs to the category of "profit-linked incentives". Therefore, when sect ion 80IA/80IB refers to profits derived from eligible business, i t is not the ownership of that business which at tracts the incentives: what at tracts the incentives u/s 80IA/80IB is the generation of prof i t (operational profits). It is for this reason that Parliament has confined deduct ion of profits derived from eligible business mentioned in sub-sect ion (3) to (11A) constitutes a stand-alone i tem in the matter of computation of profits. Sect ion 80IB and 80IA are a code by themselves as they contain both substantive as well as procedural provisions. Sect ion 80IB provides for the al lowing of deduct ion in respect of profits and gains derived from ....
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....pose of Sect ion 80I/80IA/80IB of the Act . 20. The provisions of Sect ion 80IC of the Act are par imateria to Section 80IA/80IB of the Act. The words in section 80IC are also "profits derived from business of under taking". In line with the ratio laid down by the Hon'ble Apex Court in Liberty India (supra) the issue in the present appeal is to be considered whether the income received by the assessee by way of interest on the amounts due from dealers was the income of first degree of the undertaking, making it eligible for the benefit of deduct ion u/s 80IC of the Act . 21. The Hon'ble Bombay High Court in CIT V. Vidyut Corporation., 324 ITR 221 (Bom) applying the ratio laid down by the Hon'ble Apex Court in Liberty India V. CIT (supra) in respect of interest received on the delayed payments of prices of goods held by the assessee held the same to be part of sale price and derived from under taking and eligible for deduct ion u/s 80IB of the Act. The Bombay Hon'ble High Court held as under: "Held, that what was received by the assessee from the purchaser was a component of interest towards delayed payment of the price of the goods sold, supplied and delivered by the assessee. T....
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....Officer to verify the claim of the assessee and in case the interest income is found to be relatable to the payments due from the dealers against the sale proceeds on manufactured items, the assessee is eligible for deduct ion u/s 80IC of the Act. The Assessing Officer shall afford reasonable opportunity of hearing to the assessee and recompute the deduct ion u/s 80IC of the Act. 26. Other income shown by the assessee i.e. interest income received from bank and dividend income are not derived from the profits and gains of the business and not eligible for deduct ion u/s 80IC of the Act. Profit on sale of fixed asset reflected at Rs. 1.20 Lakhs is book entry under the head "other income" and the same is to be excluded as the said profit is to be considered in the computation of income while al lowing depreciation on assets. 27. The income from processing fee of Rs. 4.45 lakhs and exchange gain of Rs. 0.11 lakhs are also not derived from the profits and business and consequently not eligible for deduct ion u/s 80IC of the Act . 28. The assessee has failed to furnish the bifurcation of miscellaneous income at Rs. 6.53 lakhs and in the absence of the details, we uphold the or....
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....ent, which are placed at pages 60 to 62 of the paper book under which the product ion of new unit has been shown from 14.10.2006. The assessee has also submit ted a copy of electricity Bill under which it claims that the power sanction for Furnace was put to use on 14.10.2006. In view of above said facts and circumstances, we uphold the findings of the CIT(A) that the assessee has put the plant and machinery to use from 14.10.2006 and has started product ion and the assessee is entitled to claim the depreciation on plant and machinery. Upholding the order of CIT(A), we dismiss the ground No. 1 raised by the Revenue. 32. The second issue raised by the Revenue is in respect of interest attributable to the advances made for the purchase of immovable property. The Assessing Officer was of the view that the advance made for the purchase of immovable property was not related to the business and in view of the assessee paying interest on borrowed funds, interest relatable to such advances was to be disallowed in view of the ratio laid down in CIT V. Abhishek Industr ies, {286 ITR 1 (PH)}. The plea of the assessee before the ld. CIT(A) was that the Regd Office of the company was situated ....