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2017 (3) TMI 1297
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....Assessing Officer in not treating the income of kasar (discount) amounting to Rs. 1,13,499/- eligible for deduction u/s 80IB(11A) of the Income Tax Act, 1961 ('the Act') after holding that the same is not derived from the eligible industrial undertaking. 2. The learned CIT(A) has erred in law and on the facts of the case in confirming the action of the learned Assessing Officer in not treating, interest of Rs. 27,940/- received from PGVCL, interest subsidy of Rs. 1,96,246/- received from Government of Gujarat through district industrial center and interest from FDR of Rs. 10,619/- eligible for deduction u/s 80IB(llA) of the Act after holding that the same is not derived from the eligible undertaking. 3. The learned CIT(A) has grossly erred in law and on the facts of the case in confirming the action of Id. AO in notionally reducing an amount of Rs. 13,44, 287/- on account of remuneration and interest payable to the partners as per the partnership deed from the eligible profit to claim deduction u/s 80IB(11A) of the Act. 4. Both the lower authorities have failed to appreciate that the impugned amount of remuneration and interest was neither debited....
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....subsidy at Rs. 27,940/-, Rs. 10,619/- and Rs. 1,96,246/- respectively. It was also observed that claim in respect of deduction u/s 80IB of the Act was also taken on the discount received (kasar- vatav) at Rs. 1,13,499/-. Ld. Assessing Officer also observed that PF of Rs. 31,421/- was paid after the due date and similarly TDS of Rs. 1452/- needed to be disallowed. It was also observed by the Assessing Officer that as per the partnership deed assessee was required to provide interest on capital and remuneration to partners but no such expenditure was claimed in the profit and loss account thereby inflating the profits and claiming excessive deduction u/s 80IB Asst. Year 2010-11 of the Act. As a result of which the income which was required to be shown by the partners as remuneration and interest was not shown in their respective income tax returns thereby claiming tax benefits. Necessary submissions were made by the assessee but they were not enough to convince ld. Assessing Officer and he accordingly assessed the income of Rs. 3,81,180/- after disallowing deduction u/s 80IB of the Act on the interest income under various heads at Rs. 2,34,805/- and discount of Rs. 1,13,499/- disallo....
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....reating the income of kasar (discount) amounting to Rs. 1,13,499/- eligible for deduction u/s 80IB(11A) of the Income Tax Act, 1961 ('the Act') after holding that the same is not derived from the eligible industrial undertaking. 5. At the out set ld. Authorised Representative submitted that the issue raised in this ground relating to kasar discount being eligible for deduction u/s 80IB of the Act is squarely covered by the decision of the Co-ordinate Bench in the case of Nrox Specialities vs. ITO in ITA No.855/Ahd/2013 pronounced on 9.6.2016. 6. Ld. Departmental Representative could not controvert the submissions of ld. Authorised Representative. 7. We have heard the rival contentions and perused the records placed before us. Through this ground assessee has challenged ld. Commissioner of Income Tax(A)'s order confirming action of ld. Assessing Officer in not treating kasar discount of Rs. 1,13,499/- being eligible for deduction u/s 80IB (11A) of the Act. Ld. Authorised Representative has relied on the decision of Co-ordinate Bench in the case of Nrox Specialities vs. ITO (supra) and on perusal of the decision of the Co-ordinate Bench we find that in the said d....
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....the case and the submission made by the appellant along with the observations made by the AO in the assessment order. The judicial rulings are very clear in what constitutes allowable income. The Hon'ble SC in the case of Liberty India Ltd. has clearly brought out the ratio that the income eligible for deduction u/s. 8OIB must have first degree direct nexus with the manufacturing activities during the relevant year. In the instant case, the appellant has accounted discount received of Rs. 2,99,153/- as other source of Income which means there is no relation to the manufacturing activities therefore, does not qualify as having first degree nexus with the manufacturing activities during this year thereby, in my opinion, not eligible for deduction u/s. 801B of the Act. This part in this ground of appeal is dismissed." 6. Both the parties reiterate their respective pleadings against and in support of their respective cases. There is no quarrel about the fact that the assessee received the impugned purchase discount from raw materials/consumables suppliers to the tune of Rs. 2,99,1537- as utilized in its eligible business of manufacturing of specialty chemicals whose profits are ....
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....regards "Interest received from PGVCL" and "Interest on FDR", deduction must be denied merely on "Net income". Netting off is well accepted principle in the eye of law and hence, while eliminating any sum from the deduction under section 80IB of the Act, it is the ''net income" and not the gross receipt which should be excluded. This principle has been laid down by the Hon.Supreme Court in case of ACG Associated Capsules Pvt. Ltd. vs. CIT - (2012) 343 ITR 89 (SC) in context of deduction under section 80HHC of the Act. Hon'ble Gujarat High Court in case of CIT vs. Nirma Ltd. - (2014) 367 ITR 12 (Guj.) applied such principle in context of provisions contained in section 801, 80IA, etc. 11. On the other hand, ld. Departmental Representative supported the orders of lower authorities. (383 ITR 217) 12. We have heard the rival contentions and perused the records placed before us. Through this ground assessee is aggrieved with the denial of deduction u/s 80IB of the Act on interest income received from Govt. of Gujarat, deposit with PGVCL and FDRs. We observe that there is no dispute to the fact that assessee is eligible for deduction u/s 80IB of the Act and the only sou....
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....e during the course of hearing has requested for netting of the interest income against interest paid by placing reliance on the judgment of Hon. Supreme Court in the case of ACG Associated Capsules Pvt. Ltd. vs. Commissioner of Income Tax (2012) 343 ITR 89 (SC) which has been followed by Hon. Gujarat High Court in the case of Commissioner of Income Tax vs. Nirma Ltd. (2014) 367 ITR 12 (Guj). On perusal of the judgment of Hon. Supreme Court in the case of ACG Associated Capsules Pvt. Ltd. vs. Commissioner of Income Tax (supra) in the context to netting of income while providing deduction u/s 80IB of the Act and the judgment of Hon. Gujarat High Court in the case of Commissioner of Income Tax vs. Nirma Ltd. (supra) adjudicating similar issue of netting income inter alia considering the judgment of Hon. Supreme Court in the case of ACG Associated Capsules Pvt. Ltd. (supra) we find substance in the argument of ld. Authorised Representative and are of the view that benefitting of netting of interest should be allowed to the assessee against the interest expenditure claimed by the assessee and resultantly there will be nil effect to the eligible profit for the purpose of claiming deduct....
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....curred" by the assessee. Since the "interest" expenditure has neither been paid, nor incurred by the assessee, the same cannot be foisted upon the assessee. s.40 of the Act prescribes for "disallowance" in respect of "remuneration" to partners beyond specified limits. Since s.40 of the Act doesn't provide for "deduction" of remuneration but provide "disallowance" of excess remuneration, even the claim of "remuneration" cannot be foisted upon the assessee. Further, Partnership deed is a creation of "Contract Law". Contents of the Partnership deed cannot override the provisions of the Income-tax Act, 1961. Hence, just as deduction in respect of interest and remuneration to partners cannot be granted beyond the limits prescribed under the Income-tax Act even though partnership provides for a higher sum, similarly, claim of interest and remuneration to partners cannot be foisted upon the assessee Asst. Year 2010-11 because of the mere fact that partnership deed provides for the same especially when conditions u/s 36(l)(iii), 37 and 40(b) of the Act are not satisfied. In light of the above discussed factual and legal position, it is not open for the Department to artificially/notion....
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....his amount and held it to be taxable in the hands of partners. When the assessee went in appeal before ld. Commissioner of Income Tax(A) it was decided against the assessee. 16.1 We further observe that in the clauses 8 & 9 of the impugned partnership deed under clause 8 (iv) states that as under :- IV) The partners shall be entitled to increase or reduce the remuneration and may agree to pay remuneration to other partner or partners. The parties here to may also agree to revise the mode of calculating the above remuneration and decide to pay salary and Asst. Year 2010-11 grant the benefit of house rent allowance, rent fee quarters, motor car or conveyance allowance, medical expenses accident and / or, gratuity, bonus, commission on sales / gross receipts and / or the benefits to the above and / or the partner or partners either on monthly or yearly basis as they may mutually agreed upon. 16.2 We further observe that in clause 9 which relates to interest of partners' capital not exceeding 12% per annum which ends with the line "the partners shall be liberty to increase or reduce above rate of interest from time to time. It is true that clause 10 refers to the execution....
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.... such terms in writing in case they desired not to charge any interest or remuneration as such. From the conduct of parties it is evident that they have acted in terms of clause No. 11 of the partnership deed. The Assessing Officer, therefore, could not have 'compelled the assessee to charge such interest or remuneration by invoking section 40(b}( v) of the Act more particularly when it is not mandatory but discretionary for the assessee to have made such a claim. Even otherwise, if this was to be taken as a case of contravention of provisions of section 184 or 185 of the Act, then also the amount of interest of salary payable to partners could not have been charged as their income in terms of clause (v) of section 28 of the Act. That being so, the folding reached by Id. CIT(A) that the assessee has circumvented tax liability by not claiming the deduction on account of salary, and interest to partners so as to take benefit of set off of brought forward losses will not result into tax evasion but was merely on legitimate tax planning done by the appellant. Keeping in view the overall conspectus of the case, I find no justification in the action of the Id. CIT(A) in upholding the....
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.... paying interest to partners even when it was authorized as the partnership deed. 16.4 Respectfully following the judgment of Hon. Jurisdictional High Court and the decision of the Co-ordinate Bench and examining the facts of the case in the light of above judgments we are of the view that as the assessee was having discretion of providing interest and remuneration to partners, and in the year under appeal it decided to not to book any such expenditure ld. Assessing Officer's was not justified in notionally calculating the interest and remuneration at Rs. 10,92,653/- and Rs. 251634/- and reducing deduction u/s 80IB(11A) of the Act by Rs. 13,44,287/-. Accordingly, we set aside the order of ld. Commissioner of Income Tax(A) and allow this ground of assessee. 17. Ground No.5 reads as under :- 5. The learned CIT(A) has erred in law and on the facts of the case in confirming the disallowance made by the learned Assessing Officer on account of late payment of PF of Rs. 31,421/- u/s 36(l)(va) of the Act. 18. At the outset ld. Authorised Representative conceded that the issue raised in this ground has been decided against the assessee by the Jurisdictional High Court ....
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....ed CIT(A) has grossly erred in law and on the facts of the case in confirming the action of Id. AO in notionally reducing an amount of Rs. 13,08,616/- on account of remuneration and interest payable to the partners as per the partnership deed from the eligible profit to claim deduction u/s 80IB(11A) of the Act. 4. Both the lower authorities have failed to appreciate that the impugned amount of remuneration and interest was neither debited to Profit & loss account nor paid to the partners, and therefore, the same could not have been reduced notionally from the eligible profit to claim deduction u/s 801B(11A) of the Act. 5. Both the lower authorities have passed the orders without properly appreciating the fact and that they further erred in grossly ignoring various submissions, explanations and information submitted by the appellant from time to time which ought to have been considered before passing the impugned order. 6. The Id. CIT(A) has erred in law and on facts in confirming the action of Id. AO in charging interest u/s 234A/B/C/D of the Act. 7. The Id. CIT(A) has erred in law and on facts in confirming the action of Id. AO in initiating penalty proceedings u/s 271....
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.... Profit earned from selling raw onions : Rs. 32,45I/- Profit on finished goods : Rs. 63.678/- Total Rs.1,26,722/- 29. During the course of hearing before us when the question was posed about the other income of profits earned on finished goods ld. Authorised Representative could not prove that the amounts of income Rs. 32,451/- and Rs. 63,678/- relates to manufacturing activities and it was fairly conceded that they relate to trading activities. We are therefore of the view that income of Rs. 32,451/ and Rs. 63,678/- are not eligible for deduction u/s 80IB(11A) of the Act. 30. As regards kasar (discount) of Rs. 14,998/- we observe that we have dealt with this issue in the preceding paragraphs while Asst. Year 2010-11 adjudicating assessee's appeal in ITA No.750/Ahd/2014 wherein we have relied on the decision of Co-ordinate Bench in the case of Nrox Specialistics vs. ITO (supra) and have held that discount income is eligible for deduction u/s 80IB(11A) of the Act. Following the same decision we hereby hold that assessee is entitled to deduction u/s 80IB(11A) on the other income under the head 'kasar'(discount)....
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....(supra) we have held that assessee is to be allowed netting off of interest income from surplus business funds or interest from deposits made in the course Asst. Year 2010-11 of business against interest paid. From perusal of the financial statements we observe that during the year assessee's interest expenditure on ICICI loan is Rs. 780068/- whereas interest income from PGVCL is only Rs. 4,068/- and therefore, if netting off is done there will be no disallowance of deduction u/s 80IB(11A) of the Act. We accordingly allow this ground of assessee. 36. Ground nos.4 & 5 read as under :- 3. The learned CIT(A) has grossly erred in law and on the facts of the case in confirming the action of Id. AO in notionally reducing an amount of Rs. 13,08,616/- on account of remuneration and interest payable to the partners as per the partnership deed from the eligible profit to claim deduction u/s 80IB(11A) of the Act. 4. Both the lower authorities have failed to appreciate that the impugned amount of remuneration and interest was neither debited to Profit & loss account nor paid to the partners, and therefore, the same could not have been reduced notionally from the eligible profit to....