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Income Tax Appellate Tribunal, HYDERABAD BENCHES “SMC”, HYDERABAD
Before: SHRI K. NARASIMHA CHARY
आदेश / ORDER Aggrieved by the order dated 31/01/2023 passed by the learned Commissioner of Income Tax (Appeals)- National Faceless Appeal Centre (NFAC), Delhi (“Ld. CIT(A)”), in the case of Ramakrishna Industries (“the assessee”) for the assessment year 2017-18, assessee preferred this appeal. 2. Grounds No. 1, 2 and 8 are general in nature. Ground No. 4 is not pressed. Ground No. 3 relates to the interest on FDR and Ground No. 5 relates to disallowance of expenditure under section 37 of the Act whereas Ground No. 6 relates to the disallowance under section 40(a)(ia) of the Act. Learned Counsel submitted that Grounds No. 6 to 8 are consequential in nature.
Brief facts of the case are that the assessee is in the business of generation and sale of power. While assessing the income of the assessee for the assessment year 2017-18, learned Assessing Officer made certain additions, which includes the income derived on FDRs and disallowance under section 37 of the Income Tax Act, 1961 (for short “the Act”) of the service tax paid by the assessee and disallowance under section 40(a)(ia) of the Act in respect of TDS.
Insofar as the interest on FDR is concerned, learned AR submitted that the only business of the assessee is generation and sale of power. And during the financial year relevant for the assessment year 2017-18, assessee placed certain surplus amounts in FDRs which yielded interest income of Rs. 2,07,044/-.
According to the learned Assessing Officer, this interest on FDRs is not in the nature of profit and gain from business and it has to be assessed to tax as ‘income from other sources.’
Learned CIT(A) recorded that the assessee did not adduce any material to invite the interference with the order of the learned Assessing Officer and, therefore, dismissed the ground relating to this issue.
Learned AR placed reliance on the decision in the case of M/s. Tema Exchangers Manufactures Pvt. Ltd. vs. ACIT, Income Tax Appeal No. 415 of 2004, dated 18/07/2018, CIT vs. Eltek Sgs (P) Ltd. [2008] 300 ITR 6 (Delhi) in support of the contentions that the interest on FDRs in bank would be profits and gains derived from any business of an industrial undertaking. Per contra, learned DR placed reliance on the decision of the Hon'ble Apex Court in the case of Tuticorin Alkali Chemicals & Fertilizers Ltd. vs. CIT [1997] 227 ITR 172 (SC) in support of the findings of the authorities below.
It could be seen from the decision of the Hon'ble Bombay High Court in the case of M/s. Tema Exchangers Manufactures Pvt. Ltd. (supra), a reference was made to the decision in the case of CIT vs. Jagdishprasad M. Joshi [2009] 318 ITR 420 (Bombay) and also in the case of CIT vs. Eltek Sgs (P) Ltd. (supra). As a matter of fact, in the case of CIT vs. Jagdishprasad M. Joshi (supra), the Hon'ble High Court noticed the decision of CIT vs. Eltek Sgs (P) Ltd. (supra) wherein on a perusal of the material, difference between the language used in section 80HH of the Act and section 80-IB of the Act, the Hon'ble Bombay High Court found that section 80-IB of the Act does not use the expression ‘profits and gains derived from an industrial undertaking’ as used in section 80HH, but uses the expression ‘profits and gains derived from any business referred to in sub-section ……’ and, therefore, while section 80HH requires that the profits and gains should be derived from industrial undertaking, section 80-IB of the Act requires that the profits and gains should be derived from any business of the industrial undertaking. Further on noticing the decision in the case of Pandian Chemicals Ltd. v. CIT [2003] 262 ITR 278, Hon'ble court observed that the expression ‘derived from industrial undertaking’ is a subject removed from the ‘business of the industrial undertaking’. By observing so, the Hon'ble Bombay High Court upheld the findings of the ITAT that the interest income earned was in the nature of business income and could be considered as part of business profit for the purpose of granting deduction under section 80-IA of the Act.
While following the view taken in CIT vs. Jagdishprasad M. Joshi (supra), the Hon'ble Bombay High Court in M/s. Tema Exchangers Manufactures Pvt. Ltd. (supra), observed that as laid down in CIT vs. Jagdishprasad M. Joshi (supra), interest on FDRs in bank would be profits and gains, derived from any business of industrial undertaking and since both the sections 80-IA and 80-IB clearly read the expression ‘derived by an undertaking or enterprise from any business referred to in sub-section ……’. The same reasoning would apply to the expenditure deduction under section 80-IA of the Act for the interest received on FDR.
Tuticorin Alkali Chemicals & Fertilizers Ltd. vs. CIT (supra) is with a different aspect of whether or not the interest derived by the assessee on the borrowed funds before the commencement of business activities by the assessee could be allowed as set-off of the interest payable; where as in the case on hand, the business of the assessee has already been commenced. This decision has no application to the facts of the case; whereas the decision in CIT vs. Jagdishprasad M. Joshi (supra), CIT vs. Eltek Sgs (P) Ltd. (supra) and M/s. Tema Exchangers Manufactures Pvt. Ltd. (supra) are on similar facts as involved in this appeal.
While respectfully following the decision of Hon'ble Bombay High Court in the case of CIT vs. Jagdishprasad M. Joshi (supra), CIT vs. Eltek Sgs (P) Ltd. (supra) and M/s. Tema Exchangers Manufactures Pvt. Ltd. (supra), I hold that interest earned by the assessee on the FDRs is an allowable deduction under section 80-IA of the Act. Ground No. 3 of the appeal is accordingly allowed.
Grounds No. 5 and 6 relate to disallowance of expenditure under section 37 and 40(a)(ia) of the Act. It is the submission on behalf of the assessee that insofar as the property tax is concerned, the assessee is filing the property tax receipts for the relevant assessment year and submitted now, whereas the proof of remittance of TDS by way of challan has already been submitted by the assessee before the learned CIT(A). Impugned order shows that the same are not considered by the learned CIT(A).
In these circumstances, I admit the additional evidence in the shape of property tax receipts. In view of the fact that the relevant material is now available on record in respect of the property tax and also the TDS, it would be just and proper, the learned Assessing Officer to verify the same and take a view. With this view of the matter, I restore the issue relating to disallowance under section 37 and 40(a)(ia) of the Act to the file of the learned Assessing Officer to verify the material and take a view. Grounds are accordingly treated as allowed for statistical purposes.
In the result, appeal of the assessee is treated as partly allowed for statistical purposes.