RICKMAN ALUMINIUM PVT. LTD. vs. INCOME TAX OFFICER

Facts

These appeals by Rickman Aluminium Pvt. Ltd. challenge judgments of the Income Tax Appellate Tribunal (ITAT) for Assessment Years (AY) 1997-98 and 1998-99. For AY 1997-98, the assessee filed a return of NIL income, which was initially processed at Rs. 14,96,270 but later revised to NIL. An escapement of income led to reopening the assessment under Section 148, with a return of NIL income filed again. For AY 1998-99, the assessee filed a NIL income return, processed at NIL. Scrutiny was initiated, and after assessment, the appeal to the CIT(A) was partly allowed, but the appeal to the ITAT was dismissed. The core dispute concerns the computation of deduction under Section 80IA.

Held

The High Court held that the issue involved in these appeals is governed by its own decision in Nirma Industries Ltd. v. Deputy Commissioner of Income-Tax, [2006] 283 ITR 402 (Guj.). In that case, the Court had observed that interest received from trade debtors towards late payment of sales consideration is to be included in the profits of the industrial undertaking when computing the special deduction under Section 80-I (now Section 80IA). The Court reasoned that such interest is a mode of realizing sale consideration and is intrinsically linked to the sale of the product of the industrial undertaking. Since the revenue's counsel could not dispute this precedent, the substantial question of law was answered in favour of the assessee and against the Revenue. The appeals were allowed.

Key Issues

1. Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was justified in holding that while computing deduction under Section 80IA of the Income Tax Act, 1961, interest received from trade debtors towards late payment of sales consideration is required to be excluded from the profits of the industrial undertaking, as the same cannot be said to have been derived from the business of the industrial undertaking? Assessee's Contention: The assessee argued that the issue is covered by the Gujarat High Court's decision in Nirma Industries Ltd. v. Deputy Commissioner of Income-Tax, [2006] 283 ITR 402 (Guj.), which held that interest received from trade debtors for late payment of sales consideration should be included in the profits of the industrial undertaking for the purpose of Section 80-I (now Section 80IA). Revenue's Contention: The learned advocate for the Revenue was not in a position to dispute the decision cited by the assessee.