SHRI MAHNEDARA R. TATEL (HUF) PROP. USHMA INDUSTRIES vs. INCOME TAX OFFICER

Facts

The assessee, Shri Mahendra R. Patel (HUF) Prop. Ushma Industries, filed returns for Assessment Years (AY) 1987-88 and 1988-89. These were accepted under Section 143(1). Previously, returns for AY 1984-85 to 1986-87, filed under an Amnesty Scheme, were also accepted. During assessment for AY 1990-91, the Assessing Officer (AO) suspected the agricultural income declared in earlier years was not genuine and was derived from undisclosed sources. A notice under Section 148 was issued. The assessee claimed non-receipt of the notice. The AO completed assessments for AY 1984-85 to 1988-89 on March 27, 1997. The CIT(A) quashed these orders and directed de novo assessments. The respondent (AO) then passed fresh assessment orders, assessing total income at Rs. 10,90,630/-. The CIT(A) partly allowed the assessee's appeal. The assessee appealed to the Tribunal, which also partly allowed the appeal. The present appeal is filed by the assessee against the Tribunal's order dated August 13, 2003.

Held

The High Court allowed the appeal. It held that the Tribunal was not right in law in holding that the appellant was not eligible to claim deduction under Section 80I of the Income Tax Act on interest received from customers for late payment. The Court's reasoning was based on the principle laid down in its own decision in Nirma Industries Ltd. (supra) and the provisions of Section 80I. The Court observed that interest received from trade debtors towards late payment of sale consideration is to be included in the profit of the industrial undertaking. The Court noted that the opening portion of Section 80I refers to "gross total income of an assessee which includes any profit and gains derived from an Industrial undertaking". It reasoned that once an item is included in the gross total income, it cannot be treated differently when computing the deduction under Section 80I. The Court concluded that such interest is essentially a mode of realizing sale consideration and the transaction remains the same, with no distinction as to the source. The question of law was answered in the negative, in favour of the assessee. The order of the Tribunal was modified accordingly.

Key Issues

1. Whether, in the facts and circumstances of the case, the Income Tax Appellate Tribunal (ITAT) was right in law in holding that the appellant is not eligible to claim deduction under Section 80I of the Income Tax Act on interest from customers for late payment? (Question of law). Assessee's Contention: The assessee argued that the substantial question of law involved in this appeal is already concluded in its favour by this Court in the case of Nirma Industries Ltd. v. Deputy Commissioner of Income Tax, reported in [2006] 283 ITR 402. Revenue's Contention: The learned advocate for the respondent (revenue) was not in a position to distinguish the proposition of law laid down in the decision relied upon by the appellant.