M/S SANKHLA VINYL PVT LTD,BANGALORE vs. ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE-6(1)(1), BANGALORE

We heard the parties and perused the record. The assessee is engaged in the business of manufacture of PVC and Polyolefin compounds. The assessee is eligible to claim deduction u/s 80IB of the Act. During the course of assessment proceedings, the AO noticed that the assessee has also claimed deduction u/s 80IB of the Act in respect of interest income. The AO took the view that the interest income cannot be considered to have been derived from manufacture or production of articles or things and the said income does not have nexus with the profits and gains derived from an industrial undertaking. Accordingly he rejected the claim for deduction u/s 80IB of the Act in respect of interest income. The Ld CIT(A) confirmed the same.

The Ld A.R submitted that the assessee has earned interest income from the margin money kept with banks for obtaining Letter of Credit facilities. Accordingly he submitted that the interest income is intricately connected with the carrying on business and hence the same should be assessed as income from business only. Accordingly he submitted that the assessee is eligible for deduction u/s 80IB of the Act in respect of interest income also. In support of his contentions, the Ld A.R placed his reliance on the following decisions rendered by Hon’ble Karnataka High Court:- (a) CIT vs. M/s Chinnanachi Muthu Construction & Co. (I.T.No.615 of 2007 dated 18-01-2011. (b) M/s Hubli Electricity Supply Co. Vs. DCIT (ITA Nos.100025 to 100027/2017 C/W dated 09-02-2018).

On the contrary, the Ld D.R placed his reliance on the following case laws to contend that the interest income is not eligible for deduction u/s 80IB of the Act.

We notice that the submission of the assessee that the interest income has been earned from the deposits kept for obtaining Letter of Credit facility is made for the first time before the Tribunal. A perusal of the case laws relied upon by both the parties would show that the treatment of interest income would depend upon the purpose of keeping deposits with banks. Since the purpose of keeping deposits with banks and their nexus with the business carried on by the assessee have not been examined by the tax authorities, we are of the view that this issue requires fresh examination at the end of the AO. Accordingly we set aside the order passed by Ld CIT(A) and restore all the matters to his file for examining them afresh. After affording adequate opportunity of being heard to the assessee, the AO may take appropriate decision in accordance with law.

In the result, the appeal of the assessee is treated as allowed for statistical purposes.