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Income Tax Appellate Tribunal, KOLKATA BENCH ‘SMC’, KOLKATA
Before: Shri P.M. Jagtap, AM]
order : May 24, 2018 ORDER This appeal filed by the assessee is directed against the order of Ld. CIT (Appeals) – 2, Kolkata dated 11.07.2017 and the solitary issue involved therein relates to the assessee’s claim for deduction of Rs. 47,67,028/- u/s 80IE of the Income Tax Act, 1961 which is restricted to Rs. 5,69,416/-
The assessee in the present case is a company which is engaged in the in the business of growing and manufacturing of tea. The return of income for the year under consideration was filed by it on 10.11.2014 declaring a total income of Rs. 45,62,029/-. In the said return, deduction of Rs. 45,62,029/- was claimed by the assessee u/s 80IE of the Act. During the course of assessment proceedings, the claim of the assessee for the said deduction was examined by the A.O. On such examination, he found that the following income received by Assessment Year: 2014-15 SPBP Tea (India) Ltd. the assessee company was not eligible for deduction u/s 80IE being not relatable to its business: 1. Misc. Income Rs. 6,258/- 2. Interest Income Rs. 38,88,882/- 3. Insurance Claim Rs. 6,22,472/- 4. Profit on sale of fixed asset Rs. 1,13,390/-
The A.O., therefore, recomputed the eligible profit of the assessee company for deduction u/s 80IE and restricted the claim of the assessee for such deduction to Rs. 5,69,416/- in the assessment completed u/s 143(3) vide an order dated 24.12.2016.
3. Against the order passed by the A.O. u/s 143(3), an appeal was preferred by the assessee before the Ld. CIT(A) and the following submission was made on behalf of the assessee company in support of its claim for deduction u/s 80IE in respect of other income: “1.The Assessing Officer disallowed the deduction claimed by the appellant u/s 80IE in respect of eligible profit. The Assessing Officer considered the income from eligible business u/s 80IE as income from other source, the detail of which given by Assessing Officer is as follows: SL No. Description Income(Rs.) 1. Miscellaneous income 6,258/- 2. Interest income 33,88,882/- 3. Insurance claim 6,22,472/- 4. Profit on sale of fixed asset 1,13,390/- 2. On the first point in which the Assessing Officer treated the miscellaneous income as the income from other source, we would like to point out that the miscellaneous income of Rs. 3,257/- was received from Bajaj Allianz General Insurance Co. Ltd. due to excess premium paid to the insurance company. When the appellant made the payment for insurance premium the same was debited to the profit and loss account. As the paid made by the appellant exceeded the premium amount the excess premium was refunded to the appellant by the insurance company. This receipt is part of the profit and gains from the eligible business only.
Assessment Year: 2014-15 SPBP Tea (India) Ltd.
Other miscellaneous income of Rs. 3,000/- include sale of tea waste generated from the tea production of same tea estate income from which is exempted u/s 80IE of the appellant, the tea waste is generated from the production of tea in Tea estate situated in North East Region and the entire profit is earned from said tea estate only.
The Assessing Officer treated the interest income of Rs. 33,88,882/- as the income of the appellant from the other sources. Whereas the appellant has shown the same under the head profit or gains from business.
The appellant received said interest income from the surplus fund of tea business which was temporarily parked during the previous year. The interest income which was earned was used to reduce the borrowing cost of the appellant. Instead of keeping the temporary available fund idle the appellant used the fund to earn interest so that the burden of borrowing cost can be reduced. The appellant is having seasonal business of tea, in lean period, it has surplus funds which it invested for some period to earn interest. The fund is for the eligible business only. The act of earning of interest is nothing but the part of eligible business only.
6. The Assessing Officer again treated the insurance claim of Rs. 6,22,472/- as the income of the appellant from other sources. The appellant received Rs. 5,62,632/- against the loss of tea during transit and the balance amount of insurance claim of Rs. 59,840/-.”
4. The Ld. CIT(A) did not find merit in the submission made by the assessee and proceeded to upheld the action of the A.O. in restricting the claim of the assessee for deduction under section 80IE to Rs. 5,69,416/-. Aggrieved by the order of the Ld. CIT(A), the assessee has preferred this appeal before the Tribunal.
5. I have heard the arguments of both the sides and also perused the relevant material available on record. As submitted on behalf of the assessee company before the Ld. CIT(A) as well as before the Tribunal, the amount of miscellaneous income of Rs. 6,258/- included
Assessment Year: 2014-15 SPBP Tea (India) Ltd. an amount of Rs. 3,257/- received from Bajaj Allianz General Insurance Co. towards refund of excess premium of insurance paid. The same, in my opinion, therefore, was not in the nature of income and the same being reimbursement of excess premium of insurance paid by the assessee which was debited to the profit and loss account, the authorities below were not justified to reduce it while computing the profit eligible undertaking for the purpose of deduction u/s 80IE. As regards the balance amount of miscellaneous income of Rs. 3,000/- , it is observed that the same was generated by the assessee from the sale of tea waste generated during tea production and keeping in view the nature of this income, I am of the view that the same is to be considered as derived by the undertaking of the assessee from eligible business which is entitled for deduction u/s 80IE.
As regards the interest income of Rs. 33,88,882/- received by the assessee company, it is observed that the same was received from the surplus funds temporarily parked during the year under consideration. Although the said surplus funds are claimed to be generated by the assessee from tea business, I am of the view that the same having no direct nexus or first degree connection with the eligible business of the assessee, deduction u/s 80IE cannot be allowed in respect of such interest income. As regards the insurance claim of Rs. 6,22,472/-, I however agree with the learned counsel for the assessee that the insurance claim received by the assessee being in the nature of recovery of loss actually suffered, the same cannot be strictly considered as income of the assessee. Moreover, the major amount of such insurance claim was received by the assessee against loss of tea during transit and the same being directly relatable to the Assessment Year: 2014-15 SPBP Tea (India) Ltd. eligible business, I am of the view that insurance claim received by the assessee cannot be excluded from the eligible profit for the purpose of computing deduction u/s 80IE.
As regards the profit on sale of fixed asset of Rs. 1,13,390/-, the learned counsel for the assessee has submitted the said amount was excluded by the assessee while computing the profit eligible for deduction u/s 80IE and therefore, the deduction of the same again by the A.O. has resulted in double addition. In this regard, it is noted that the A.O. has restricted the claim of the assessee for deduction of Rs. 45,67,028/- u/s 80IE to Rs. 5,69,416/- and it appears that the A.O. also has not reduced the amount of profit as sale of fixed assets while allowing the claim of the assessee for deduction u/s 80IE. I therefore direct the A.O. to verify this aspect and allow appropriate relief to the assessee. I accordingly modify the impugned order of the Ld. CIT(A) on this issue and direct the A.O. to recompute the deduction allowable to the assessee company u/s 80IE as per the decision rendered above.
In the result, the appeal of the assessee is partly allowed. Order Pronounced in the Open Court on 24th May, 2018.