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Income Tax Appellate Tribunal, DELHI BENCH: ‘F’, NEW DELHI
Before: SH. I.C. SUDHIR & SH. O.P. KANT
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: ‘F’, NEW DELHI BEFORE SH. I.C. SUDHIR, JUDICIAL MEMBER AND SH. O.P. KANT, ACCOUNTANT MEMBER ITA No. 3711/Del/2014 Assessment Year: 2010-11 Vs. Income Tax Officer, Ward-25(4), M/s. Paramount Pharma, 10/351, Sunder Vihar, Paschim New Delhi Vihar, New Delhi PAN :AAIFP8207F (Appellant) (Respondent) Appellant by Sh. Mukesh Kohli, FCA Respondent by Sh. F.R. Meena, Sr.DR Date of hearing 23.03.2017 Date of pronouncement 13.04.2017 ORDER PER O.P. KANT, A.M.: This appeal by the assessee is directed against order dated 22/04/2014 of learned Commissioner of Income-tax( Appeals)-XXIV, New Delhi (in short ‘the CIT-A’) for assessment year 2010-11 raising following grounds: “1. That the Assessee has earned interest income on FDRs and these FDRs are required as margin for getting Foreign Letter of Credit. Letter of credit is required for procuring raw material from foreign suppliers. Hence there is direct nexus between the income earned and the industrial undertaking. 2. That the Assessee was under the bona fide belief that interest on F.D.R was also eligible for deduction U/s 801B. 3. That the Ld. Assessing Officer had not considered the TDS on interest on FDR and drafted the notice of demand accordingly. 4. That there need not necessary be direct nexus between the activity of the undertaking and profit and gains assertion 80IC of the Income Tax Act requires that the profit and should be derived
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from any business of the undertaking. We rely upon the following court judgments: • CIT V Koshika Telecom Ltd 287 ITR 479 (DELHI) • CIT V Eastern Tar P Ltd 301 ITR 427(JHARKHAND) • DCIT V Sudhir Genset Ltd 17 DTR 496 (DELHI) 5. That the assessee craves leave to add/alter any of the grounds of appeal before or at the time of hearing.” 2. The facts in brief of the case are that that the assessee, a partnership firm, was engaged in business of manufacturing basic drugs at Khatua (Jammu and Kashmir) during relevant period. During scrutiny proceedings, the Assessing Officer noted that the assessee had credited interest of Rs.3,70,768/- received from fixed deposit in banks and Rs.10,800/- received as freight and cartage as other incomes in the profit and loss account and claimed deduction under section 80IB of the Act on said amounts treating the same as business income. However, according to the Assessing Officer said interest income was not derived from the undertaking engaged in the specified business in terms of section 80IB of the Act and therefore rejecting the claim of the assessee to treat the said interest income as business income, he treated the interest income earned on fixed deposit as “income from other sources” and disallowed the claim of deduction under section 80IB of the Act on the said interest income. The Ld. CIT-A also upheld the finding of the Assessing Officer. Aggrieved, the assessee in appeal before the Tribunal raising the grounds as reproduced above. 3. In the grounds raised, the only grievance of the assessee is in respect of not allowing deduction under section 80IB of the Act on interest income received from fixed deposit made with the banks. 4. Before us, the Ld. counsel filed the paper book containing pages 1 to 93 and, submitted that the assessee availed cash credit facility from the Punjab National Bank, New Delhi and imported raw material on the
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strength of ‘Foreign Letter of Credit’ , which required fixed deposit as margin money. Being one of the conditions of keeping margin money with the bank, the fixed deposits were made with the bank and thus the interest earned on those fixed deposit was part of business income of the eligible business. In this reference, he brought our attention to page No. 14 -19 of the paper book, which is a bank loan sanction letter issued by the Punjab National Bank, New Delhi. He further submitted that alternatively netting off of the interest paid to bank should be allowed against the interest income earned. In support of the contention, decision of the Tribunal in the case of M/s Classy Kontainers Vs. ITO in ITA No. 4813 & 4814/MUM/2012 and Mahendra R. Patel Vs. ITO in ITA Nos. 410/AHD/2012. 5. On the other hand, the Ld. Senior DR relied on the order of the Ld. CIT-A and submitted that interest received on fixed deposit was not profit and gains derived from the industrial undertaking engaged in the eligible business. He further submitted that the assessee did not submit any evidence that the fixed deposit were made in consequence to the conditions of the bank to keep margin money. He further submitted that interest expenditure was incurred towards the business activity of the assessee and therefore same cannot be adjusted and net off against the interest income earned on fixed deposits made with the banks. 6. We have heard the rival submissions and perused the relevant material on record. It is relevant to reproduce the section 80IB(1) of the Act which specify the deduction allowable to the assessee. The said section reads as under: “80-IB.(1) Where the gross total income of an assessee includes any profits and gains derived from any business referred to in sub- sections (3) to (11), (11A) and (11B) (such business being hereinafter referred to as the eligible business), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction
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from such profits and gains of an amount equal to such percentage and for such number of assessment years as specified in this section.” 7. Thus, the deduction is available in respect of profit and gains derived from the eligible businesses as referred in sub-sections (3) to (11), (11A), (11B) only. In the case in hand, the assessee has claimed deduction under sub-section (4), for an industrial undertaking in an industrial backward state, which reads as under:
“80-IB.(4) The amount of deduction in the case of an industrial undertaking in an industrially backward State specified in the Eighth Schedule shall be hundred per cent of the profits and gains derived from such industrial undertaking for five assessment years beginning with the initial assessment year and thereafter twenty-five per cent (or thirty per cent where the assessee is a company) of the profits and gains derived from such industrial undertaking: Provided that the total period of deduction does not exceed ten consecutive assessment years (or twelve consecutive assessment years where the assessee is a co-operative society) subject to fulfilment of the condition that it begins to manufacture or produce articles or things or to operate its cold storage plant or plants during the period beginning on the 1st day of April, 1993 and ending on the 31st day of March, 2004: Provided furtherthat in the case of such industries in the North- Eastern Region, as may be notified by the Central Government, the amount of deduction shall be hundred per cent of profits and gains for a period of ten assessment years, and the total period of deduction shall in such a case not exceed ten assessment years: Provided also that no deduction under this sub-section shall be allowed for the assessment year beginning on the 1st day of April, 2004 or any subsequent year to any undertaking or enterprise referred to in sub-section (2) of section 80-IC: Provided also that in the case of an industrial undertaking in the State of Jammu and Kashmir, the provisions of the first proviso shall have effect as if for the figures, letters and words "31st day of March, 2004", the figures, letters and words "31st day of March, 2012" had been substituted : Provided also that no deduction under this sub-section shall be allowed to an industrial undertaking in the State of Jammu and
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Kashmir which is engaged in the manufacture or production of any article or thing specified in Part C of the Thirteenth Schedule.
The Ld. CIT-A in the impugned order has referred to the decision of the Hon’ble High Court of Jammu and Kashmir in the case of Asian Cement Industries Vs. Income Tax Appellate Tribunal (IT Appeal No. 5 to 6 of 2007). In para-24 of the said decision the Hon’ble High Court has observed that…… A conjoint reading of section 80IB(1) and 8IB(4) would reveal that the expression ‘profit and gains derived from any business ’is to be read as ‘ profit and gains derived from the industrial undertaking’ in the scope and ambit of section 80 IB(1) is not in any manner wider than that of 80IB(4). A holistic view of section 80 IB would reveal that what is intended by the lawmakers to qualify for deduction is ‘profit and gains derived from the industrial undertaking’. There is, therefore, no reason to bring within the fold of ‘ profit and gains derived from industrial undertaking’ any income beyond the activities of industrial undertaking on the ground that words ‘ any business’ find expression in 80IB(1) . 9. In view of above finding of the Hon’ble High Court of Jammu and Kashmir, the assessee is required to establish that interest income was derived from the industrial undertaking. 10. On perusal of the bank loan sanction letter, which is available on page 14 to 19 of the paper book, we find that cash credit facility has been issued by the bank against margin of 25% of the stocks and 40% on receivable but there is no mention of keeping fixed deposits as margin. Further, credit facility has been extended by the bank against foreign letter of credit at 25% margin. In case of sanctioned loan of Rs.1.50 crores against ‘Foreign Letter of Credit’, what loan amount was actually availed is not known from the facts available on record. From the facts of the case, as mentioned in the orders of the lower authorities and
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presented before us, there is no detail available on record as how many fixed deposits were made, when those fixed deposits were made and whether the same were strictly in requirement of the margin money required for availing credit facility for the purpose of business. The assessee has not furnished any certificate in this regard from the bank. In absence of these material facts, the issue whether the interest income earned on the fixed deposit was derived from the industrial undertaking cannot be decided. 11. In such circumstances, we feel it appropriate to restore the issue to the file of the Assessing Officer to examine the issue keeping in view of above discussion and decide in accordance with law. It is needless to mention that assessee shall be afforded sufficient opportunity of hearing. Accordingly, the grounds of the appeal are allowed for statistical purpose. 12. In the result, appeal of the assessee is allowed for statistical purpose.
The decision is pronounced in the open court on 13th April, 2017.
Sd/- Sd/- (I.C. SUDHIR) (O.P. KANT) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 13th April, 2017. RK/-(D.T.D) Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi