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M/s. Spinks Impex Versus Income Tax Officer, Ward- 39 (3) , New Delhi and Asstt. Commissioner of Income Tax, Circle-37 (1) , New Delhi

2016 (5) TMI 1251 - ITAT DELHI

Disallowance of deduction of interest income under section 80IC - AO held that this interest income was not derived from the eligible business because for falling in the term “derived from” - Held that:- The interest income earned from the fixed deposit pledged with VAT Department was not having any first degree nexus with the eligible business of the assessee and therefore not a profit derived from the eligible business and accordingly not entitled for deduction under section 80 IC of the Act - .....

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we find it appropriate to restore the issue back to the file of the Assessing Officer and direct the assessee to produce the details and bills/vouchers in respect of the preoperative expenses and the Assessing Officer is directed to decide the deductibility of the expenses in accordance to law. We also direct the Assessing Officer to provide sufficient opportunity of hearing to the assessee. Decided against assessee for statistical purpose. - ITA No. 1211/Del/2013, ITA No. 480/Del/2014 - Date .....

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appeals are heard together and disposed of by this consolidated order. ITA No. 1211/Del/2013 for AY: 2009-10 2. Now we take up the appeal in ITA No. 1211/Del/2013. The grounds of appeal raised are as under: 1. The Learned CIT (Appeals) imprecisely confirmed the order of Learned Assessing Officer is in mechanical manner, without even considering the submission made during the course of appeal by the appellant and is totally bad in law & wrong on facts. The CIT (Appeals) has only gone by surm .....

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e and kept as a security Deposit with the VAT Department (Himachal Pradesh) for getting the VAT Registration. Until and unless such sum (Fixed Deposit) is not kept under lien with VAT Department (Himachal Pradesh), the registration of VAT may never be granted and consequently no Business Operation. Hence interest so received is an income derived from the eligible Business. 3. The Learned CIT (Appeals) has erred in law and on facts in confirming the disallowance made by Learned Assessing Officer .....

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ssee as the amount claimed under the head incidental to the business and it has occurred due to business once again ignoring the provisions of section 37 of Income Tax Act. 5. The CIT (Appeals) has erred in law and on facts in not allowing necessary additional deduction under section 80IC of Income Tax Act, 1961 on account of disallowance of amortization of Pre Operative Expenses under section 35D and disallowance of short arid excess expenses. Therefore, necessary directions are given to recomp .....

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titling the assessee to deduction under section 80IC of the Income Tax Act, 1961 (for short the the Act ). In the scrutiny assessment completed for the year under consideration under section 143(3) of the Act on 12/12/2011, the Assessing Officer (AO) did not allow the deduction under section 80IC of the Act on the interest income of ₹ 14,135/-, holding the same as not the profit derived from the eligible business. The AO also disallowed the claim of pre-operative expenses of ₹ 86,883 .....

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assessee filed application under Rule 11 of the ITAT Rules for admission of fresh (additional) ground of appeal on 09/04/2013. The learned AR supported his contention that the Tribunal had jurisdiction to examine a question of law which arose from the facts as found by the lower authorities and having a bearing on the tax liability of the assessee, with the judgment of the Hon ble Supreme Court in the Case of National Thermal Power Company Limited Vs. CIT (1998) 229 ITR 383 (SC) and CIT Vs. Mah .....

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we admit the additional ground raised by the assessee. 4. The ground No. 1 of the appeal is general in nature and not required to adjudicate upon by us. 5. In ground No. 2, the assessee has raised issue of disallowance of deduction of interest income of ₹ 14,135/- under section 80IC of the Act. The AO held that this interest income was not derived from the eligible business because for falling in the term derived from there should be first degree relations between the income and the sourc .....

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28 of the paper book, which is photocopy of the fixed deposit made with the Citibank and submitted that a fixed deposit of ₹ 2,25,000/- was made with the bank on 21/12/2005 and pledged as a security deposit with the VAT Department of Himachal Pradesh government being a prerequisite for getting the VAT registration. The learned AR further submitted that in the case of liberty India Vs. CIT (supra) the issue of duty drawback/DEPB benefit were claimed as receipts derived from the business, wh .....

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d that interest on capital being an inevitable one, may be allowed the deduction, the interest on FDR kept as security deposit to get the VAT registration must also be understood as inevitable and coupled with the main object of the business and consequently must be understood derived from the business . Further, the Ld. AR relied on the judgment of the Hon ble Gauhati High Court in the case of CIT Vs. Meghalaya Steels Ltd. (2013) 34 taxmann.com 34 (Gauhati) wherein the transport subsidy, power .....

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the case of CIT versus Universal Pipes Private Limited (2012) 28 taxmann 131 (Gauhati) wherein interest received for delay in payment by creditor was held as business income eligible under section 80IC of the Act. 5.2 On the other hand, the Ld. Senior Departmental Representative (DR) relying on the findings of the authorities below submitted that though the FDR was made as a requirement of VAT registration, but the immediate source of interest income is the FDR and not the eligible business of t .....

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as part of profit of the eligible business, whereas in the case of the assessee in hand, the interest income earned on FDR was not part of the cost of production and therefore the ratio of that case was not applicable over the facts of the case of the assessee. Further, she also submitted that in CIT Vs. Universal Pipes Private Limited (supra) also the interest was received from trade debtors for delay in payment was integral part of the business because that also goes to reduce the cost of pro .....

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ar interest of ₹ 14,135/- was received by the assessee. It is argued on behalf of the assessee that making the FDR was prerequisite for getting VAT registration and therefore it was being essential for business, the interest income is also derived from the eligible business of the assessee. In the case of CIT Vs. Sterling Foods , 237 ITR 579, the Hon ble Supreme Court has held that for the profit to be derived from the eligible business there should be nexus of firstdegree between the prof .....

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ains and the industrial undertaking. In the instant case the nexus is not direct but only incidental. The industrial undertaking exports processed sea food. By reason of such export, the export promotion scheme applies. There under, the assessee is entitled to import entitlements, which it can sell. The sale consideration therefrom cannot, in our view, be held to constitute a profit and gain derived from the assessee s industrial undertaking. 5.4 In our opinion, the source of interest income is .....

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espect of such subsidies was held to be allowable under section 80IC of the Act. The facts of the assessee in hand are distinguishable from the facts of the cited case. 5.6 The claim of the assessee is also not getting support from the finding of the Hon ble High Court of the Gauhati in the case of CIT versus universal pipes private limited (supra) because in that case also the interest received was in respect of delay in payment by trade debtors, which being part of the business activity, held .....

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ding of the learned Tribunal, inter alia on the aspect of the eligibility of the respondent-assessee for availing the benefit of deduction under section 80 IC of the Act in terms of sub-section (2) (b) (iii) thereof, no relevant legal provision or any decision of any court of law was cited to construe the amount as not derived by it from it's business. In Commissioner of Income Tax, Orissa Vs. Govinda Choudhury & Ors., Gosaninuagaon, Orissa, (Supra), the Hon'ble Apex Court held that .....

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of the opinion that the interest income earned from the fixed deposit pledged with VAT Department was not having any first degree nexus with the eligible business of the assessee and therefore not a profit derived from the eligible business and accordingly not entitled for deduction under section 80 IC of the Act. Thus, this ground of the appeal is dismissed. 6. In ground No. 3 the assessee has challenged the confirmation of the disallowances of preoperative expenses of ₹ 86,883/- written .....

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004-05 ₹ 56,104.00 ₹ 56,104.00 2005-06 ₹ 43,055.10 ₹ 99,159.10 2006-07 ₹ 1,138.23 ₹ 1,00,297.33 2007-08 ₹ 577.58 ₹ 1,00,874.91 2008-09 ₹ 3,33,540.00 ₹ 43,442.00 ₹ 3,90,972.91 2009-10 Nil ₹ 86,883.00 ₹ 3,04,089.91 2010-11 Nil ₹ 86,883.00 ₹ 2,17,206.91 6.1 It has been further claimed by the assessee that these preoperative expenses were incurred by the assessee from the date of formation of the partnership fi .....

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expenses written off. The learned Commissioner of Income-tax(Appeals), upheld the finding of the AO with following remarks: 5. The ground against disallowance of ₹ 86,883/-. The Assessing Officer has made the disallowance in the absence of details supporting the claim of pre-operative expenses written off. It is the duty of the assessee to furnish the details as and when required for assessment of the income. There is no option if such details are not furnished, but to disallow the claim. .....

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6.4 We have heard the rival submissions and perused the material on record. The issue in dispute arose mainly due to non-furnishing of details of the expenses before the AO. In our opinion, there is no doubt that the assessee is entitled for deduction for the preoperative expenses amortized at the rate of 20% as per section 35D of the Act, but it is the responsibility of the assessee to furnish the details and bills and vouchers of the expenses before the Assessing Officer in scrutiny proceeding .....

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is in respect of a small amount of ₹ 45/-, debited in the profit and loss account as short and excess expenses, which was not pressed by the Ld AR, and therefore, the ground is dismissed as infructuous. 8. In ground No. 5, the assessee has raised as an alternative plea of allowing deduction under section 80IC of the Act, if the disallowance of preoperative expenses is sustained. We find that the issue of allowance of amortization of preoperative expenses, has already been restored to the .....

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er of the Learned Assessing Officer is in mechanical manner, without even considering the submission made during the course of appeal by the appellant and is totally bad in law & wrong on facts. The CIT (Appeals) has only gone by surmises, Conjectures and guess work in drawing inference and recording conclusion. In the absence of any cogent material to support his findings, the same being based on conjuncture and surmises cannot be upheld. 2. The Learned CIT (Appeals) has erred in law and on .....

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