ITAT upheld 25% deduction u/s 80IC (of Income Tax Act, 1961) on claim made in sixth year of manufaturing

1. Assessee manufactured assemblies and sub assemblies for electronics energy meters and allied produces. The Assessing Officer noted that the assessee started its manufacturing activities during the financial year 2003-04 and had been claiming deduction u/s 80IC (of Income Tax Act, 1961) from assessment year 2004-05 which was the first year of claiming the deduction u/s 80IC (of Income Tax Act, 1961). The assessee had already claimed 100 % deduction u/s 80IC (of Income Tax Act, 1961) upto assessment year 2008-09. The assessee had made substantial expansion in the plant and machinery and started claiming 100% deduction u/s 80IC (of Income Tax Act, 1961) treating the assessment year 2009-10 as initial year again and treating it to first year of claim of deduction u/s 80IC (of Income Tax Act, 1961). As per the Assessing officer, since the assessee had claimed 100% deduction for first 5 years, therefore, it was entitled for claim of deduction u/s 80IC (of Income Tax Act, 1961) @ 25% for the 6th year to 10th year ie. 2009-10 to 2013-14. Accordingly, the Assessing officer restricted the claim of deduction u/s 80IC (of Income Tax Act, 1961) @ 25% as against 100% claimed by the assessee. The assessee had shown amount of Rs. 21,84,505/- under the head "other income", including an income of Rs.7,99,987/- on account of profit on fluctuation in foreign exchange, and had claimed deduction u/s 80IC (of Income Tax Act, 1961). The Assessing Officer disallowed the sum of Rs. 21,84,505/- and added back the same to the total taxable income of the assessee. The assessee had shown investments of Rs. 10,22,04,600/- in preferences equity shares. AO worked out the disallowance u/s 14A (of Income Tax Act, 1961) read with Rule 8-D (of Income Tax Rules, 1962) and made the disallowance of Rs. 5,55,241.

2. CIT(A) upheld the order of the Assessing Officer.

3. On appeal, the ITAT held as under:

4. "After hearing both the parties, we find that the issue is squarel y covered in favour of the Revenue and against the assessee by the order of this Bench of the Tribunal passed in the case of Hycron Electronics Vs. ITO, Chandigarh reported in (2015) 41 ITR (Trib.) 486 relating to assessment year 2009-10.

5. The careful reading of the form in a serial order would clearly show that the assessee is required to inform the location of the Industry and column (c) specifically ask the assessee to state whether business is a new business? Column (d) clearly ask the assessee whether existing business has undertaken substantial expansion, therefore, there are two categories of business and substantial expansion is possible only in case of existing business. In our opinion, the Ld. CIT(A) has correctly adjudicated this issue.

6. In view of the above detailed discussion we hold that the assessee before us i.e. M/s Hycron Electronics in ITA No. 798/Chd/2012 is entitled to only 25% of deduction during the present year because the assessee has already availed the period of full deduction @ 100% in the earlier five years i.e. from assessment years 2004-05 to 2008-09. In this background, we find nothing wrong with the order of Ld. CIT(A) and we uphold the same. Accordingly, assessee's appeal is dismissed."

The facts of the preset case are similar to that of the case of Hycron Electronics Vs. ITO referred to above. Respectfully following the order of the Tribunal referred to above, we reject ground No.2 of the appeal.

As regards the issue of foreign exchange fluctuation, amounting to Rs. 7,99,987/-, we are following the order of the Tribunal passed in ITA No.374/Chd/2014 relating to assessment year 2010- 11 and set aside the order of CIT(A) and remand the issue to the file of the Assessing officer to decide the issue as per the directions and guidelines given by the Tribunal in assessee's case in assessment year 2010-11. As regards the dividend of Rs. 10,50,047/-, we agree with the findings of the CIT(A) that dividend has to be specifically charged under the head "income from other sources" u/s 56 (of Income Tax Act, 1961). Furthermore, in view of the decision of the Hon'ble Supreme Court in the case of Pandian Chemicals Ltd Vs. CIT (supra), and Liberty India Ltd. Vs. C IT (supra), the dividend received by the assessee has no direct nexus with the profits and gains derived from the manufacturing activit y and industrial undertaking. Hence, this amount is not allowable for computation of profits for claiming deduction u/s 80IC (of Income Tax Act, 1961).

Similarly, the Hon'ble Punjab & Haryana High Court in the case of C IT v Deepak Mittal (2013) 38 Taxman 83 (P&H) held that the disallowance u/s 14A (of Income Tax Act, 1961) requires findings of incurring of expenditure where it is found that for earning exempt income, no expenditure has been incurred, disallowance u/s 14A (of Income Tax Act, 1961) cannot stand. When the assessee claims that he had not made any expenditure on earning exempt income, the Assessing officer in terms of sub section (2) of section 14A (of Income Tax Act, 1961) is required to collect such material evidence to determine, expenditure if any, incurred by the assessee in relation to earning of exempt income.

7. In view of the above discussion, we think it appropriate to set aside the findings of the CIT(A) on this issue and remand the matter to the Assessing officer with a direction to decide the issue afresh in accordance with law after affording due and reasonable opportunit y of being heard to the assessee.”

Case Reference- M/s Hycron Electronics, Solan, Vs. The ITO

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES, HANDIGARH BEFORE SHRI H.L.KARWA, HON'BLE VICE PRESIDENT & MS. RANO JAIN, ACCOUNTANT MEMBER ITA No. 327/Chd/2015 Assessment Year: 2011-12