Pes Engineers Private Limited, ... vs Assessee

PES Engineers Pvt. Ltd., vs. Dy. Commissioner of Income- Hyderabad tax, Circle - 16(3), Hyderabad. PAN - AABCP4220B (Appellant) (Respondent)

Assessee by : Shri V. Raghavendra Rao Revenue by : Shri Rajat Mitra

Date of hearing 18-02-2015 Date of pronouncement 20-02-2015

OR D ER

PER SAKTIJIT DEY, J.M.:

This appeal of the assessee is directed against order dated 29/11/2013 passed by ld. CIT(A)-V, Hyderabad for A.Y. 2006-07.

2. The issue raised in the present appeal is confined to alleged addition of interest income of Rs. 43,83,543.

3. Briefly the facts are, assessee a company is engaged in the business of fabrication and erection. For the AY under consideration, assessee filed its return of income on 18/11/06 declaring total income of Rs. 2,69,30,723 after claiming deduction of Rs. 4,83,76,860 u/s 80IB of the Act. Assessment in case of assessee was completed u/s 143(3) of the Act for the impugned AY vide order dated 04/11/08. While completing assessment, AO disallowed the deduction claimed u/s 80IB. Further, AO also 2 ITA No. 176/Hyd/2014 PES Engineers Pvt. Ltd.

observed that interest income received by assessee has to be excluded for the purpose of deduction u/s 80IB. Assessee challenged the disallowance of deduction u/s 80IB in an appeal preferred before ld. CIT(A). Ld. CIT(A) while considering assessee's claim, though, held that assessee is eligible to claim deduction u/s 80IB, but, as far as interest income is concerned, ld. CIT(A) held that interest income along with expenditure has to be apportioned amongst various units as per the decision of his predecessor in AY 2005-06. The finding of the ld. CIT(A) in order dated 11/11/2009 is extracted herein for ready reference:

"6.1 In the ground of appeal no. 4(a), it has been stated that the expenditure with respect to head office expenses is not apportionable amongst various units. The appellant has further stated that he was not given any opportunity on this issue. However, I find that the issue has been decided by my predecessor vide para 6 of in ITA No. 0153/DC-16(3)/CIT(A)- V/2007-08 dated 29.10.2008 for AY 2005-06 in the case of the appellant. Similarly with regard to ground No. 4(b), the issue of apportionment of interest income and expenditure amongst various units has been decided by predecessor as per para 7 of his order referred to above. In the current year also, the facts are identical and the appellant has not given any details regarding its claim. As per para 6 of its written submissions the appellant has stated as below:

'6. In regard to the grounds at 4(1) & 4(b) which regarding the interest receipts admitted at the Head Office and expenditure incurred at the Head Office, the issue is covered by the order of the CIT(A)-V, Hyderabad for the assessment year 2005-06 (supra) which has become final as there is no appeal to the Tribunal on the point. Therefore the grounds 4(a) & 4(b) may be disposed off accordingly."

6.2 In view of the above, I do not find any merit in the above grounds of the appellant. Accordingly, the ground nos. 4(a) & 4(b) are decided in favour of the revenue and against the appellant."

4. Against the aforesaid order of ld. CIT(A), neither assessee nor department preferred any appeal before the Tribunal. Thus, the 3 ITA No. 176/Hyd/2014 PES Engineers Pvt. Ltd.

order of ld. CIT(A() became final. In pursuance to the order of ld. CIT(A), AO passed a consequential order on 02/12/09 determining total income at Rs. 3,20,00,341 after allowing deduction u/s 80IB. Against the aforesaid consequential order passed by AO, assessee moved an application u/s 154 of the Act claiming that deduction u/s 80IB was allowed at Rs. 4,33,07,242 as against Rs. 4,76,90,785 claimed by assessee by reducing interest income of Rs. 43,83,543, which is already included in the total income. Therefore, as assessee has not included interest income while considering the profit for computation of deduction u/s 80IB, reduction of interest income from profit of 80IB would amount to taxation of the same income twice. AO, however, rejected assessee's claim by observing that as ld. CIT(A) has already decided the issue and the consequential order is only implementing the said direction of ld. CIT(A), assessee's claim cannot be accepted. Against the order passed u/s 154, assessee preferred appeal before ld. CIT(A). Ld. CIT(A), however, did not find merit in assessee's claim for the reason that in the consequential order, AO has merely implemented the direction of ld. CIT(A).

5. The ld. AR submitted before us that interest income forms part of P&L Account and has been considered while computing gross total income. He submitted that while computing deduction u/s 80IB assessee has not included interest income, which was credited under the head office account and Tehri site account. However, AO while apportioning interest income amongst 80IB units and non 80IB units should have reduced it while computing deduction u/s 80IB because interest income offered in Head Office account is shifted to the units by way of apportionment and included in the incomes of the unit. It was submitted, as interest income is not derived from business of industrial undertaking, the same does not qualify for exemption u/s 80IB, therefore, assessee 4 ITA No. 176/Hyd/2014 PES Engineers Pvt. Ltd.

has offered interest income in Head Office account and in Tehri site office. Ld. AR submitted, when interest income is apportioned amongst 80IB and non 80IB units, the same should also be reduced from HO income shown by assessee, otherwise it will amount to taxing the same income twice.

6. The ld. DR, on the other hand submitted before us that assessee having not challenged the order of ld. CIT(A) and the consequential order having been passed in terms with the direction of ld. CIT(A) in so far as apportionment of interest is concerned, at this stage assessee cannot challenge the consequential order passed by AO.

7. We have considered the submissions of the parties and perused the orders of the revenue authorities as well as other materials on record. Undisputedly, while completing assessment AO has rejected assessee's claim of deduction u/s 80IB in toto. While doing so, he has also commented that as per the decision of the Hon'ble Supreme Court in case of Pandiyan Chemicals Ltd., assessee cannot claim deduction u/s 80IB on the interest income as it is not a profit derived from eligible business. Ld. CIT(A), though, accepted assessee's claim of allowability u/s 80IB, however, he directed AO to apportion interest income amongst various units by following the order passed by his predecessor for AY 2005-06, which has also been accepted by assessee. Admittedly, the order passed by ld. CIT(A) directing apportionment of interest income has not been challenged by assessee before higher appellate authority. Thus, in a sense, ld. CIT(A)'s order became final. As can be seen, AO while computing deduction u/s 80IB as per the direction of ld. CIT(A) apportioned interest income amongst units and thereafter computed deduction u/s 80IB. In the aforesaid facts and circumstances, AO having passed 5 ITA No. 176/Hyd/2014 PES Engineers Pvt. Ltd.

consequential order strictly in compliance to the directions of ld. CIT(A) and the order of ld. CIT(A) having not been challenged by assessee before higher appellate authority, no fault can be found with the consequential order passed by AO. Even accepting the fact that giving effect to the directions of ld. CIT(A) might have resulted in an erroneous computation of deduction u/s 80IB, but, nothing can be done at this stage as assessee has not challenged the directions of ld. CIT(A) to apportion the interest income amongst different units. In the aforesaid view of the matter, we do not find any infirmity in the impugned order of ld. CIT(A), which is accordingly upheld.

8. In the result, appeal of the assessee is dismissed.

Pronounced in the open court on 20/02/2015.

Sd/- Sd/- (P.M. JAGTAP) (SAKTIJIT DEY) ACCOUNTANT MEMBER JUDICIAL MEMBER

Hyderabad, Dated: 20 th February, 2015 kv

Copy to:-

1) PES Engineers Pvt. Ltd., 1 st Floor, Pancom Chambers, 6-3-1090/1A, Raj Bhavan Road, Somajiguda, Hyd-82.

2) DCIT, Circle - 16(3), Aayakar Bhavan, Basheerbag, Hyderabad

3) CIT(A)-V, Hyderabad

4) CIT-IV, Hyderabad

5) The Departmental Representative, I.T.A.T., Hyderabad.

6 ITA No. 176/Hyd/2014 PES Engineers Pvt. Ltd.