ITAT Grants Relief to Havells India on interest income

ITAT Grants Relief to Havells India on interest income

A two members bench of the Income Tax Appellate Tribunal (ITAT), Delhi, comprising Kuldip Singh and Anil Chaturvedi granted relief to Havells India (Assessee) in the case of Havells India Ltd. v. DCIT The ITAT held that the Revenue was not justified in denying the claim of deduction on income, which is inseparably linked to the main business activity.

The assessee company, Havells India claimed to engage in the business of manufacturing switchgear, energy meters, etc. The Assessee electronically filed its return of income declaring total income of Rs 2,73,93,854 under the normal provisions and Rs 1,67,73,82,769 under the Minimum Alternate Tax (MAT) provisions. The case was selected for scrutiny and notice was issued and served on the assessee.

The AO noted that during the year under consideration, the assessee had entered into international transactions with its Associate Enterprise (AEs) and the value of such transactions exceeded Rs 15 crore. He, therefore, referred the case to the Transfer Pricing Officer (TPO) on 25 July 2011 u/s 92CA for computing the Arm's Length Price (ALP) of the international transactions entered by the assessee with its AEs.

The TPO through an order dated 22 January 2013 passed u/s 92CA(3) proposed adjustment of Rs 59,02,538 regarding market support services and Rs 15,19,68,061 towards interest on the excess amount of share investments and thus proposed aggregate adjustment of Rs 15,78,70,599 to the total income on account of ALP for an international transaction with associated enterprises.

The AO thereafter in the order passed u/s 143(3) read with Section144C(4)(a) of the Act, dated 28 May 2013, the total income of the assessee under normal provisions of the Act at Rs 21,18,15,600 and book profit of Rs 165,91,02,036.

The Assessee made the submissions that were not accepted by the AO. The AO was of the view that as per the provisions of Section 80IC of the Income Tax Act, 1961 (IT Act), the deduction is available only on income derived from business activity of industrial undertaking and since interest has been derived from fixed deposits, the interest was not eligible for deduction and AO denied the claim of deduction under Section 80IC on such interest income.

The assessee contended that interest income was earned on the fixed deposits which were required to be maintained as per the statutory requirements of the respective states. Since the interest income was inextricably linked to the main business activity of the assessee, it should be considered to be treated as eligible for claiming the deduction.

Aggrieved by the order of the AO, the assessee filed an appeal before the Commissioner of Income Tax Appeals, New Delhi Bench, [CIT(A)] who vide order dated 23 October 2015 granted partial relief to the assessee. Aggrieved by the order of the CIT(A), the assessee filed an appeal before the ITAT.

The ITAT held that AO was not justified in denying the claim of deduction under Section 80IC of the Act and thus directed the AO to grant deduction on the interest income earned by the assessee.