Interest on Income Tax Refund can’t be Deducted u/s 80IE: ITAT [Read Order]

The Jaipur bench of the Income Tax Appellate Tribunal ( ITAT ) has held that the deduction under Section 80IE of the Income Tax Act would not be available to interest on income tax refund.

The assessee, M/s OMIL JSC (JV) Kameng is a joint venture concern engaged in manufacturing, fabrication, erection, commissioning of pen stock steel liner, steel Radial Gates of Hydromechanical works/ equipments in the State of Arunachal Pradesh. During the year under consideration, the assessee has declared income under the head “Other sources” amounting to Rs. 4,47,166 which consists of interest on income tax refund amounting to Rs. 3,53,135/- and miscellaneous receipts of Rs. 94,031/-. The assessee also exemption under section 80IE in respect of the same. The Assessing Officer rejected the claim by finding that in order to claim deduction under section 80IE, the profits should have been derived by the undertaking from manufacture or production of eligible article or thing. He was of the view that there must be direct nexus between profit and manufacturing activity of the industrial undertaking.

Before the Tribunal, the assessee contended that it has only one business undertaking and the only business of the undertaking is that of manufacturing activity and any income derived by the undertaking, including the interest income, can only be derived by the undertaking whole of which is eligible for deduction under section 80IE of the Act. It was, therefore, contended that any interest even if the same has accrued on account of excess deduction of taxes at source, the same would be in nature of “business income” and not income under the head “Income from other sources”.

The Tribunal bench noticed the decision in Atria Power Corporation Ltd.v. DCIT wherein the co-ordinate bench of the Tribunal held that the interest earned on income-tax refunds was not assessable as part of the profits and gains of the power generation business eligible for deduction under section 80-IA(4)(iv) and the interest was assessable under the head “Income from other sources”.

In light of above decision, the bench held that the interest on income tax refund is held not eligible for deduction under section 80IE of the Act.