No direct link between Interest Income and Industrial Activity: ITAT disallows S.80-IB/80-IE Deduction for Sun Pharma Labs Ltd [Read Order]

The Ahmedabad Bench of Income Tax Appellate Tribunal ( ITAT ) disallowed the Section 80-IB/80-IE deduction under the Income Tax Act, 1961, for Sun Pharma Laboratories Ltd., stating there was no direct link between the interest income and industrial activity

Sun Pharma Laboratories Ltd.,the appellant-assessee,appealed against the CIT(A) order dated 28.02.2019 for AY 2015-16, arising from the assessment under Section 143(3) of the Income Tax Act.

The ground mentioned by the assessee related to the disallowance of a deduction under Section 80-IB/80-IE for interest on staff advances and statutory/bank deposits.

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The AO observed that the assessee was not entitled to a deduction under Section 80-IB/80-IE on loans to employees and bank deposits, as such interest income was not derived from the industrial undertaking. This view was based on the Supreme Court rulings in CIT vs. Sterling Foods (237 ITR 579) and Liberty India vs. CIT (317 ITR 218).

The CIT (A) upheld the disallowance, noting that a similar issue had been previously decided against Sun Pharma, Sikkim, in A.Y. 2010-11, following an ITAT order in Sun Pharmaceutical Industries (ITA No.184/ASR/2009).

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Aggrieved by the appellate order, the assessee appealed to the Tribunal. Senior Counsel Sri S.N. Soparkar acknowledged that a similar issue had been ruled against the assessee by the Co-ordinate Bench in ITA No. 3507/Mum/2016 for A.Y. 2011-12, involving the erstwhile SPI, which merged with the assessee.

He also referenced unfavorable decisions in ITA Nos. 1464 & 1465/Ahd/2018 from October 6, 2023, concerning A.Y. 2013-14 and 2014-15. The Revenue counsel Dr. Darsi Suman Ratnam supported the Tribunal's order.

The Tribunal heard the rival contentions and reviewed the available records. It noted that similar issues had been decided against the assessee in A.Y. 2011-12 to 2014-15. The relevant findings from the Amritsar Tribunal's order in the assessee's own case for A.Y. 2004-05 were cited, confirming that interest on staff advances and FDRs was not eligible for deduction under Section 80-IB.

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The two member bench comprising T.R. Senthil Kumar (Judicial Member) and Annapurna Gupta (Accountant Member) dismissed the appeal filed by the assessee based on the consistent rulings of the Co-ordinate Benches in the assessee's own case and upheld the CIT(A) findings.

To Read the full text of the Order CLICK HERE

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