Addi Industries Ltd., v. ITO, Ward 1(2),

ITA 2046/DEL/2007 | 2004-2005
Pronouncement Date: 08-01-2010 | Result: Partly Allowed

Appeal Details

RSA Number 204620114 RSA 2007
Bench Delhi
Appeal Number ITA 2046/DEL/2007
Duration Of Justice 2 year(s) 8 month(s) 14 day(s)
Appellant Addi Industries Ltd.,
Respondent ITO, Ward 1(2),
Appeal Type Income Tax Appeal
Pronouncement Date 08-01-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted A
Tribunal Order Date 08-01-2010
Date Of Final Hearing 23-12-2009
Next Hearing Date 23-12-2009
Assessment Year 2004-2005
Appeal Filed On 24-04-2007
Judgment Text
`IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH A : NEW DELHI BEFORE SHRI R.P.TOLANI AND SHRI A.K.GARODIA ITA NOS.2045 & 2046 /DEL/2007 ASSESSMENT YEAR : 2003-4 & 2004-05 M/S ADDI INDUSTRIES LTD. B-44 MAHARANI BAGH NEW DELHI. VS. ITO WARD 1(2) NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI PRADEEP DINODIA C.A. WI TH SHRI R.K.KAPOOR C.A. RESPONDENT BY : SHRI A.K.PANDEY CIT DR ORDER PER A.K.GARODIA A.M.: BOTH THESE APPEALS ARE ASSESSEES APPEALS DIRECTED AGAINST TWO SEPARATE ORDERS OF LD. CIT(A)-IV NEW DELHI DATED 2 8/2/2007 FOR ASSESSMENT YEAR 2003-04 AND DATED 26/2/2007 FOR ASS ESSMENT YEAR 2004- 05. SINCE COMMON ISSUES ARE INVOLVED IN BOTH THE YE ARS BOTH THE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY A COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. FIRST ISSUE INVOLVED IS REGARDING CLAIM OF THE A SSESSEE FOR DEDUCTION OF RS.28 25 346/- BEING REFUND BY THE ASSESSEE TO THE CUSTOMS DEPARTMENT DURING ASSESSMENT YEAR 2003-04 AGAINST EXCESS CLAIM OF DUTY DRAW BACK ALLOWED IN THE EARLIER YEARS. THIS ISSUE HAS BEEN R AISED BY THE ASSESSEE AS PER GROUND NO.1 IN ASSESSMENT YEAR 2003-04. 2 3. BRIEFLY STATED THE FACTS ARE THAT IT IS NOTED B Y THE ASSESSING OFFICER IN PARAGRAPH 7 OF THE ASSESSMENT ORDER THAT DURING THI S YEAR THE ASSESSEE HAS DEBITED ITS PROFIT AND LOSS ACCOUNT WITH A SUM OF R S.47.26 LACS UNDER THE HEAD MISCELLANEOUS EXPENSES. ON EXAMINATION OF TH E DETAILS IT WAS FOUND THAT THE ASSESSEE HAS DEBITED A SUM OF RS.28 25 346 /- AS REFUND OF DUTY DRAW BACK. IT IS ALSO NOTED BY THE ASSESSING OFFICER THA T AS PER BALANCE SHEET PAGE 31 THE AUDITORS HAVE POINTED OUT THAT THE ASSESSEE HAD RECEIVED THE NOTICE DATED 28/9/2002 FROM THE CUSTOMS DEPARTMENT IN RESP ECT OF REFUND OF DUTY DRAW BACK AS EXCESS CLAIMED ON AIR FREIGHT. HE ALSO NOTED THAT IN RESPONSE TO THIS NOTICE THE ASSESSEE HAS MADE PAYMENT OF RS.28 .02 LACS TO THE CUSTOMS DEPARTMENT AND DEBITED TO THE PROFIT AND LOSS ACCOU NT. IT IS FURTHER NOTICED BY THE ASSESSING OFFICER THAT AS THIS AMOUNT WAS PA ID FOR THE PERIOD 1/4/1998 TO 30/9/2002. THE ASSESSEE WAS ASKED AS TO WHY THIS EXPENSE DEBITED AND CLAIMED THROUGH PROFIT AND LOSS ACCOUNT BE NOT DISALLOWED AS THE SAME IS NOT THE BUSINESS EXPENSE OF THE ASSESSEE FO R THE YEAR UNDER CONSIDERATION. IN REPLY IT WAS SUBMITTED BY THE AS SESSEE THAT IN THE EARLIER YEARS THE ASSESSEE WAS FORCED TO SEND SOME EXPORT SHIPMENT BY AIR. IN SOME CASES THE SHIPMENT WAS ON CIF BASIS ALSO. THE DUTY DRAW BACK OF SUCH SHIPMENTS SENT BY THE ASSESSEE ON CIF BASIS AND/OR BY AIR WAS RELEASED BY THE CUSTOMS DEPARTMENT IN THOSE YEARS IN USUAL COU RSE AND THE SAME WAS CREDITED AS INCOME IN THE RESPECTIVE YEAR IN THE PA ST. IT WAS ALSO POINTED OUT THAT DURING THE PRESENT YEAR THE CUSTOMS DEPARTMEN T HAD DETECTED SUCH CASES OF ALL THE EXPORTERS INCLUDING THE ASSESSEE C OMPANY AND IT WAS HELD THAT DUTY DRAW BACK SHOULD HAVE BEEN GIVEN ON EXPOR T SHIPMENTS ON FOB BASIS AND REQUIRED THE ASSESSEE COMPANY TO REFUND B ACK THIS AMOUNT OF RS.28 25 346/- ON ACCOUNT OF THE DIFFERENCE IN DUTY DRAW BACK ALLOWED TO THE ASSESSEE COMPANY IN EARLIER YEARS ON AIR FREIGHT AN D/OR ON CIF BASIS. IT WAS THE SUBMISSION THAT SINCE THIS LIABILITY HAS ARISEN IN THIS YEAR THE SAME 3 SHOULD BE ALLOWED IN THE PRESENT YEAR. IT WAS ALSO POINTED OUT THAT IN THE SUBSEQUENT YEAR THE MATTER WAS TAKEN UP BY THE ASS OCIATION WITH CUSTOMS DEPARTMENT AND THE ASSESSEE HAD RECEIVED BACK FROM THE CUSTOMS DEPARTMENT AN AMOUNT OF RS.26 69 832/- IN THE NEXT YEAR I.E. ASSESSMENT YEAR 2004-05 AND THE SAME WAS OFFERED TO TAX AS INC OME IN THAT YEAR AND HENCE DEDUCTION SHOULD BE ALLOWED IN THE PRESENT Y EAR OF THE ENTIRE AMOUNT. THE ASSESSING OFFICER WAS NOT SATISFIED AND HE DISA LLOWED THE SAME ON THE BASIS THAT REFUND OF EXCESS DUTY DRAW BACK IS NOT A N EXPENSE OF THE ASSESSEE FOR THE PRESENT YEAR. BEING AGGRIEVED THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A) WHO HAS UPHELD THE ASS ESSMENT ORDER ON THIS ISSUE REGARDING DISALLOWANCE IN THE PRESENT YEAR OF RS.28 25 346/-. HE ALSO DIRECTED THE ASSESSING OFFICER TO EXAMINE AS TO WHE THER THE AMOUNT OF RS.26 69 832/- STATED TO HAVE BEEN RECEIVED BACK BY THE ASSESSEE IN THE NEXT YEAR REALLY RELATES TO THIS PAYMENT OF RS.28 25 346 /- AND IF HIS FINDINGS ARE IN AFFIRMATIVE THE ASSESSING OFFICER IS DIRECTED TO S EE THAT THE RECEIVED BACK AMOUNT OF RS.26.69 LACS IS NOT TAXED IN THAT YEAR B ECAUSE THE DISALLOWANCE RELEVANT TO THIS AMOUNT HAVE BEEN CONFIRMED TO BE D ISALLOWED IN THE PRESENT YEAR. NOW THE ASSESSEE IS IN APPEAL BEFORE US. 4. THE LD. D.R. OF REVENUE SUPPORTED THE ASSESSMEN T ORDER WHEREAS IT WAS SUBMITTED BY THE LD. A.R. OF THE ASSESSEE THAT THE LIABILITY WAS ARISEN IN THE PRESENT YEAR AS PER THE LETTER OF CUSTOMS DEPAR TMENT DATED 28/9/2002 AND HENCE THE SAME IS ALLOWABLE IN THE PRESENT YEA R. IT WAS HIS ALTERNATIVE SUBMISSION THAT EVEN IF FULL AMOUNT IS NOT ALLOWED IN THE PRESENT YEAR BECAUSE THE PART AMOUNT WAS RECEIVED BACK IN THE NE XT YEAR TO THE EXTENT OF RS.26 69 832/- THE SAME MAY BE EXCLUDED FROM THE I NCOME IN NEXT YEAR AS PER THE DIRECTION OF THE LD. CIT(A) BUT THE EXCESS AMOUNT I.E. RS.1 55 514/- SHOULD BE ALLOWED IN THE PRESENT YEAR. 4 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FIN D THAT IT IS AN ADMITTED POSITION THAT WHEN THE ASSESSEE RECEIVED T HE DUTY DRAW BACK THE SAME IS ACCOUNTED FOR AS INCOME BY THE ASSESSEE. WE THEREFORE FEEL THAT IF SOME EXCESS AMOUNT WAS RECEIVED BY THE ASSESSEE AND THE SAME WAS OFFERED AS INCOME AND IF THE SAME IS BEING REFUNDED IN SUBS EQUENT YEAR THEN THE SAME IS ALLOWABLE AS EXPENSE OR IN THE ALTERNATIVE THE SAME HAS TO BE DEDUCED FROM INCOME IN THE RELEVANT YEAR TO WHICH T HE SAME IS RELATED. IN THE PRESENT CASE THE AMOUNT INITIALLY PAID BY THE ASSE SSEE IN THE PRESENT YEAR IS RS.28 25 346/- OUT OF WHICH A SUM OF RS.26 69 832/- HAS BEEN RECEIVED BACK BY THE ASSESSEE FROM THE CUSTOMS DEPARTMENT IN THE NEXT YEAR. SINCE THE ASSESSEE HAD CLAIMED DEDUCTION OF THE ENTIRE AMOUNT PAID IN THE PRESENT YEAR THE AMOUNT RECEIVED BACK BY THE ASSESSEE IN THE NEX T YEAR WAS OFFERED TO TAX BY THE ASSESSEE IN THE NEXT YEAR I.E. ASSESSMENT YE AR 2004-05. AS PER THE DIRECTIONS OF THE LD. CIT(A) THE ASSESSING OFFICER HAS EXCLUDED THAT AMOUNT FROM INCOME IN ASSESSMENT YEAR 2004-05 AND HENCE T HE DISPUTE IN THE PRESENT YEAR IS LIMITED TO THE AMOUNT OF RS.1 55 51 4/- BEING DIFFERENCE OF RS.28 25 346 26 69 832. SINCE THE LIABILITY ON TH IS ACCOUNT HAS ARISEN IN THE PRESENT YEAR WE FEEL THAT DEDUCTION SHOULD BE ALLOWED TO THE ASSESSEE IN THE PRESENT YEAR AS NO REAL PURPOSE WILL BE SERVED BY REOPENING THE ASSESSMENT OF EARLIER YEARS FOR THE PURPOSE OF REDU CING THE INCOME ON THIS ACCOUNT IN THE RELEVANT YEAR. WE HOLD ACCORDINGLY A ND DIRECT THE ASSESSING OFFICER TO ALLOW DEDUCTION OF RS.1 55 514/- IN THE PRESENT YEAR. THIS GROUND OF APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 6. THE SECOND ISSUE INVOLVED IS REGARDING ONE-HALF DISALLOWANCE OF RS.73 446/- OUT OF BUSINESS PROMOTION EXPENSES. THI S ISSUE HAS BEEN RAISED BY THE ASSESSEE AS PER GROUND NO.2 IN ASSESSMENT YE AR 2003-04. 5 7. THE BRIEF FACTS ARE THAT IT IS NOTED BY THE ASSE SSING OFFICER IN PARAGRAPH 8 OF THE ASSESSMENT ORDER THAT THE ASSESS EE HAS DEBITED AN AMOUNT OF RS.7 34 461/- UNDER THE HEAD BUSINESS PROMOTION EXPENSES. THE ASSESSING OFFICER ASKED THE ASSESSEE TO FURNISH VOU CHERS FOR SUCH EXPENSES. IT IS NOTED BY THE ASSESSING OFFICER THAT NO VOUCHE RS WERE PRODUCED BY THE ASSESSEE FOR VERIFICATION. IT IS FURTHER NOTED BY T HE ASSESSING OFFICER THAT DETAILS OF EXPENSES FILED REVEALED EXPENSES INCURRE D BY THE CMD AND THE DIRECTORS WITH FOREIGN BUYERS AND EXPENSES ON DIWAL I FUNCTION ETC. THE ASSESSING OFFICER HAS HELD THAT IN THE ABSENCE OF V ERIFICATION OF EXPENSES CLAIMED WITH SUPPORTING VOUCHERS THE GENUINENESS O F EXPENSES CANNOT BE RELIED. BY MAKING THIS OBSERVATION THE ASSESSING O FFICER DISALLOWED 1/10 TH OF EXPENSES I.E. RS.73 446/-. BEING AGGRIEVED THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A) BUT WITHOUT SUCCESS AND NOW THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 8. IT IS SUBMITTED BY THE LD. A.R. OF THE ASSESSEE THAT THE ASSESSING OFFICER HAD CALLED FOR THE BOOKS OF ACCOUNT AND HAD VERIFIED VARIOUS EXPENDITURE HEADS AND HENCE THE AD HOC DISALLOWANC E MADE BY THE ASSESSING OFFICER IS WITHOUT ANY BASIS AND HENCE T HE SAME SHOULD BE DELETED. THE LD. D.R. OF THE REVENUE SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND WE FIND THAT DISALLOWANCE WAS MADE BY THE ASSESSING OFFICER FOR THE REASON TH AT THE ASSESSEE HAS NOT PRODUCED RELEVANT VOUCHERS FOR HIS EXAMINATION. IT IS NOTED BY THE LD. CIT(A) THAT THE ASSESSING OFFICER WANTED TO PIN-POINT THE EXPENDITURE NOT RELATEABLE TO THE BUSINESS INSTEAD OF MAKING AD HOC DISALLOWAN CE BUT SINCE THE ASSESSEE 6 HAD NOT FURNISHED VOUCHERS THE ASSESSING OFFICER COULD NOT HAVE DONE THIS EXERCISE. THE ASSESSEE HAS NOT PRODUCED THE VOUCHER S BEFORE THE LD. CIT(A) OR BEFORE US. IT IS ALSO NOT THE SUBMISSION OF THE ASSESSEE THAT THE ASSESSEE CAN NOW PRODUCE THE VOUCHERS BEFORE THE ASSESSING O FFICER IF THE MATTER IS RESTORED BACK TO THE FILE OF THE ASSESSING OFFICER. IN THE ABSENCE OF VOUCHERS IT WAS NOT POSSIBLE FOR THE ASSESSING OFFICER TO EX AMINE AS TO WHETHER ENTIRE EXPENSES INCURRED WERE RELATEABLE TO THE BUSINESS AND HENCE THE ASSESSING OFFICER WAS LEFT WITH NO OPTION BUT TO ESTIMATE REA SONABLE DISALLOWANCE. WE ARE OF THE CONSIDERED OPINION THAT THE ESTIMATION O F THE ASSESSING OFFICER THAT 10% OF THE TOTAL EXPENDITURE IS NOT RELATEABLE TO BUSINESS IS REASONABLE IN THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE. WE THEREFORE DECLINE TO INTERFERE WITH THE ORDER OF THE LD. CIT(A) ON THIS ISSUE. THIS GROUND OF THE ASSESSEE IS REJECTED. 10. THE THIRD ISSUE IS REGARDING CLAIM OF THE ASSES SEE FOR NETTING OF INTEREST FOR THE PURPOSE OF COMPUTING DEDUCTION ALLOWABLE TO THE ASSESSEE U/S 80HHC. THIS ISSUE HAS BEEN RAISED BY THE ASSESSEE A S PER GROUND NO.3 IN ASSESSMENT YEAR 2003-04. 11. THE BRIEF FACTS ARE THAT IT IS NOTED BY THE ASS ESSING OFFICER ON PAGE 5 OF THE ASSESSMENT ORDER THAT THE ASSESSEE HAS DEBIT ED ITS PROFIT AND LOSS ACCOUNT WITH FINANCIAL CHARGES OF RS. 64.20 LACS AF TER NETTING OF INTEREST ON FDRS OF RS. 7 29 598/- RECEIVED BY THE ASSESSEE ON FDRS. IT IS FURTHER NOTED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAS NETT ED THE NET INTEREST ONLY I.E. THE NET AMOUNT CREDITED AFTER DEDUCTION OF TDS AND THE TDS OF RS.133289/- IS NOT DECLARED AS INCOME BY THE ASSESSEE. THE ASSE SSING OFFICER TAXED THE SAME ALSO. IT IS FURTHER HELD BY THE ASSESSING OFFI CER THAT INTEREST ON FDRS IS NOT BUSINESS INCOME OF THE ASSESSEE. IT WAS HELD BY THE ASSESSING OFFICER 7 THAT TOTAL INTEREST ON FDRS INCLUDING TDS COMES TO RS.8 62 885/- AND IT IS TAXABLE UNDER THE HEAD INCOME FROM OTHER SOURCES AND NOT UNDER THE HEAD INCOME FROM BUSINESS. ACCORDINGLY HE REDUCED THI S AMOUNT FROM BUSINESS PROFIT FOR THE PURPOSE OF ALLOWING DEDUCTI ON U/S 80HHC. BEING AGGRIEVED THE ASSESSEE CARRIED THE MATTER IN APPEA L BEFORE THE LD. CIT(A) BUT WITHOUT SUCCESS AND NOW THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 12. IT IS SUBMITTED BY THE LD. A.R. OF THE ASSESSEE THAT THE ASSESSEE IS 100% EXPORTER AND HENCE THE INTEREST INCOME IS ASSE SSABLE AS BUSINESS INCOME. IT IS ALSO SUBMITTED THAT THE ASSESSEE HAD TO MAKE FDRS FOR PROVIDING BANK GUARANTEE AND MARGIN MONEY AGAINST L C AND THEREFORE THE SAME SHOULD BE ASSESSED AS BUSINESS INCOME. RELIANC E WAS PLACED ON THE JUDGMENT OF THE HONBLE DELHI HIGH COURT RENDERED I N SHRI RAM HONDA POWER EQUIP AS REPORTED IN 289 ITR 475 AND IT WAS S UBMITTED THAT AS PER THIS JUDGMENT OF HONBLE DELHI HIGH COURT NETTING IS AL LOWABLE IF INTEREST EARNED CAN BE ATTRIBUTED TO EXPORTS. IT WAS SUBMITT ED THAT IN THE PRESENT CASE IF THE GUARANTEE IS NOT PROVIDED TO AEPC I.E. APPAR EL EXPORT PROMOTION COUNCIL NO QUOTA WILL BE ALLOWED TO THE ASSESSEE A ND NO EXPORTS COULD BE MADE BY THE ASSESSEE AND HENCE THIS INCOME IS RELAT EABLE TO EXPORT BUSINESS. THE LD. D.R. OF THE REVENUE SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 13. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND WE FIND THAT IN THE PRESENT CASE THE ISSUE INVOLVED IS COVERED AGAINST THE ASSESSEE BY THE JUDGMENT OF HONBLE DELHI HIGH COURT RENDERED IN TH E CASE OF SHRI RAM HONDA POWER EQUIP (SUPRA). IN THAT CASE IT WAS HEL D BY THE HONBLE DELHI HIGH COURT THAT WHERE SURPLUS FUNDS ARE PLACED BY T HE ASSESSEE WITH THE BANK AND THE INTEREST IS EARNED THEREON IT CAN ONL Y BE CATEGORIZED AS INCOME FROM OTHER SOURCES. IT WAS ALSO HELD THAT INTEREST EARNED ON FDRS FOR THE 8 PURPOSE OF AVAILING OF CREDIT FACILITIES FROM THE B ANK DOES NOT HAVE ANY NEXUS WITH EXPORT BUSINESS AND THEREFORE HAS TO B E TREATED AS INCOME FROM OTHER SOURCES AND NOT BUSINESS INCOME. IN VIEW OF T HIS WE FEEL THAT THE INTEREST INCOME IN THE PRESENT CASE HAS BEEN RIGHTL Y ASSESSED AS INCOME FROM OTHER SOURCES. REGARDING THE CLAIM OF THE ASSESSEE FOR NETTING OF INTEREST WE FEEL THAT NETTING HAS TO BE ALLOWED IF THE ASSESSEE CAN ESTABLISH THE NEXUS BETWEEN INTEREST RECEIVED AND INTEREST PAYMENT BECA USE ANY INTEREST EXPENDITURE INCURRED FOR EARNING OF INTEREST INCOME HAS TO BE DEDUCTED FROM SUCH INTEREST INCOME TO BE ASSESSED AS INCOME FROM OTHER SOURCES AND SUCH INTEREST EXPENDITURE CANNOT BE DEDUCTED FROM BUSINE SS INCOME AND HENCE ONLY NET INTEREST RECEIVED HAS TO BE EXCLUDED FROM BUSINESS PROFIT. SINCE NEXUS OF INTEREST EXPENDITURE WITH INTEREST RECEIVE D IS NOT ON RECORD AND NOT EXAMINED BY THE ASSESSING OFFICER WE FEEL IT PROPE R TO RESTORE BACK THIS MATTER TO THE FILE OF THE ASSESSING OFFICER FOR A F RESH DECISION. TO THE EXTENT THE ASSESSEE CAN ESTABLISH NEXUS BETWEEN INTEREST R ECEIVED AND INTEREST PAYMENT SUCH INTEREST EXPENDITURE SHOULD BE DEDUCT ED FROM INTEREST RECEIPT AND SUCH NET INTEREST INCOME SHOULD BE EXCLUDED FRO M BUSINESS PROFIT AND SHOULD BE ASSESSED AS INCOME FROM OTHER SOURCES. WI TH THESE OBSERVATIONS WE SET ASIDE THE ORDER OF THE LD. CIT(A) ON THIS IS SUE AND RESTORE THIS MATTER BACK TO THE FILE OF THE ASSESSING OFFICER FOR FRESH DECISION. THE ASSESSING OFFICER SHOULD ALLOW NETTING OF INTEREST TO THE EXT ENT THE ASSESSEE CAN ESTABLISH THE NEXUS BETWEEN INTEREST RECEIVED AND I NTEREST PAYMENT BY SHOWING THAT INTEREST EXPENDITURE WAS INCURRED FOR EARNING OF INTEREST INCOME. WE WANT TO MAKE IT CLEAR THAT THE BURDEN IS ON THE ASSESSEE TO ESTABLISH SUCH NEXUS AND NETTING SHOULD BE ALLOWED ONLY TO THAT EXTENT. THE ASSESSING OFFICER SHOULD PASS NECESSARY ORDER AS PE R LAW AS PER ABOVE DISCUSSION AFTER PROVIDING ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THIS GROUND OF THE ASSESSEE IS ALLOWED FO R STATISTICAL PURPOSES. 9 14. THE NEXT ISSUE IS REGARDING EXCLUSION OF DEPB R ECEIPTS FROM BUSINESS PROFIT FOR THE PURPOSE OF COMPUTING DEDUCTION ALLOW ABLE TO THE ASSESSEE U/S 80HHC. THE ISSUE HAS BEEN RAISED BY THE ASSESSEE AS PER GROUND NO.4 IN ASSESSMENT YEAR 2003-0-4 AND AS PER GROUND NO.1 IN ASSESSMENT YEAR 2004-05. 15. IT WAS SUBMITTED BY THE LD. A.R. OF THE ASSESSE E THAT THIS ISSUE SHOULD GO BACK TO THE FILE OF THE ASSESSING OFFICER FOR A FRESH DECISION AS PER THE DECISION OF SPECIAL BENCH OF THE TRIBUNAL RENDERED IN THE CASE OF TOPMAN EXPORTS REPORTED IN 312 ITR (AT) PAGE 87 (SB). THE LD. D.R. OF THE REVENUE ALSO AGREED AND ACCORDINGLY WE SET ASIDE TH E ORDER OF THE LD. CIT(A) ON THIS ISSUE IN BOTH THE YEARS AND RESTORE THIS MATTER BACK TO THE FILE OF THE ASSESSING OFFICER FOR A FRESH DECISION IN TH E LIGHT OF THIS DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL RENDERED IN THE C ASE OF TOPMAN EXPORTS (SUPRA). THE ASSESSING OFFICER SHOULD PASS NECESSAR Y ORDER AS PER LAW IN BOTH THE YEARS IN THE LIGHT OF THIS DECISION OF SPE CIAL BENCH OF THE TRIBUNAL AFTER PROVIDING ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THIS GROUND OF THE ASSESSEE IS ALLOWED FOR STATISTICAL P URPOSES IN BOTH THE YEARS. 16. THE NEXT ISSUE RAISED BY THE ASSESSEE IS REGARD ING CLAIM OF THE ASSESSEE THAT DEDUCTION U/S 80HHC IS TO BE COMPUTED BEFORE ADJUSTING BROUGHT FORWARD LOSSES U/S 72 OF THE I.T.ACT. THIS ISSUE HAS BEEN RAISED BY THE ASSESSEE AS PER GROUND NO.5 IN ASSESSMENT YEAR 2003-04 AND AS PER GROUND NO.2 IN ASSESSMENT YEAR 2004-05. 17. IT WAS FAIRLY CONCEDED BY THE LD. A.R. OF THE A SSESSEE THAT THIS ISSUE IS COVERED AGAINST THE ASSESSEE BY THE TRIBUNAL DECISI ON RENDERED IN THE CASE OF 10 ADDI INDUSTRIES LTD. V. ITO AS REPORTED IN 312 ITR (AT)275. WE FIND THAT IT WAS HELD BY THE TRIBUNAL IN THIS CASE THAT THE LOSS ES BROUGHT FORWARD AND ALSO BROUGHT FORWARD UNABSORBED DEPRECIATION HAS TO BE A DJUSTED FIRST AND THEREAFTER THE ASSESSING OFFICER HAS TO WORK OUT TH E DEDUCTION PERMISSIBLE UNDER CHAPTER VIA. IT WAS ALSO HELD THAT AS PER SUB -SEC. (2) OF SEC. 80A THE AGGREGATE AMOUNT OF DEDUCTION UNDER CHAPTER VIA SHO ULD NOT EXCEED THE GROSS TOTAL INCOME OF THE ASSESSEE. IN VIEW OF THIS WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LD. CIT(A) ON TH IS ISSUE IN BOTH THE YEARS AND HENCE WE CONFIRM THE SAME. THIS GROUND OF THE ASSESSEE IS REJECTED IN BOTH THE YEARS. 18. ONE MORE ISSUE IS RAISED BY THE ASSESSEE BY WAY OF ADDITIONAL GROUND IN BOTH THE YEARS. AS PER THE ADDITIONAL GROUND IT IS THE CLAIM OF THE ASSESSEE THAT INTEREST U/S 234B AND 234D ARE NOT CHARGEABLE IN THE PRESENT CASE. 19. IN THE COURSE OF ARGUMENTS BEFORE US THE LD. A .R. OF THE ASSESSEE SUBMITTED THAT ADDITIONAL GROUND IS NOT PRESSED WIT H REGARD TO CHARGING OF INTEREST U/S 234D AND ACCORDINGLY THIS PART OF ADDI TIONAL GROUND IS REJECTED IN BOTH THE YEARS AS NOT PRESSED. REGARDING CHARGING O F INTEREST U/S 234B IT WAS SUBMITTED BY THE LD. A.R. OF THE ASSESSEE THAT IN T HE PRESENT CASE IN ASSESSMENT YEAR 2003-04 THE RETURN OF INCOME WAS F ILED BY THE ASSESSEE ON 29/11/2003 AND IN THE SAID RETURN OF INCOME DEDUCT ION U/S 80HHC WAS CLAIMED BEFORE REDUCING THE BROUGHT FORWARD LOSSES. IT WAS SUBMITTED THAT THIS VIEW OF THE ASSESSEE WAS AS PER THE JUDGMENT O F HONBLE BOMBAY HIGH COURT RENDERED IN THE CASE OF CIT V. SHIRKE CONSTRU CTION EQUIPMENT LTD. AS REPORTED IN 246 ITR 429 (BOM.) AND ALSO AS PER THE JUDGMENT OF HONBLE KERALA HIGH COURT IN THE CASE OF CIT V. T.C.USHA AS REPORTED IN 132 TAXMAN 297 (KER.). IT IS SUBMITTED THAT THE FIRST J UDGMENT OF HONBLE 11 BOMBAY HIGH COURT WAS DATED 24/7/2000 AND THE SECON D JUDGMENT OF HONBLE KERALA HIGH COURT WAS DATED 12/3/2003 AND T HE RETURN OF INCOME WAS FILED BY THE ASSESSEE ON 29/11/2003. IT IS ALSO SUBMITTED THAT BOTH THE JUDGMENTS WERE REVERSED BY THE HONBLE SUPREME COUR T IN THE CASE OF IPCA LABORATORY AS REPORTED IN 266 ITR 521 (SC) AND THE JUDGMENT OF HONBLE APEX COURT IS DATED 11/3/2004 AND HENCE AT THE TIM E WHEN RETURN OF INCOME FOR ASSESSMENT YEAR 2003-04 WAS FILED ON 29/11/2003 THERE WAS NO CONTRARY JUDGMENT TO THE STAND ADOPTED BY THE ASSES SEE AND IN FACT THE JUDGMENT OF HONBLE BOMBAY HIGH COURT RENDERED IN T HE CASE OF SHIRKE CONSTRUCTION EQUIPMENT (SUPRA) HELD THE FIELD AND H ENCE THE ASSESSEE WAS JUSTIFIED IN TAKING THE STAND AND ACCORDINGLY THE A SSESSEE WAS NOT REQUIRED TO PAY ANY ADVANCE TAX AND THEREFORE INTEREST IS NOT CHARGEABLE IN THE PRESENT CASE U/S 234B. RELIANCE WAS PLACED ON THE JUDGMENT OF HONBLE DELHI HIGH COURT RENDERED IN THE CASE OF CIT V. ANAND PRAKASH AS REPORTED IN 179 TAXMAN 44 IN SUPPORT OF THIS CONTENTION THAT WHEN T HE FACTS RELATED WITH THE LEVY OF INTEREST WERE NOT IN THE KNOWLEDGE OF THE A SSESSEE THE REVENUE CANNOT COMPEL THE ASSESSEE TO DO THE IMPOSSIBLE. R ELIANCE WAS ALSO PLACED ON THE JUDGMENT OF THE HONBLE APEX COURT RENDERED IN THE CASE OF MEPCO INDUSTRIES LTD. V.CIT AS REPORTED IN 227 CTR 313 (S C). RELIANCE WAS ALSO PLACED ON THE DECISION OF HONBLE GUJARAT HIGH COUR T RENDERED IN THE CASE OF DEVASONS PVT. LTD. V. CIT 203 CTR 48 (GUJ.). RELIAN CE WAS ALSO PLACED ON THE DECISION OF HONBLE UTTARANCHAL HIGH COURT REND ERED IN CIT V. SIDCO FOREX INTERNATIONAL DRILLING LTD. AS REPORTED IN 26 4 ITR 320 (UTTARANCHAL). HE SUBMITTED THAT IN THE PRESENT CASE THE RELEVANT JUDGMENT OF HONBLE APEX COURT RENDERED IN THE CASE OF IPCA LABORATORY (SUPR A) WAS DELIVERED AFTER FILING OF RETURN BY THE ASSESSEE IN ASSESSMENT YEAR 2003-04 INTEREST CANNOT BE CHARGED IN THAT YEAR U/S 234B 12 20. THE LD. D.R. OF THE REVENUE HAS SUPPORTED THE O RDER OF AUTHORITIES BELOW. 21. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE MATERIAL ON RECORD. WE FIND THAT THE RETURN OF INCOME FOR ASSES SMENT YEAR 2004-05 WAS FILED BY THE ASSESSEE ON 01/11/2004 I.E. AFTER THE JUDGMENT OF HONBLE APEX COURT RENDERED IN THE CASE OF IPCA LABORATORY (SUPR A) ON11/3/2004 AND HENCE FOR THAT YEAR NO ARGUMENT IS ADVANCED BY TH E LD. A.R. OF THE ASSESSEE AS TO HOW INTEREST U/S 234B IS NOT CHARGEABLE IN TH AT YEAR AND HENCE THE ADDITIONAL GROUND RAISED BY THE ASSESSEE IN ASSESSM ENT YEAR 2004-05 IS REJECTED AS NOT PRESSED ON THIS ASPECT ALSO. 22. REGARDING THE ADDITIONAL GROUND RAISED BY THE A SSESSEE IN ASSESSMENT YEAR 2003-04 WITH REGARD TO CHARGING OF INTEREST U/ S 234B WE ARE OF THE CONSIDERED OPINION THAT CHARGING OF INTEREST IS CON SEQUENTIAL AND THE GROUND RAISED BY THE ASSESSEE IS WITHOUT ANY MERIT. WITH R EGARD TO THE JUDGMENT OF HONBLE DELHI HIGH COURT RENDERED IN THE CASE OF CI T V. ANAND PRAKASH(SUPRA) WE FIND THAT THIS JUDGMENT IS NOT A PPLICABLE IN THE PRESENT CASE BECAUSE THE FACTS ARE DIFFERENT. IN THAT CASE THE STATE GOVERNMENT ACQUIRED THE ASSESSEES LAND IN 1989 AND THE ASSESS EE WAS NOT SATISFIED WITH THE COMPENSATION GRANTED INITIALLY AND THEREFORE FILED AN APPLICATION FOR ENHANCEMENT OF COMPENSATION. BY AN ORDER DATED 04/4 /2000 THE ADDITIONAL DISTRICT JUDGE ENHANCED THE COMPENSATION ALONGWITH SOLATIUM AND INTEREST RELATEABLE TO THE ASSESSMENT YEARS 1989-90 TO 2000- 01. THE ASSESSEE RECEIVED THE SAME DURING THE ASSESSMENT YEAR 2001-0 2. THE ASSESSING OFFICER IN THAT CASE ISSUED A NOTICE U/S 148 IN RES PECT OF ASSESSMENT YEARS 1989-90 TO 2000-01 ON THE GROUND THAT THE INTEREST ON ENHANCED COMPENSATION ACCRUED FROM YEAR TO YEAR AND SINCE TH E ASSESSEE HAD NOT PAID 13 ADVANCE TAX INTEREST U/S 234B BECAME LEVIABLE ON Y EAR TO YEAR BASIS. UNDER THESE FACTS IT WAS HELD BY THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT V. ANAND PRAKASH (SUPRA) THAT INTEREST PAYABLE ON A CCOUNT OF ENHANCED COMPENSATION WAS NOT EVEN IN THE KNOWLEDGE OF THE A SSESSEE TILL COMPLETION OF THE ASSESSMENTS AND HENCE THE ASSESSEE COULD NO T BE EXPECTED TO HAVE PAID ADVANCE TAX ON SOMETHING WHICH HAD NOT BEEN RE CEIVED BY HIM AND WHICH COULD NOT HAVE BEEN IN HIS CONTEMPLATION. ON THIS BASIS CHARGING OF INTEREST U/S 234B WAS DELETED BY THE HONBLE DELHI HIGH COURT IN THAT CASE. IN THE PRESENT CASE THE FACTS ARE DIFFERENT. IT IS NOT THE CASE OF THE ASSESSEE THAT THE INCOME TAXED BY THE ASSESSING OFFICER WAS NOT RECEIVED BY THE ASSESSEE IN THE RELEVANT YEAR OR THAT THE ASSESSEE WAS NOT AWARE ABOUT THE INCOME. IN THE PRESENT CASE IT IS THE CLAIM OF THE ASSESSEE THAT DEDUCTION U/S 80HHC WAS ALLOWABLE BEFORE ADJUSTMENT OF BROUGHT FO RWARD LOSSES AND THIS CLAIM OF THE ASSESSEE IS NOT ALLOWABLE AS PER THE J UDGMENT OF HONBLE APEX COURT RENDERED IN THE CASE OF IPCA LABORATORY (SUPR A). ONCE A PROVISION OF ACT IS EXPLAINED BY THE APEX COURT IT HAS TO BE AC CEPTED THAT THE PROVISION WAS LIKE THAT THROUGHOUT AND HENCE IT CANNOT BE SA ID THAT THIS PROVISION IS EFFECTIVE ONLY AFTER JUDGMENT OF THE HONBLE APEX C OURT. SINCE FACTS OF THE PRESENT CASE ARE DIFFERENT THE JUDGMENT OF HONBLE DELHI HIGH COURT IS NOT APPLICABLE IN THE PRESENT CASE. 23. REGARDING THE SECOND JUDGMENT RELIED UPON BY TH E LD. A.R. OF THE ASSESSEE THAT THE JUDGMENT OF HONBLE APEX COURT RE NDERED IN THE CASE OF MEPCO INDUSTRIES LTD. (SUPRA) WE FIND THAT THIS JU DGMENT IS ALSO NOT APPLICABLE IN THE PRESENT CASE BECAUSE THE ISSUE IN VOLVED IS DIFFERENT. IN THAT CASE IT WAS HELD BY THE HONBLE APEX COURT THAT WH ERE A DEBATABLE ISSUE EXISTED NO RECTIFICATION U/S 154 CAN BE PASSED. IN THE PRESENT CASE THE 14 DISPUTE IS NOT REGARDING ANY ORDER PASSED BY THE AS SESSING OFFICER U/S 154 AND HENCE THIS JUDGMENT IS NOT APPLICABLE IN THE P RESENT CASE. 24. NOW WE CONSIDER THE THIRD JUDGMENT CITED BY TH E LD. A.R. OF THE ASSESSEE I.E. JUDGMENT OF THE HONBLE GUJARAT HIGH COURT RENDERED IN THE CASE OF DEVASONS PVT. LTD. (SUPRA). IN THAT CASE I T WAS HELD BY THE HONBLE GUJARAT HIGH COURT THAT LIABILITY OF INTEREST WHICH FALLS ON THE ASSESSEE DUE TO RETROSPECTIVE AMENDMENT OF ANY LAW SHOULD BE FULLY WAIVED. IN THE PRESENT CASE THERE IS NO RETROSPECTIVE AMENDMENT OF LAW FO R WHICH LIABILITY HAS ARISEN ON ACCOUNT OF INTEREST AND HENCE THIS JUDGM ENT OF HONBLE GUJARAT HIGH COURT IS ALSO NOT APPLICABLE IN THE PRESENT CA SE. 25. THE FOURTH JUDGMENT RELIED UPON BY THE LD. A.R. OF THE ASSESSEE IS A TRIBUNAL DECISION RENDERED IN THE CASE OF BHPE KINL US JOINT VENTURE V. ASST. DIT AS REPORTED IN 23 SOT 290. AS PER THIS TRIBUNAL DECISION IT WAS HELD THAT WHEN THE ENTIRE INCOME OF THE ASSESSEE WAS SU BJECT TO TDS NO LIABILITY FOR INTEREST U/S 234B CAN BE IMPOSED ON THE ASSESSE E. IN THE PRESENT CASE THE FACTS ARE DIFFERENT. IN THE PRESENT CASE IT IS NOT THE CLAIM OF THE ASSESSEE THAT ITS ENTIRE INCOME IS SUBJECT TO TDS AND HENCE THIS TRIBUNAL DECISION IS ALSO NOT APPLICABLE IN THE PRESENT CASE. 26. NOW WE EXAMINE THE APPLICABILITY OF THE JUDGME NT OF HONBLE UTTRANCHAL HIGH COURT RENDERED IN THE CASE OF SIDCO FOREX INTERNATIONAL (SUPRA). THIS JUDGMENT IS NOT APPLICABLE IN THE PRE SENT CASE BECAUSE THE FACTS ARE DIFFERENT. IN THAT CASE THE DISPUTE WAS REGARD ING WHETHER SALARY ATTRIBUTABLE TO OFF PERIOD ALSO ACCRUES IN INDIA. I T IS NOTED IN THAT CASE THAT TDS WAS DEDUCTIBLE FROM THE ENTIRE SALARY INCOME OF THE ASSESSEE ALTHOUGH THE SAME HAS NOT BEEN DONE BY THE EMPLOYER ACCORDIN G TO THE LAW PREVAILING 15 FOR WHICH THE ASSESSEE CANNOT BE FAULTED. UNDER THE SE FACTS IT WAS HELD THAT THE ASSESSEE WAS NOT LIABLE FOR INTEREST U/S 234B. SINCE IN THE PRESENT CASE FACTS ARE DIFFERENT THIS JUDGMENT IS ALSO NOT APPLI CABLE IN THE PRESENT CASE. 27. AS PER THE ABOVE DISCUSSION WE FIND THAT NONE OF THE JUDGMENTS CITED BY THE LD. A.R. OF THE ASSESSEE IS OF ANY HELP TO T HE ASSESSEE. HENCE WE HOLD THAT INTEREST IS CONSEQUENTIAL AND ADDITIONAL GROUN D RAISED BY THE ASSESSEE HAS NO MERIT IN ASSESSMENT YEAR 2003-04 ALSO. THE A DDITIONAL GROUND RAISED BY THE ASSESSEE IS REJECTED IN BOTH THE YEARS. 28. IN THE RESULT APPEAL OF THE ASSESSEE IS PARTLY ALLOWED AS INDICATED ABOVE. DECISION PRONOUNCED IN THE OPEN COURT ON 8 TH JANUARY 2010. SD/- SD/- (R.P.TOLANI) (A.K.GARODIA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 08.01.2010 PSP COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ITAT DEPUTY REGISTRAR