ERIC APPAREL P. LTD, MUMBAI v. DCIT 10(3)/ CIT(A) X, MUMBAI

ITA 234/MUM/2009 | 2003-2004
Pronouncement Date: 10-12-2010 | Result: Allowed

Appeal Details

RSA Number 23419914 RSA 2009
Assessee PAN AAACE2508E
Bench Mumbai
Appeal Number ITA 234/MUM/2009
Duration Of Justice 1 year(s) 10 month(s) 28 day(s)
Appellant ERIC APPAREL P. LTD, MUMBAI
Respondent DCIT 10(3)/ CIT(A) X, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 10-12-2010
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted E
Tribunal Order Date 10-12-2010
Date Of Final Hearing 16-06-2010
Next Hearing Date 16-06-2010
Assessment Year 2003-2004
Appeal Filed On 12-01-2009
Judgment Text
1 ITA 234?M/09 & 787/M/09 ERIC APPAREL P. LTD. IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES E BEFORE SHRI P.M. JAGTAP A.M. AND SHRI V. DURGA RAO JM ITA NO. 234/MUM/09 ASSESSMENT YEAR 2003-04 M/S ERIC APPAREL PVT. LTD. DODHERA UDYOGDHAM L.B.S. MARG VIKHROLI (W) MUMBAI 400 083. PAN AAACE 2508E VS. DCIT 10(3) MUMBAI. APPELLANT RESPONDENT ITA NO. 787/MUM/09 ASSESSMENT YEAR 2003-04 DCIT 10(3) MUMBAI. VS. M/S ERIC APPAREL PVT. LTD. DODHERA UDYOGDHAM L.B.S. MARG VIKHROLI (W) MUMBAI 400 083. PAN AAACE 2508E APPELLANT RESPONDENT ASSESSEE BY SHRI HARI OM TULSIYA N DEPARTMENT BY SHRI D. SONGATE ORDER PER P.M. JAGTAP A.M. THESE TWO APPEALS ONE FILED BY THE ASSESSEE BEI NG ITA NO. 234/MUM/09 AND OTHER FILED BY THE REVENUE BEING ITA NO. 787/MUM/09 ARE CROSS APPEALS WHICH ARE DIRECTED AGAINST THE ORDER OF LD. CIT(A) X MUMBA I DATED 26.11.2008. 2. THE GROUNDS RAISED BY THE ASSESSEE IN ITS APPEAL READ AS UNDER:- 1. THE LEARNED A.O. ERRED ON FACTS AND IN LAW IN DI SALLOWING INTEREST EXPENSE OF ` 3 82 217/- ON NOTIONAL BASIS. 2 ITA 234?M/09 & 787/M/09 ERIC APPAREL P. LTD. 2. LEARNED A.O. ERRED IN FACTS AND IN LAW IN ADDIN G ` 16 06 504/- EXCESS CLAIM OF DEDUCTION U/S 80HHC AND ALSO ERRED IN NOT CONSID ERING WASHING CHARGES SALE OF WASTAGES LABOUR CHARGES AND INTEREST ON FIXED DEPO SITS AS PROFIT OF BUSINESS OF INDUSTRIAL UNDERTAKING. 3. AT THE TIME OF HEARING BEFORE US THE LEARNED CO UNSEL FOR THE ASSESSEE HAS NOT PRESSED GROUND NO. 2. THE SAME IS ACCORDINGLY DISMI SSED AS NOT PRESSED. 4. AS REGARDS GROUND NO. 1 INVOLVING THE ISSUE RELA TING TO DISALLOWANCE ON ACCOUNT OF INTEREST EXPENSES IT IS OBSERVED THAT THE A.O. DUR ING THE COURSE OF ASSESSMENT PROCEEDINGS FOUND THAT THE ASSESSEE HAD GIVEN LOANS AND ADVANCES AMOUNTING TO ` 42 46 858/- TO M/S EMRALD CREATIONS PVT. LTD. FREE OF INTEREST. SINCE THE SAID AMOUNT WAS NOT GIVEN FOR THE PURPOSE OF BUSINESS THE A.O. REQ UIRED THE ASSESSEE TO EXPLAIN AS TO WHY INTEREST EXPENDITURE CLAIMED BY IT TO THE EXTENT AT TRIBUTABLE TO THE SAID AMOUNT GIVEN AS LOANS AND ADVANCES SHOULD NOT BE DISALLOWED. IN REP LY IT WAS SUBMITTED ON BEHALF OF THE ASSESSEE COMPANY THAT IT WAS HAVING SUFFICIENT OWN FUNDS TO GIVE THE SAID LOANS AND ADVANCES AND IT WAS NOT A CASE OF DIVERSION OF BORR OWED FUNDS FOR NON-BUSINESS PURPOSE. ACCORDING TO THE A.O. THERE WAS HOWEVER NO NEXUS BETWEEN THE OWN FUNDS/INTEREST FREE FUNDS CLAIMED TO BE AVAILABLE WITH IT BY THE ASSESS EE COMPANY AND THE INTEREST FREE ADVANCES GIVEN BY IT. HE THEREFORE PROCEEDED TO DISALLOW THE INTEREST EXPENSES CLAIMED BY THE ASSESSEE TO THE EXTENT OF ` 3 82 217/- BEING ATTRIBUTABLE TO INTEREST FREE LOA NS AND ADVANCES GIVEN BY THE ASSESSEE COMPANY. ON APPEAL THE LD. CIT(A) CONFIRMED THE SAID DISALLOWANCE. 5. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. IN SUPPORT OF THE ASSESSEES CA SE ON THIS ISSUE RELIANCE HAS BEEN PLACED BY THE LEARNED COUNSEL FOR THE ASSESSEE ON T HE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. RELIANCE UTILITIES AND POWER LIMITED 313 ITR 340 WHEREIN IT WAS HELD THAT IF THERE WERE FUNDS AVAILABLE BOTH IN TEREST FREE AND INTEREST BEARING THEN A PRESUMPTION WOULD ARISE THAT INVESTMENTS WOULD BE O UT OF THE INTEREST FREE FUND GENERATED 3 ITA 234?M/09 & 787/M/09 ERIC APPAREL P. LTD. OR AVAILABLE WITH THE COMPANY AND IF THE INTEREST F REE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENTS NO DISALLOWANCE ON ACCOUNT OF INTEREST PAID ON BORROWED FUNDS COULD BE MADE. THE LEARNED COUNSEL FOR THE ASSESSEE HAS ALSO INVITED OUR ATTENTION TO THE COPY OF THE BALANCE SHEET OF THE ASSESSEE COMPANY AS ON 31. 3.2003 TO SHOW THAT SUFFICIENT OWN FUNDS WERE AVAILABLE WITH THE ASSESSEE COMPANY TO G IVE THE AMOUNT OF LOANS AND ADVANCES TO M/S EMRALD CREATIONS PVT. LTD. KEEPING IN VIEW THIS SUBMISSION MADE BY THE LEARNED COUNSEL FOR THE ASSESSEE WE SET ASIDE THE IMPUGNED ORDER OF THE LD. CIT(A) ON THIS ISSUE AND RESTORE THE MATTER TO THE FILE OF TH E A.O. WITH A DIRECTION TO VERIFY THAT SUFFICIENT INTEREST FREE FUNDS WERE AVAILABLE WITH THE ASSESSEE TO ADVANCE THE AMOUNT TO M/S EMRALD CREATIONS PVT. LTD. AND TO DECIDE THE IS SUE ACCORDINGLY IN THE LIGHT OF THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE O F RELIANCE UTILITIES AND POWER LTD. (SUPRA). GROUND NO. 1 OF ASSESSEES APPEAL IS ACCOR DINGLY TREATED AS ALLOWED FOR STATISTICAL PURPOSE. 6. IN THE SOLITARY GROUND RAISED IN ITS APPEAL THE REVENUE HAS CHALLENGED THE ACTION OF THE LD. CIT(A) IN DELETING THE DISALLOWANCE MADE BY THE A.O. ON ACCOUNT OF RECEIPTS AMOUNTING TO ` 67 22 337/- REPRESENTING 90% OF THE DUTY DRAWBACK AND AN AMOUNT OF ` 1 03 937/- REPRESENTING 90% FOREIGN EXCHANGE RECEIP TS WHILE COMPUTING BUSINESS PROFITS FOR THE PURPOSE OF ALLOWING DEDUCTION U/S 80HHC. 7. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. AS SUBMITTED BY THE LEARNED COU NSEL FOR THE ASSESSEE THE RELIEF ALLOWED BY THE LD. CIT(A) TO THE ASSESSEE ON THIS I SSUE IN RESPECT OF DUTY DRAWBACK RECEIPTS IS DULY SUPPORTED BY CIRCULAR NO. 5/2006 D ATED 15.5.07 ISSUED BY THE CBDT WHEREIN IT HAS BEEN CLARIFIED THAT BY VIRTUE OF PRO VISIONS OF SECTION 8 OF GENERAL CLAUSES ACT 1897 READ WITH RULE 18 OF THE CUSTOMS AND CEN TRAL EXCISE DUTIES DRAWBACK RULES 1995 THE BENEFIT OF SECTION 80HHC CANNOT BE DENIED TO AN ASSESSEE CLAIMING REFUND OF THE DUTY DRAWBACK UNDER DUTY DRAWBACK RULES 1995 AN D THIS POSITION HAS NOT BEEN DISPUTED EVEN BY THE LEARNED D.R. AT THE TIME OF H EARING BEFORE US. AS REGARDS THE 4 ITA 234?M/09 & 787/M/09 ERIC APPAREL P. LTD. BALANCE AMOUNT OF ` 1 03 937/- THE LEARNED COUNSEL FOR THE ASSESSEE H AS SUBMITTED THAT THE SAME WAS IN RESPECT OF FOREIGN EXCHANGE GAIN IN RELATION TO EXPORT PROCEEDS RECEIVED BY THE ASSESSEE WHICH CLEARLY SHOWS THAT THE SAID G AIN HAD FIRST DEGREE NEXUS WITH THE EXPORT BUSINESS OF THE ASSESSEE AND THE SAME WAS DE RIVED BY THE ASSESSEE FROM ITS EXPORT BUSINESS. THE LD. CIT(A) IN OUR OPINION THUS WAS FULLY JUSTIFIED IN HOLDING THAT DUTY DRAWBACK RECEIPTS AND FOREIGN EXCHANGE GAIN WERE RE QUIRED TO BE TAKEN INTO CONSIDERATION WHILE COMPUTING BUSINESS PROFITS OF THE ASSESSEE FO R THE PURPOSE OF ALLOWING DEDUCTION U/S 80HHC AND UPHOLDING HIS IMPUGNED ORDER ON THIS ISSUE WE DISMISS THE APPEAL FILED BY THE REVENUE. 8. IN THE RESULT APPEAL OF THE ASSESSEE IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSE AND THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON 10 TH DECEMBER 2010. SD/- SD/- (V. DURGA RAO) (P.M. JAGTAP) JUDICIAL MEMBER ACCOUNTAN T MEMBER MUMBAI DATED 10 TH DECEMBER 2010. RK COPY TO 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) X - MUMBAI 4. THE CIT- MC - X MUMBAI 5. THE DR BENCH E 6. MASTER FILE // TUE COPY// BY ORDER DY/ASSTT. REGISTRAR ITAT MUMBAI 5 ITA 234?M/09 & 787/M/09 ERIC APPAREL P. LTD. ` DATE INITIALS 1. DRAFT DICTATED 01.12.10 SR.P.S./P.S. 2. DRAFT PLACED BEFORE AUTHOR 0212.10 SR.P.S./P.S. 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER. - J.M./A.M. 4.DRAFT DISCUSSED/ APPROVED BY SECOND MEMBER. J.M./A.M. 5. APPROVED DRAFT COMES TO THE SR.P.S./P.S. SR.P.S./P.S. 6. KEPT FOR PRONOUNCEMENT ON SR.P.S./P.S. 7. FILE SENT TO THE BENCH CLERK SR.P.S./P.S. 8. DATE OF WHICH FILE GOES TO THE HEAD CLERK. 9. DATE OF DISPATCH OF ORDER.