P.Chootalal Manufacturer & Exporter, Ahmedabad v. The Dy.CIT.,Circle-10,, Ahmedabad

ITA 2930/AHD/2009 | 2006-2007
Pronouncement Date: 22-01-2010 | Result: Allowed

Appeal Details

RSA Number 293020514 RSA 2009
Bench Ahmedabad
Appeal Number ITA 2930/AHD/2009
Duration Of Justice 2 month(s) 26 day(s)
Appellant P.Chootalal Manufacturer & Exporter, Ahmedabad
Respondent The Dy.CIT.,Circle-10,, Ahmedabad
Appeal Type Income Tax Appeal
Pronouncement Date 22-01-2010
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted SMC
Tribunal Order Date 22-01-2010
Date Of Final Hearing 18-01-2010
Next Hearing Date 18-01-2010
Assessment Year 2006-2007
Appeal Filed On 27-10-2009
Judgment Text
1 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'SMC' (BEFORE SHRI N S SAINI ACCOUNTANT MEMBER) ITA NO.2930/AHD/2009 (ASSESSMENT YEAR:- 2006-07) P CHHOTALAL MANUFACTURER & EXPORTER 812 SWASTIK SOCIETY NAVRANGPURA AHMEDABAD V/S THE DEPUTY COMMISSIONER OF INCOME-TAX CIRCLE-10 AHMEDABAD [APPELLANT] [RESPONDENT] APPELLANT BY :- NONE RESPONDENT BY:- SHRI GOVIND SINGHAL SENIOR DR O R D E R THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST T HE ORDER OF THE LEARNED COMMISSIONER OF INCOME-TAX (AP PEALS)- XVI AHMEDABAD [THE CIT(A)] DATED 18-08-2009 PASS ED IN APPEAL NO.CIT(A)XVI/DCIT.10/0169/2008-09 FOR ASSESS MENT YEAR 2006-07. THE GROUNDS RAISED BY THE ASSESSEE AR E AS UNDER: 1 THAT THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS I N HOLDING THAT THE APPELLANT WAS NOT ENTITLED TO DEDUCTION U/S 80I B ON THE INTEREST INCOME OF RS.2 27 639/- WITHOUT APPRECIATING THE F ACT THAT AS AGAINST THE INTEREST RECEIPT OF RS.2 27 639/- THE INTEREST PAID BY THE APPELLANT AMOUNTED TO RS.59 98 573/-. 2 THAT THE LEARNED CIT(A) FURTHER ERRED IN NOT FOLLOW ING THE RATIO OF DCIT VS. MEERA INDUSTRIES (87 ITD 475) (AHD) AND LA LSONS ENTERPRISES VS. DCIT (89 ITD 25) (DEL) (SB) WHEREI N IT HAS BEEN HELD THAT ONLY THE NET INTEREST INCOME CAN BE EXCLU DED FOR COMPUTING THE DEDUCTION U/S 80IB OF THE I.T. ACT. 2 2 NOTICE OF HEARING WAS SENT THROUGH REGISTERED PO ST WITH A D ON 7-1-2010 FIXING THE CASE FOR HEARING ON 18-1-2 010. THE SAID NOTICE WAS SERVED ON THE ASSESSEE ON 8-1-2010 AS EVIDENCED BY THE ACKNOWLEDGEMENT CARD OF THE POST OFFICE PLACED ON R ECORD. NONE APPEARED ON BEHALF OF THE ASSESSEE WHEN THE CASE WA S CALLED FOR HEARING AND NEITHER ANY ADJOURNMENT APPLICATION WAS FILED. THE BENCH WAS OF THE VIEW THAT THE APPEAL CAN BE DISPOSED OF WITHOUT THE PRESENCE OF THE ASSESSEE AND THEREFORE THE APPEAL WAS HEARD EX PART E QUA THE RESPONDENT ASSESSEE AND DISPOSED OF CONSIDERING THE ARGUMENTS OF THE LEARNED DEPARTMENTAL REPRESENTATIVE AND THE MATERIAL AVAILA BLE ON RECORD. 3 THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF MANUFAC TURING ALUMINUM COLLAPSIBLE TUBES AND SPARE PARTS. ON VERI FICATION OF RECORDS THE LEARNED ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS SHOWN INTEREST INCOME OF RS.2 20 826/- RECEIVED FROM M/S P CHHOTALAL DISTRIBUTORS AND RS.6 813/- FROM SHRI SAN SKAR G PATEL. THE SAID INCOME WAS CREDITED IN INTEREST ACCOUNT AN D NET INTEREST EXPENSE WAS CLAIMED IN THE PROFIT AND LOSS ACCOUNT. THE ASSESSEE WAS REQUIRED TO EXPLAIN WHY DEDUCTION U/S 80IB SHOULD NOT BE DISALLOWED ON INTEREST INCOME THE ASSESSEE EXPLAINED THAT THE INTEREST INCOME WAS RECEIVED FROM BUSINESS ACTI VITY AND THEREFORE CANNOT BE TREATED AS INCOME FROM OTHER SO URCES. THE LEARNED ASSESSING OFFICER WAS NOT SATISFIED FROM TH E SAID EXPLANATION OF THE ASSESSEE. HE OBSERVED THAT THE A SSESSEE HAS FAILED TO ESTABLISH THAT INTEREST INCOME WAS RECEIV ED UNDER BUSINESS ACTIVITY AND IS A PART OF PROFIT AND GAINS DERIVED FROM THE INDUSTRIAL UNDERTAKING. HE NOTED THAT ON 31 ST MARCH THERE WAS A CREDIT BALANCE OF RS.83 02 740/- IN THE NAME OF M /S P CHHOTALAL 3 DISTRIBUTORS FROM WHOM INTEREST OF RS.2 20 826/- WA S RECEIVED WAS SHOWN UNDER THE HEAD UNSECURED LOANS IN THE B ALANCE SHEET. HE FURTHER OBSERVED THAT AUDIT REPORT U/S 4 4AB OF THE ACT IN RESPECT OF REPORTING ON PARAGRAPH NO. 24 REGARDI NG PARTICULARS OF LOANS OR DEPOSITS IT IS REPORTED TO BE AS PER SCHEDULE D ATTACHED HEREWITH. HOWEVER SCHEDULE D ATTACHED SP EAKS ABOUT THE WORKING OF PROFIT ELIGIBLE FOR DEDUCTION U/S 80 IB OF THE ACT. FURTHER THERE IS NO ENCLOSURE / ATTACHMENT SHOWING REPORTING ON THE SAID PARAGRAPH REGARDING LOANS AND DEPOSITS ENC LOSED WITH THE RETURN OF INCOME. ON THE ABOVE FACTS THE LEARNED A SSESSING OFFICER INFERRED THAT INTEREST INCOME IS DERIVED FR OM ADVANCING OF FUNDS AND THEREFORE IS NOT BUSINESS INCOME ELIGIBLE FOR DEDUCTION U/S 80IB OF THE ACT AND ACCORDINGLY DID NOT INCLUDE THE INTEREST INCOME OF RS.2 27 639/- IN THE COMPUTATION OF ELIGI BLE PROFITS OF THE INDUSTRIAL UNDERTAKING. 4 IN APPEAL THE LEARNED COMMISSIONER OF INCOME-TA X (APPEALS) OBSERVED THAT ONCE INTEREST INCOME IS HEL D TO BE INCOME FROM OTHER SOURCES THE ASSESSEE WOULD NOT B E ENTITLED TO DEDUCTION U/S 80IB OF THE ACT BECAUSE DEDUCTION IS AVAILABLE TO AN UNDERTAKING OR ENTERPRISE ON THE PROFITS DERIVED FROM ITS BUSINESS AND NOT FROM INCOME FROM OTHER SOURCES. FU RTHER ASSESSEE HAS BORROWED FUNDS TO ADVANCE THEM ON INTE REST TO THE SISTER CONCERN. SINCE THE ASSESSEE HAS TAKEN BANK L OAN FOR ITS BUSINESS AND NOT FOR ADVANCING LOAN TO ITS SISTER C ONCERN. THE ASSESSEE TRIED TO PROVE BY WAY OF CHART THAT BORROW ED FUNDS HAVE BEEN UTILIZED BY THE ASSESSEE IN ADVANCING THEM TO SISTER CONCERN THEREFORE THE INTEREST INCOME QUALIFIES FOR DEDUCT ION U/S 80IB. 4 THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) DI D NOT AGREE WITH THIS ARGUMENT OF THE ASSESSEE AND OBSERV ED THAT INTEREST ON BORROWED FUNDS IS CLAIMED BY THE ASSESS EE U/S 36 OF THE ACT ON THE PRESUMPTION THAT THEY ARE UTILIZED F OR HIS BUSINESS. THE INTEREST EARNED ON ADVANCES IS NOT BUSINESS REC EIPT BUT INCOME FROM OTHER SOURCES. FOR THE PURPOSE OF DEDUC TION U./S 80IB INTEREST FROM OTHER SOURCES IS TO BE EXCLUDED FROM PROFITS OF THE BUSINESS. THEREFORE FOLLOWING THE DECISION OF H ON'BLE SUPREME COURT IN THE CASE OF V P GOPINATHAN 248 ITR 449 (SC) AND AUTOKAST LTD. 248 ITR 110 (SC) HELD THAT THE AS SESSEE WAS NOT ENTITLED TO DEDUCTION U/S 80IB ON THE INTEREST INCOME OF RS.2 27 639/-. 5 THE LEARNED DEPARTMENTAL REPRESENTATIVE FULLY SUPPORTED THE ORDER OF THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS). 6 I HAVE HEARD THE LEARNED DEPARTMENTAL REPRESENTA TIVE AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE THE ASSES SEE EARNED INTEREST INCOME OF RS.2 27 639/- FROM ADVANCING OF LOAN TO ITS SISTER CONCERNS. THE ASSESSEE CREDITED THE INTEREST INCOME IN THE INTEREST ACCOUNT AND CLAIMED DEDUCTION FOR NET INTE REST EXPENDITURE IN THE PROFIT & LOSS ACCOUNT. THE LEARN ED ASSESSING OFFICER DISALLOWED DEDUCTION U/S 80IB ON THE INTERE ST INCOME OF RS.2 27 639/- FOR THE REASON THAT IT WAS NOT DERIVE D FROM THE ACTIVITY OF THE INDUSTRIAL UNDERTAKING. IN APPEAL THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ALSO CONFIRMED THE ACTION 5 OF THE LEARNED ASSESSING OFFICER. IN THE INSTANT CA SE THE CLAIM OF THE ASSESSEE BEFORE THE LOWER AUTHORITIES WAS TO TH E EFFECT THAT THE ASSESSEE UTILIZED BORROWED FUNDS FOR THE PURPOS E OF EARNING INTEREST INCOME. I FIND THAT THE CLAIM OF THE ASSES SEE WAS NOT DISPUTED BY THE LOWER AUTHORITIES. IN MY CONSIDERED OPINION THE GROSS RECEIPT OF INTEREST CANNOT BE DEEMED AS INTER EST INCOME WITHOUT DEDUCTING THERE-FROM THE EXPENDITURES WHICH HAVE A NEXUS WITH SUCH RECEIPT. ONLY THE NET INCOME EARNED FROM INTEREST RECEIPT CAN BE ASSESSED UNDER THE HEAD IN COME FROM OTHER SOURCES. MY ABOVE VIEW FINDS SUPPORT FROM TH E DECISION OF THE DELHI SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF LALSONS ENTERPRISES VS. DCIT 89 ITD 25 (DEL)(SB). IN THE IN STANT CASE THE LOWER AUTHORITIES HAVE NOT BROUGHT ON RECORD TH E AMOUNT OF EXPENDITURE WHICH HAD NEXUS WITH THE INTEREST RECEI VED BY THE ASSESSEE AND THEREFORE THIS GROUND OF APPEAL CANN OT BE COMPLETELY ADJUDICATED BY ME. I THEREFORE SET ASI DE THE ORDERS OF THE AUTHORITIES AND RESTORE THE MATTER BACK TO THE FILE OF THE LEARNED ASSESSING OFFICER FOR ADJUDICATION AFRESH I N LIGHT OF THE DISCUSSION MADE HEREINABOVE AFTER ALLOWING REASONAB LE OPPORTUNITY OF HEARING TO THE ASSESSEE. THEREFORE THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER SIGNED AND PRONOUNCED IN THE COURT TODAY ON 22-01-2010. SD/ - (N S SAINI) ACCOUNTANT MEMBER DATE : 22-01-2010 6 COPY OF THE ORDER FORWARDED TO : 1. P CHHOTALAL MANUFACTURER & EXPORTER 812 SWASTI K SOCIETY NAVRANGPURA AHMEDABAD 2. THE DCIT CIRCLE-10 AHMEDABAD 3. CIT CONCERNED 4. CIT(A)-XVI AHMEDABAD 5. THE DR ITAT AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT AHMEDABA