Thermodors Pvt. Ltd., Pune v. Asstt.CIT, Cir.8, Pune, Pune

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B PUNE BEFORE SHRI I.C. SUDHIR (JM) AND SHRI D. KARUNAKARA RAO (AM) ITA NO. 297 /PN/200 7 ( ASSTT. YEAR : 2002 - 03 ) THERMODORS PVT. LTD. A3/A4 H BLOCK MIDC PIMPRI PUNE 14 PAN : NOT AVAILABLE .. APPELLANT V. A SST. COMMISSIONER OF INCOME TAX CIRCLE 8 PUNE . RESPONDENT A SSESSEE BY : SHRI SUNIL GANOO DEPARTMENT BY : SHRI PANKAJ GARG ORDER PER I.C. SUDHIR JM THE ASSESSEE HAS QUESTIONED FIRST APPELLATE ORDER MAINLY ON THE GROUNDS (REVISED/MODIFIED) THAT THE LD CIT(A) HAS ERRED IN : 1) IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED C.I.T.[A] HAS ERRED IN HOLDING THAT THE SPECIAL CAPITAL INCENTIVE OF RS.10.00 LACS RECEIVED BY THE APPELLANT ASSESSEE DURING THE RELEVANT PREVIOUS YEAR UNDER THE DISPERSAL OF INDUSTRIES PACKAGE SCHEME OF INCENTIVES 1993 ISSUED BY GOVT. OF MAHARASHTRA IS A REVENUE RECEIPT LIABLE TO BE TAXED AS INCOME OF THE APPELLANT ASSESSEE. IT MAY PLEASE BE HELD THAT THE SAID RECEIPT I S OF A CAPITAL NATURE NOT LIABLE TO BE TAXED AS INCOME OF THE APPELLANT ASSESSEE. 2) IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW IT MAY PLEASE BE HELD THAT SINCE THE APPELLANT ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING THE SPECIAL CAPITAL INCENTIVE OF RS. 10.00 LACS RECEIVED BY THE APPELLANT ASSESSEE DURING THE RELEVANT PREVIOUS YEAR UNDER THE DISPERSAL OF INDUSTRIES PACKAGE SCHEME OF INCENTIVES 1993 ISSUED BY GOVT. OF MAHARASHTRA ACCRUED TO THE APPELLANT ASSESSEE DURING THE PREVI OUS YEAR RELEVANT TO THE A.Y. 1996 - 97 AND AS SUCH THE TAXABILITY OR OTHERWISE OF THE SAID AMOUNT DOES NOT ARISE IN THE PRESENT APPELLATE PROCEEDINGS FOR THE A.Y.2002 - 03. ITA NO 297 /PN/200 7 THERMOD ORS PVT. LTD. A.Y. 2002 - 03 PAGE OF 6 2 3. IT MAY PLEASE BE HELD THAT IN VIEW OF THE ORDER PASSED BY THE HON. I.T.A.T A BEN CH PUNE IN THE CASE OF THE APPELLANT ASSESSEE FOR A.Y. 1998 - 99 & 1999 - 2000 (ITA NO. 361 & 362/PN/03) OUT OF THE BANK INTEREST RECEIVED AN AMOUNT OF INTEREST OF RS. 148093/ - EARNED ON FIXED DEPOSITS KEPT IN BANK FOR GIVING BANK GUARANTEES AND L.C. TO M/S BHARAT DYNAMICS LTD CONSTITUTES THE BUSINESS INCOME OF THE APPELLANT ASSESSEE AND QUALIFIES FOR DEDUCTION U/S 80IA OF THE I.T. ACT 1961. 4. THE DISALLOWANCE OF RS.20 000.00 EACH FROM THE VEHICLE AND TELEPHONE EXPENSES SUSTAINED BY THE LEARNED C.I.T.[A] ON THE GROUND OF ALLEGED PERSONAL USE OF THE VEHICLES AND TELEPHONES BEING PATENTLY ILLEGAL BAD IN LAW PERVERSE AND ARBITRARY THE SAID DISALLOWANCES MAY PLEASE BE DELETED AND THE LEARNED ASSESSING OFFICER MAY PLEASE BE DIRECTED TO ALLOW IN FULL THE EXPEN SES CLAIMED ON ACCOUNT OF VEHICLE AND TELEPHONE EXPENSES. 2. THE LD. A.R POINTED OUT THAT GROUND NOS. 3 AND 4 IN THE APPEAL WERE REMAINED TO BE ADJUDICATED BY THE TRIBUNAL VIDE ITS ORDER DATED 30.6.2009 IN ITA NO. 295/PN/07 HENCE THE ASSESSEE HAD MOVED MISCELLANEOUS APPLICATION NO. 18/PN/10 WHEREIN THE TRIBUNAL VIDE ORDER DATED 19.5.2010 HAS ALLOWED THE APPLICATION WITH DIRECTION TO THE REGISTRY TO FIX THE APPEAL FOR HEARING ON GROUND NOS. 3 & 4. THE LD. A.R ALSO INFORMED THAT THE ISSUE RAISED IN GROUND NOS. 1 2 OF THE APPEAL PREFERRED BY THE ASSESSEE AND GROUND NO. 1 OF THE APPEAL FILED BY THE REVENUE IN ITA NO. 295/PN/07 HAVE ALREADY BEEN DECIDED BY THE TRIBUNAL VIDE ORDER DATED 30.6.2009 HENCE THESE ARE NOT REQUIRED TO BE HEARD. IN VIEW OF ABOVE SUBMISSIONS AND IN COMPLIANCE OF ORDER DATED 19.5.2010 OF THE TRIBUNAL IN MA NO. 10/PN/10 WE HEARD AND CONSIDERED THE ARGUMENTS ADVANCED BY THE PARTIES ON THE ISSUES RAISED IN GROUND NOS. 3 & 4 OF THE APPEAL PREFERRED BY THE ASSESSEE. GROUND NO. 3 & 4 ITA NO 297 /PN/200 7 THERMOD ORS PVT. LTD. A.Y. 2002 - 03 PAGE OF 6 3 3 . THE AUTHORITIES BELOW DID NOT ALLOW THE CLAIMED DEDUCTION U/S. 80IA OF THE ACT ON BANK INTEREST INCOME EARNED ON F.D WHICH WAS KEPT FOR OPENING OF L.C AND FOR FURNISHING FOR BANK GUARANTEE AS AGAINST ADVANCE RECEIVED FROM CUSTOMER BHARAT DYNAMIC LTD. 4 . THE CONTENTION OF THE LD. A.R. REMAINED THAT THE ISSUE RAISED IN THE GROUND HAS ALREADY BEEN DECIDED IN FAVOUR OF THE ASSESSEE IN ITS CASE ITSELF FOR THE A.Y. 1998 - 99 AND 1999 - 2000 BY THE PUNE BENCH OF THE TRIBUNAL IN ITA NOS. 361 AND 362/PN/2003 VIDE ORDER DT. 28 TH JULY 2006 COPY MADE AVAILABLE AT PAGE NOS. 139 TO 143 OF THE PAPER BOOK PART II. THE LD. D.R. DID NOT DISPUTE THE ABOVE INFORMATION OF THE LD. A.R. THAT THE ISSUE HAS ALREADY BEEN DECIDED BY THE TRIBUNAL IN THE CASE OF ASSESSEE ITSELF FO R THE A.YS. 1998 - 99 AND 1999 - 2000. HE HOWEVER TRIED TO JUSTIFY THE ORDERS OF THE AUTHORITIES BELOW AND POINTED OUT THAT THE HONBLE SUPREME COURT IN ITS RECENT DECISION IN THE CASE OF LIBERTY INDIA BY CIT (2009) 317 ITR 218(SC) HAS DECIDED THE ISSUE AG AINST THE ASSESSEE . 5 . HAVING GONE THROUGH THE SAID ORDER DT. 28 TH JULY 2006 OF THE TRIBUNAL IN THE CASE OF ASSESSEE ITSELF ON THE ISSUE FOR THE A.YS. 1998 - 99 AND 1999 - 2000 UNDER SIMILAR FACTS AND CIRCUMSTANCES WE FIND THAT THE ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE IN CONCLUDING PARA NO. 5.5 THEREOF. FOR A READY REFERENCE THE SAID PARA NO. 5.5 OF THE ORDER OF THE TRIBUNAL IS BEING REPRODUCED HEREUNDER : WE HAVE CONSIDERED THE FACTS OF THE CASE AND RIVAL SUBMISSIONS. SECTION 80 - IA USES TH E WORDS PROFITS AND GAINS DERIVED FROM ANY BUSINESS OF AN INDUSTRIAL UNDERTAKING. IN THE INSTANT CASE THE ASSESSEE IS NOT CARRYING ON THE BUSINESS OF MONEY LENDING. NONETHELESS THE CASE OF THE LEARNED COUNSEL IS THAT IF ANY INCOME IS INEXTRICABLY LIN KED WITH THE CARRYING ON OF THE BUSINESS SUCH INCOME FORMS PART OF THE PROFITS OF ELIGIBLE UNIT FOR THE PURPOSE OF DEDUCTION U/S 80 - IA. THE WORDS USED IN SECTION 80 - I WERE INCOME DERIVED FROM INDUSTRIAL UNDERTAKING WHICH ARE SOMEWHAT DISTINGUISHABLE F ROM THE WORDS USED IN SECTION 80 - IA. THE AO ITA NO 297 /PN/200 7 THERMOD ORS PVT. LTD. A.Y. 2002 - 03 PAGE OF 6 4 WAS OF THE VIEW THAT INTEREST INCOME EARNED ON FIXED DEPOSITS WITH THE BANK DOES NOT CONSTITUTE ANY INCOME FROM THE BUSINESS OF THE INDUSTRIAL UNDERTAKING WHILE THE WORDS USED IN SECTION 80 - IA ARE SOMEWHAT WI DER THAN THE WORDS USED IN SECTION 80 - I YET THESE WORDS ARE NOT SO WIDE AS TO INCLUDE ANY INCOME BY WAY OF INTEREST WHICH IS TAXED AS INCOME FROM BUSINESS. HOWEVER VARIOUS CASES CITED BY THE LEARNED COUNSEL DO LEAD TO A CONCLUSION THAT IF INTEREST IS INEXTRICABLY LINKED WITH THE BUSINESS OF THE INDUSTRIAL UNDERTAKING IT CAN BE TERMED AS PROFITS AND GAINS DERIVED FROM ANY BUSINESS OF AN INDUSTRIAL UNDERTAKING. THUS WE BROADLY AGREE WITH THE DECISION OF THE HONBLE ITAT PUNE BENCH IN THE CASE OF KRI PA CHEMICALS LTD. (SUPRA) WHEN IT WAS HELD THAT SURPLUS FUNDS DEPOSITED IN THE BANK DO NOT LEAD TO AN INCOME WHICH CAN BE SAID TO BE PROFITS AND GAINS DERIVED FROM ANY BUSINESS OF AN INDUSTRIAL UNDERTAKING. HOWEVER IN THE INSTANT CASE THE ASSESSEE HAD RE CEIVED CERTAIN AMOUNTS IN ADVANCE FROM BHARAT DYNAMICS LTD FOR SALE OF GOODS WHICH WERE SECURED BY WAY OF BANK GUARANTEE IN CASE OF ASSESSEES FAILURE TO PERFORM ITS PART OF THE CONTRACT. IN ORDER TO OBTAIN SUCH A GUARANTEE THE ASSESSEE PLACED MARGIN M ONEY WITH THE BANK ON WHICH INTEREST WAS RECEIVED. THE WE HOWEVER FIND THAT THE HONBLE SUPREME COURT IN ITS RECENT DECISION IN THE ABOVE - CITED CASE OF LIBERTY INDIA V/S. CIT (SUPRA) HAS UPHELD THE DISALLOWANCE OF DEDUCTION CLAIMED U/S 80IB WHEREIN THE WORDS DERIVED FROM HAVE ALSO BEEN USED ESTABLISHING A RATIO THAT THE WORDS DERIVED FROM ARE NARROWER IN CONNOTATION AS COMPARED TO THE WORDS ATTRIBUTABLE TO AND BY USING THE EXPRESSION DERIVED FROM PARLIAMENT INTENDED TO COVER SOURCES NOT B EYOND THE FIRST DEGREE. HERE IN PRESENT CASE THE INCOME IN QUESTION HAS BEEN EARNED BY WAY OF INTEREST ON SECURITY DEPOSIT WHICH IS ADMITTED LY A SOURCE BEYOND THE FIRST DEGREE. THUS IN VIEW OF THE CITED DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF LIBERTY INDIA (SUPRA) THE ASSESSEE IS NOT ENTITLED TO THE CLAIMED DEDUCTION U/S. 80 IA ON THE SAID INTEREST INCOME. THE FIRST APPELLATE ORDER IN THIS REGARD IS ACCORDINGLY UPHELD. THE GROUND NO.3 IS THUS REJECTED. GROUND NO. 4 ITA NO 297 /PN/200 7 THERMOD ORS PVT. LTD. A.Y. 2002 - 03 PAGE OF 6 5 6 . THE A.O HAS DISALLOWED AN AMOUNT OF RS. 20 000/ - EACH OUT OF THE CLAIMED EXPENSES OF RS. 2 67 788/ - TOWARDS VEHICLE AND RS. 2 18 609/ - ON TELEPHONE ON THE BASIS THAT THE ASSESSEE HAS NOT MAINTAINED VEHICLE LOG BOOK AND TELEPHONE CALL REGISTERS TO SUPPORT IT S CLAIM THAT THESE E XPENSES WERE INC URRED FULLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS. THE LD CIT(A) HAS UPHELD THE SAME SINCE ASSESSEE COULD NOT IMPROVE ITS CASE TO REMOVE THE POSSIBILITY OF PERSONAL USER OF THESE FACILITIES. 7. BEFORE THE TRIBUNAL LD. AR CITE D THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF SAYAJI IRON & ENGG. CO. V/S. CIT (2002) 253 ITR 749 (GUJ.) 8. THE LD. D.R. ON THE CONTRARY TRIED TO JUSTIFY ORDERS OF THE AUTHORITIES BELOW. 9. HAVING GONE THROUGH THE ABOVE CITED DECISION OF H ONBLE GUJARAT HIGH COURT WE FIND THAT THE HONBLE HIGH COURT HAS BEEN PLEASED TO HOLD THAT THE DIRECTORS OF THE ASSESSEE WERE ENTITLED TO USE THE VEHICLES FOR THEIR PERSONAL USE IN ACCORDANCE WITH THE TERMS AND CONDITIONS ON WHICH THEY WERE APPOINTED AND THE PERQUISITES GIVEN TO THE DIRECTORS FORMED PART OF THEIR REMUNERATION UNDER THE EXPLANATION TO SECTION 198 OF THE COMPANIES ACT 1956 FOR THE PURPOSE OF DETERMINING THEIR REMUNERATION UNDER SECTION 309 OF THAT ACT. ONCE SUCH REMUNERATION WAS FI XED AS PROVIDED IN SECTION 309 IT WAS NOT POSSIBLE TO STATE THAT THE ASSESSEE INCURRED THE EXPENDITURE FOR THE PERSONAL USE OF THE DIRECTORS. EVEN IF THERE WAS ANY PERSONAL USE BY THE DIRECTORS THAT WAS AS PER THE TERMS AND CONDITIONS OF SERVICE AND IN S O FAR AS THE ASSESSEE WAS CONCERNED IT WAS BUSINESS EXPENDITURE AND NO PART OF THE EXPENDITURE COULD BE DISALLOWED. WE THUS SET ASIDE THE MATTER TO THE FILE OF THE A.O TO DECIDE THE ISSUE AFRESH IN VIEW OF THE DECISION OF HONBLE GUJARAT HIGH COURT IN T HE ABOVE - CITED CASE OF SAYAJI ITA NO 297 /PN/200 7 THERMOD ORS PVT. LTD. A.Y. 2002 - 03 PAGE OF 6 6 IRON & ENGG. CO. VS. CIT (SUPRA) AFTER AFFORDING OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THE GROUND NO. 4 IS THUS ALLOWED FOR STATISTICAL PURPOSE. 10. IN RESULT APPEAL IS PARTLY ALLOWED . ORDER PRONOUNCED IN THE OPE N COURT ON 9 TH FEBRUARY 2011 SD/ - SD/ - ( D. KARUNAKA RAO ) ACCOUNTANT MEMBER ( I.C. SUDHIR ) JUDICIAL MEMBER PUNE DATED THE 09 TH FEBRUARY 20 1 1 US COPY OF THE ORDER IS FORWARDED TO : 1. THE A PPELLANT 2. THE RESP ONDENT 3. THE CIT - V PUNE 4. THE CIT(A) - II I PUNE 5. THE D.R. B BENCH PUNE 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL PUNE