M/s. Choice Laboratory, Patan v. The ACIT., Patan Circle,, Patan

ITA 3084/AHD/2009 | 2004-2005
Pronouncement Date: 22-01-2010 | Result: Partly Allowed

Appeal Details

RSA Number 308420514 RSA 2009
Assessee PAN AABFC8923B
Bench Ahmedabad
Appeal Number ITA 3084/AHD/2009
Duration Of Justice 2 month(s) 4 day(s)
Appellant M/s. Choice Laboratory, Patan
Respondent The ACIT., Patan Circle,, Patan
Appeal Type Income Tax Appeal
Pronouncement Date 22-01-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted C
Tribunal Order Date 22-01-2010
Assessment Year 2004-2005
Appeal Filed On 17-11-2009
Judgment Text
1 IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH AHMEDABAD. BEFORE: HON'BLE SHRI T.K. SHARMA JUDICIA L MEMBER AND HON'BLE SHRI D.C. AGRAWAL ACCOUNTANT MEMBER ITA NOS. 3083 & 3084/AHD/2009 ASSESSMENT YEAR : 2003-2004 & 2004-2005 M/S. CHOICE LABORATORIES STATE HIGHWAY UNJHA PAN : AABFC 8923 B VERSUS ASSISTANT COMMISSIONER OF INCOME TAX PATAN CIRCLE PATAN (APPELLANT) (RESPONDENT) FOR THE APPELLANT : SHRI M.K. PATEL FOR THE RESPONDENT : SHRI M.C. PANDIT SR. DR ORDER PER T K SHARMA JUDICIAL MEMBER :- THESE TWO APPEALS BY THE ASSESSEE ARE AGAINST TWO SEPARATE ORDERS BOTH DATED 26.08.2009 OF LD. C OMMISSIONER OF INCOME TAX(APPEALS) GANDHINAGAR FOR THE ASSESSMENT YEARS 2003-04 & 2004-05. 2. BOTH THESE APPEALS WERE HEARD ON THE SAME DATE INVOLVED COMMON ISSUES THEREFORE THESE ARE DECIDED BY THE COMMON ORDER FO R THE SAKE OF CONVENIENCE. 3. GROUND NO. 1 OF BOTH THE APPEALS IS AGAINST RE-O PENING OF ASSESSMENT BY ISSUING NOTICE UNDER SECTION 148. AT THE TIME OF HE ARING THIS GROUND OF BOTH THE APPEALS WAS NOT PRESSED. THEREFORE FOR BOTH THE AS SESSMENT YEARS IT IS DISMISSED BEING NOT PRESSED. 4. GROUNDS NO. 2 & 3 COMMON TO BOTH THE APPEALS A RE AS UNDER :- 2. THAT THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) HAS GRIEVOUSLY ERRED IN LAW AND ON FAC TS IN HOLDING THAT INTEREST INCOME IS NOT ELIGIBLE FOR DE DUCTION U/S. 80HHC OF THE ACT. 3. IN THE ALTERNATE THE LEARNED COMMISSIONER OF IN COME TAX(APPEALS) HAS GRIEVOUSLY ERRED IN REJECTING THE CONTENTION OF ASSESSEE THAT ONLY NET INTEREST IS EXCLUDIBLE FR OM PROFITS FOR DEDUCTION U/S. 80HHC OF THE ACT. 5. BRIEF FACTS RELATING TO CONTROVERSY INVOLVED IN THE AFORESAID GROUNDS FOR THE ASSESSMENT YEAR 2003-04 IS THAT WHILE COMPUTING THE DEDUCTION UNDER SECTION 80HHC THE A.O. EXCLUDED 90% OF INTEREST INCOME AND RECOMP UTED THE DEDUCTION UNDER SECTION 80HHC AT RS.14 80 520/- AS AGAINST RS.19 11 155/- ALLOWED EARLIER. ON APPEAL 2 ITA NOS. 3083 & 3084/AHD/2009 BEFORE THE LEARNED COMMISSIONER OF INCOME TAX(APPEA LS) THE ASSESSEE CONTENDED AS UNDER :- DURING THE YEAR UNDER REVIEW APPELLANT INCURRED N ET INTEREST EXPENSES OF RS.35 14 490/- AFTER DEDUCTING INTEREST RECEIVED OF RS.14 05 297/-. SINCE THE APPELLANT HAD INCURRED NE T INTEREST EXPENSES OF RS.35 14 490/- APPELLANT CLAIMED DEDUC TION U/S. 80HHC BY REDUCING 90% OF THE NET INTEREST AND CLAIMED DEDUC TION OF 8S-19 IL 155/-. COPY OF INTEREST ACCOUNT IS ENCLOSE D (PAGE NO.63 TO 69}. THE ASSESSING OFFICER HAS CONSIDERED INTEREST RECEI PT OF RS. 15 06 636/- WITHOUT DEDUCTING INTEREST PAID AND REDUCED 90% OF THE GROSS INTEREST RECEIPT AND ALLOWED DEDUCTION OF RS.14 80 520/- U/ S. 8OHHC BY APPLYING IN CASE OF RANI PALIWAL VS. CIT [268 ITR 2 20 (P&H)]. SIR SUBSEQUENT TO THE ABOVE REFERRED JUDGMENT OF R ANI PALIWAL THE HIGH COURT OF DELHI IN CASE OF CIT VS . SHRIRAM HONDA PO WER EQUIP. & OTHERS (289 ITR 495) HAS HELD AS UNDER: 'THE WORD 'INTEREST' IN CL. (BAA) OF THE EXPLANATIO N CONNOTES 'NET INTEREST AND NOT GROSS INTEREST'. THEREFORE IN DEDUCTING SUC H INTEREST THE ASSESSING OFFICER WILL TAKE INTO ACCOUNT THE NET IN TEREST I.E. GROSS INTEREST AS REDUCED BY EXPENDITURE INCURRED FOR EARNING SUCH INTEREST. THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN LA LSONS TO THIS EFFECT IS AFFIRMED. IN HOLDING AS ABOVE WE DIFFER FROM THE J UDGMENTS OF THE PUNJAB & HARIYANA HIGH COURT IN RANI PALIWAL AND TH E MADRAS HIGH COURT IN V. CHINNAPANDI AND AFFIRM THE RULING OF TH E SPECIAL BENCH OF TRIBUNAL IN LALSONS. ' COPY OF ORDER OF RANI PALIWA L IS ENCLOSED (PAGE NO. 70 TO 97). A SPECIAL BENCH WAS FORMED IN DELHI TO SORT OUT TH E DEDUCTION ALLOWABLE U/S. 8OHHC AND ACCORDINGLY THE DELHI TRIBUNAL IN CA SE OF LALSONS ENTERPRISES VS. DEPUTY COMMISSIONER OF INCOME TAX [ (82 TTJ 1048 (SB)] HAS HELD AS UNDER:- 'FOR THE PURPOSE OF APPLYING EXPLN. (BAA) BELOW SUB .S. (4B) OF SECTION SOHHC AND WHILE REDUCING 90% OF THE RECEIPT BY WAY OF INTEREST FROM THE PROFITS OF THE BUSINESS I T IS ONLY THE 90% OF THE NET INTEREST REMAINING AFTER ALLOWING A SET OFF OF INTEREST PAID WHICH HAS A NEXUS WITH THE INTEREST RECEIVED THAT CAN BE REDUCED AND NOT 96% OF THE GROSS INTERE ST. ' COPY OF ORDER OF LALSONS IS ENCLOSED (PAGE NO- 98 TO 110 ). SIR THE MAIN INTEREST INCOME INCLUDES INTEREST OF RS. 12 86 108/- FROM ITS SISTER CONCERN M/S. HITEN IMPE X PRIVATE LIMITED FROM WHOM APPELLANT WAS PURCHASING GOODS FA R EXPORTING THE SAME. DURING THE YEAR UNDER REVIEW A PPELLANT HAD PURCHASED GOODS OF RS.445.05 LACS FROM THE SAID COMPANY. THE FINDS ADVANCE BY THE APPELLANT IS INTEREST BEAR ING FUND AND HENCE APPELLANT HAS RIGHT CLAIMED DEDUCTION U/S . 80HHC BY REDUCING 90% OF THE NET INTEREST FROM THE PROFIT S OF THE BUSINESS. ' 3 ITA NOS. 3083 & 3084/AHD/2009 6. AFTER CONSIDERING THE AFORESAID SUBMISSION THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) REJECTED THE AFORESAID CONTENTI ON OF THE ASSESSEE FOR THE DETAILED REASONS GIVEN IN PARA 3.3 TO 3.3.1 WHICH READS AS UNDER :- 3.3. THE MATTER HAS BEEN CONSIDERED AND I AM AFRAI D I DO NOT AGREE WITH THE APPELLANT. FROM THE MANNER THE A CCOUNTS HAVE BEEN MAINTAINED BY THE APPELLANT THE INTEREST INCOME IS NOT SHOWN AS A RECEIPT BUT IS IN FACT CREDITED I N THE INTEREST ACCOUNT ITSELF. BUT IT DOES NOT MEAN THAT INTEREST DEBITED OF RS.49 17 026/- IS EXPENSE INCURRED TO EA RN THE INTEREST RECEIVED OF RS.14 05 297/-. THE DECISION O F DELHI HIGH COURT IN THE CASE OF SHRI RAM HONDA POWER EQUI P. & OTHERS (SUPRA) AS ALSO OF THE ITAT SPECIAL BENCH I N THE CASE OF LALSONS ENTERPRISES (SUPRA) HIGHLIGHT THE F ACT THAT WHAT HA TO BE EXCLUDED FROM THE COMPUTATION IS THE NET INTEREST WHICH IS INCLUDED IN BUSINESS PROFIT AND T HE ASSESSEE WOULD BE ENTITLED TO CLAIM EXPENDITURE WHICH HAS A NEXUS WITH THE RECEIPT BY WAY OF INTEREST COMMISSION BR OKERAGE ETC. HENCE TO CLAIM AS A MATTER OF BELIE THAT THE C OURTS HAVE LAID DOWN A LAW THAT NET INCOME HAS TO BE EXCLUDED IS COMPLETELY FALLACIOUS. FURTHER REGARDING THE INTER EST EXPENSES ATTRIBUTABLE TO EARN THE INTEREST INCOME NO SUCH EXERCISE OR BIFURCATION WAS ATTEMPTED OR PRODUCED B EFORE THE ASSESSING OFFICER OR BEFORE ME TO GIVE AN ADJUD ICATION ON THIS ISSUE. OTHERWISE ALSO IT IS NOT NECESSARY T HAT TO EARN THE INTEREST INCOME THERE MUST BE SOME INTEREST EXP ENSES AND THEREFORE IT IS NOT NECESSARY TO EXCLUDE SOME EXPEN SES AS A MATTER OF NECESSITY UNLESS THE BOOKS OF ACCOUNT SH OW IT. THE ONUS WAS ON THE ASSESSEE TO PUT FORTH WHATEVER THE INFORMATION HE HAD TO CLAIM THE INTEREST EXPENSES I N THE CONTEXT WHICH WAS NOT DONE. 3.3.1. THEREFORE I THINK THE ACTION OF THE ASSESSI NG OFFICER IN REWORKING THE DEDUCTION U/S. 80HHC BY EXCLUDING A PART OF THE INTEREST INCOME IS AS PER LAW AND IS THEREF ORE CONFIRMED. 7. FOR IDENTICAL REASONS IN THE ASSESSMENT YEAR 20 04-05 ALSO THE A.O. RE-WORKED OUT THE DEDUCTION UNDER SECTION 80HHC AND IN THE IM PUGNED ORDER THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) REJECTED THE CO NTENTION OF THE ASSESSEE FOR IDENTICAL REASONS AS IN THE ASSESSMENT YEAR 2003-04 . 8. AGGRIEVED BY THE ORDER OF LEARNED COMMISSIONER O F INCOME TAX(APPEALS) FOR BOTH THE ASSESSMENT YEARS ON THE AFORESAID ISSUE T HE ASSESSEE IS IN APPEALS BEFORE US. 9. AT THE TIME OF HEARING ON BEHALF OF ASSESSEE SH RI M.K. PATEL APPEARED AND CONTENDED THAT NEITHER THE ASSESSING OFFICER NOR TH E LEARNED COMMISSIONER OF 4 ITA NOS. 3083 & 3084/AHD/2009 INCOME TAX(APPEALS) MADE AN ATTEMPT TO EXAMINE THE DETAILS OF INTEREST INCOME. IT WAS ALSO NOT EXAMINED WHETHER THERE IS ANY NEXUS AS IS REQUIRED FOR THE PURPOSE OF ALLOWING THE BENEFIT OF NETTING AS HELD BY THE HON' BLE ITAT SPECIAL BENCH DELHI IN THE CASE OF LALSONS ENTERPRISES(SUPRA). THE LD. COU NSEL OF THE ASSESSEE FURTHER CONTENDED THAT IN THIS CASE THAT THE ASSESSMENT FOR BOTH THE ASSESSMENT YEARS WAS RE- OPENED ON THE BASIS OF THE DECISION OF THE HON'BLE PUNJAB & HARIYANA HIGH COURT IN THE CASE OF RANI PALIWAL VS.- CIT [268 ITR 220]. H OWEVER THERE EXISTS A CONTRARY VIEW BY THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS.- SHRI RAM HONDA POWER EQUIP. & OTHERS [289 ITR 495]. THIS LATER JUD GMENT OF THE HON'BLE DELHI HIGH COURT IS IN FAVOUR OF THE ASSESSEE AND IT IS WELL S ETTLED LAW THAT WHEN TWO VIEWS ARE PLAUSIBLE VIEW IS IN FAVOUR OF THE ASSESSEE SHOULD BE ADOPTED. 10. SHRI M.C. PANDIT LD. SR. D.R. APPEARING FOR TH E REVENUE CONTENDED THAT ONUS WAS ON THE ASSESSEE TO FURNISH THE COMPLETE DETAILS . THESE DETAILS WERE FURNISHED. EVEN AS PER THE JUDGMENT OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF SHRI RAM HONDA POWER EQUIP. & OTHERS (SUPRA) RELIED BY THE L D. COUNSEL OF THE ASSESSEE INCOME DERIVED FROM OTHER SOURCES ARE NOT PART OF P ROFITS FOR THE PURPOSES OF SECTION 80HHC OF THE INCOME TAX ACT 1961. INTEREST IN CLAU SE (BAA) OF EXPLANATION TO SECTION 80HHC CONNOTES NET INTEREST AND NOT GROS S INTEREST BUT ONUS IS ON THE ASSESSEE PROVES THE NEXUS. SINCE THIS WAS NOT DONE THE VIEW TAKEN BY BOTH THE DEPARTMENTAL AUTHORITIES BELOW BE UPHELD. 11. HAVING HEARD BOTH THE SIDES WE HAVE CAREFULLY GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. THE HON'BLE DELHI HIGH COURT IN THE CASE OF SHRI RAM HONDA POWER EQUIP. & OTHERS (SUPRA) HELD THAT WHERE SURPL US FUND ARE PARKED WITH THE BANK AND INTEREST IS EARNED THEREON IT CAN ONLY BE CATE GORIZED AS INCOME FROM OTHER SOURCES. THIS ASPECT WAS NOT EXAMINED BY BOTH THE A UTHORITIES BELOW. EVEN IF THE INTEREST INCOME IS ASSESSED UNDER THE HEAD INCOME FROM OTHER SOURCES THE ASSESSEE IS ENTITLED TO THE BENEFIT OF NETTING PROVIDED THER E IS A DIRECT NEXUS. ONUS TO PROVE THE NEXUS IS ON THE ASSESSEE. THE HON'BLE DELHI HIGH CO URT IN THE CASE OF SHRI RAM HONDA POWER EQUIP. & OTHERS (SUPRA) HELD THAT THE ASSESSING OFFICER WILL DEDUCT FROM THE PROFITS OF THE BUSINESS COMPUTED UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION THE FOLLOWING SUMS IN ORDER TO ARRIVE AT THE PROFITS OF THE BUSINESS FOR THE PURPOSES OF SECTION 80HHC(3) I.E . 5 ITA NOS. 3083 & 3084/AHD/2009 (1) 90% OF ANY SUM REFERRED TO IN CLAUSES (IIIA) ( IIIB) AND (IIIC) OF SECTION 28 I.E. EXPORT INCENTIVES; (2) 90 PER CENT OF ANY RECEIPTS BY WAY OF BROKERAGE COMMISSION INTEREST RENT CHARGES OR ANY OTHER RECEIPT OF A S IMILAR NATURE INCLUDED IN SUCH PROFITS; AND (3) PROFITS OF ANY BRANCH OFFICE WAREHOUSE OR ANY OTHER ESTABLISHMENT OF THE ASSESSEE SITUATE OUTSIDE INDIA. THE HON'BLE HIGH COURT ALSO HELD THAT THE WORD IN TEREST IN CLAUSE (BAA) OF THE EXPLANATION CONNOTES NET INTEREST AND NOT GR OSS INTEREST. THEREFORE IN DEDUCTING SUCH INTEREST THE ASSESSING OFFICER WILL TAKE INTO ACCOUNT THE NET INTEREST I.E. GROSS INTEREST AS REDUCED BY EXPENDITURE INCUR RED FOR EARNING SUCH INTEREST. WHERE AS A RESULT OF THE COMPUTATION OF PROFITS AN D GAINS OF BUSINESS AND PROFESSION THE ASSESSING OFFICER TREATS THE INTEREST RECEIPT A S BUSINESS INCOME THEN DEDUCTION SHOULD BE PERMISSIBLE IN TERMS OF EXPLANATION (BAA ) OF THE NET INTEREST I.E. THE GROSS INTEREST LESS THE EXPENDITURE INCURRED FOR THE PURP OSES OF EARNING SUCH INTEREST. THE NEXUS BETWEEN OBTAINING THE LOAN AND PAYING INTERES T THEREON (LAYING OUT THE EXPENDITURE BY WAY OF INTEREST) FOR THE PURPOSE OF EARNING THE INTEREST ON THE FIXED DEPOSIT TO DRAW AN ANALOGY FROM SECTION 37 WILL R EQUIRE TO BE SHOWN BY THE ASSESSEE FOR APPLICATION OF THE NETTING PRINCIPLE. 12. KEEPING IN VIEW THE TOTALITY OF THE FACTS AND C IRCUMSTANCES OF THE CASE WE RESTORE THE MATTER TO THE FILE OF ASSESSING OFFICER WITH THE DIRECTION THAT THE ASSESSEE SHOULD FURNISH THE COMPLETE DETAILS OF INTEREST TH E ASSESSING OFFICER MAY VERIFY THE SAME AND RE-WORK OUT THE DEDUCTION UNDER SECTION 80 HHC KEEPING IN VIEW THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CAS E OF SHRI RAM HONDA POWER EQUIP. & OTHERS (SUPRA) AFTER GIVING OPPORTUNITY OF BEING HEARD TO BOTH THE SIDES. 13. IN THE RESULT FOR STATISTICAL PURPOSES BOTH T HE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED. THIS ORDER IS PRONOUNCED IN OPEN COURT ON 22 ND JANUARY 2010. SD/- SD/- /S- /- (D.C. AGRAWAL) (T.K. SHARMA) ACCOUNTANT MEMBER JUD ICIAL MEMBER DATED: 22/01/2010 6 ITA NOS. 3083 & 3084/AHD/2009 COPY OF THE ORDER IS FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) CONCERNED 4. THE CIT 5. THE DR AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER // TRUE COPY // ASSTT. REGISTRAR/ DEPUTY REGISTRAR ITAT AHMEDABAD BENCHES AHMEDABAD. LAHA/SR. P.S.