India Exports Mumbai v. Acit Rg 17 2 Mumbai

Income Tax Appellate Tribunal Mumbai Bench I Before Shri J Sudhakar Reddy Accountant Member And Shri V Durga Rao Judicial Member Ita Nos 3880 3882 3883 3884 Mum 2009 Assessment Years 1999 99 2000 01 2001 02 2002 03 M S India Exports 458 7 Ramaiya Niwas Matru Ashish Bhadaj Road Kings Circle Mumba 400 019 Pan Aaafi 0080 J Appellant Vs Asst Commissioner Of Income Tax Range 17 2 Mumbai Respondent Appellant By Shri I P Rathi Respondent By Shri Ajaykumar Srivastava O R D E R Per V Durga Rao Jm These Appeals Filed By The Assessee Are Directed A Gainst The Order Of The Cit Appeals Xvii Mumbai Dated 2 6 3 2009 As Common Points Are Involved All These Appeals We Re Heard Together And Disposed Of By This Consolidated Order 2 Ita No 3880 Mum 2009 Assessment Year 1999 2000 The Assessee Has Raised As Many As Nine Grounds Of Appeal Ground No 9 Is General In Nature And Does Not Requi Re Adjudication At The Time Of Hearing Learned Coun Sel For Ita Nos 3880 3882 To 3884 Mum 09 Page 2 Of 12 Assessee Did Not Press Ground Nos 1 And 2 Relating To Reopening Of Assessment U S 147 Of The Income Tax Act 1961 Hereinafter Referred To As The Act 2 I Ground No 4 Is With Regard To The Finding Of T He Ao That The Entire Amount Received On Transfer Of Depb Was In The Nature Of Profits On Transfer Of Depb And Stood Cov Ered Within The Meaning Of Section 28 Iiid Was Also Not Presse D Hence Ground Nos 1 2 And 4 Are Dismissed As Not Pressed 2 Ii The Assessee Has Raised Ground Nos 3 5 6 And 7 As Under 3 On The Facts And Circumstances Of The Case And In Law The Learned Commissioner Of Income Tax Appeals Has Erred In Confirming The Taxability Of Any Prof It On Transfer Of Dept As Specified U S 28 Iiid Wherea S The Newly Inserted Clause Iiid Of Section 28 Is Not C Overed Within The Definition Of Income U S 2 24 5 Further Without Prejudice To The Above Learned Commissioner Of Income Tax Appeals Has Erred In Confirming The Entire Sale Proceeds Of Depb Entitlements As Income U S 28 Iiid As Against Act Ual Profit On Transfer Of Depb Entitlement After Reduci Ng The Entitlement Value Of Depb From The Sale Proceed S Of Such Dept And Has Further Erred In Giving Effec T Of The Same While Calculating The Profits Of The Busin Ess Under Explanation Baa To Section 80 Hhc 6 Further Without Prejudice To The Above The Assessing Officer Has Erred In Considering Even The Sales Tax Collected On Sale Of Depb Amounting To Rs 1 56 199 As Profit On Transfer Of Dept U S 28 Ii Id Ita Nos 3880 3882 To 3884 Mum 09 Page 3 Of 12 7 Further Without Prejudice To The Above The Fac E Value Of Depb Entitlements Accrued On Export Performance Should Have Been Considered As Export Incentives U S 28 Iiia Or Iiib Or Iiic Or Busi Ness Income U S 28 I Or 28 Iv While Calculating The Deduction U S 80 Hhc Or The Same Should Have Been Reduced From The Cost Of Goods Exported As The Same Are In The Nature Of Cost Re Coupment 2 Iii We Have Heard Rival Submissions And Perused Material On Record Both Sides Are In Agreement That The Fac Ts And Circumstances Of This Appeal Are Mutatis Mutandis Similar To Those Decided By The Special Bench Mumbai Of The Tribunal In The Case Of M S Topman Exports Ita No 5769 Mum 2006 And M S Kalpataru Colours Chemicals Ita 5651 Mum 200 6 2009 Tiol 531 Itat Mum Sb The Special Bench Vi De Its Order Dated 11 8 2009 Has Restored The Matter To T He File Of The Ao For Considering The Face Value Of Depb As Covere D Under Section 28 Iiib Of The Act And Profit On Transfer Of Depb I E Excess Of Sale Price Over The Face Value Of Depb As Falling Under Section 28 Iiid Of The Act It Has Further Been H Eld That There Is No Scope For Allowing Separate Deduction For Indivi Dual Expenses Connected With The Sale Of Depb Due To The Scheme O F Section 80 Hhc Of The Act We Therefore Set Aside The Imp Ugned Order On This Issue And Direct The Ao To Re Compute The D Eduction Under Sec 80 Hhc Of The Act In Accordance With The V Iew Taken By The Special Bench In The Afore Mentioned Case Need Less To Say Ita Nos 3880 3882 To 3884 Mum 09 Page 4 Of 12 The Assessee Will Be Given Reasonable Opportunity O F Being Heard By The Ao In The Fresh Proceedings 2 Iv Ground No 8 Relates To Interest Charged U S 2 34 B Of The It Act Learned Counsel For Assessee Submitte D That The Ao May Be Directed To Follow The Cbdt Circular No 2 Of 2006 Dated 17 1 2006 Learned Departmental Representative Fai Rly Conceded That He Has No Objection To Follow The Cbd T Circular We Therefore Direct The Ao To Consider Ground No 8 In The Light Of Cbdt Circular In Accordance With Law After Givin G Opportunity To Assessee 2 V In The Result The Appeal Is Treated As Partly Allowed For Statistical Purposes 3 Ita 3882 Mum 2009 Ay 2000 01 The Assessee Has Raised As Many As Seven Grounds Of Appeal Grou Nd No 7 Is General In Nature And Does Not Require Adjudication 3 I At The Time Of Hearing Learned Counsel For As Sessee Did Not Press Ground Nos 1 2 4 Hence The Same A Re Dismissed As Not Pressed 3 Ii Ground No 3 5 And 6 Are Identical To Ground Nos 3 5 And 7 Raised In Ita 3880 Mum 2009 For The Reasons Given By Us In Paragraph 2 Iii We Set Aside The Order Of The Cit Appeals On This Issue And Direct The Ao To Re Compute The Dedu Ction Under Sec 80 Hhc Of The Act In Accordance With The View Ta Ken By The Special Bench In The Afore Mentioned Case Needless To Say The Ita Nos 3880 3882 To 3884 Mum 09 Page 5 Of 12 Assessee Will Be Given Reasonable Opportunity Of Be Ing Heard By The Ao In The Fresh Proceedings 3 Iii In The Result The Appeal Is Treated As Par Tly Allowed For Statistical Purposes 4 Ita No 3883 Mum 2009 A Y 2001 02 The Assessee Has Raised As Many As Eight Grounds Of App Eal Ground No 8 Is General In Nature And Does Not Require Adju Dication 4 I Ground Nos 1 And 2 Relate To Reopening Of Asse Ssment U S 147 Of The Act The Assessee Filed Return Of In Come On 31 1 2005 Declaring Income Of Rs 60 74 790 After Claiming Deduction Of Rs 2 43 22 161 U S 80 Hhc Of The Act The Assessment Was Completed U S 143 3 On 27 2 2004 De Termining The Total Income Of The Assessee At Rs 62 29 681 Against The Assessment Order Assessee Preferred Appeal Before The Cit Appeals And Submitted The Claim For Netting Of Interest The Cit Appeals Rejected The Claim Of The Assessee O N Further Appeal The Tribunal Vide Order Dated 30 5 2006 Re Stored The Matter To The File Of The Ao With A Direction To De Cide The Same Afresh After Affording Reasonable Opportunity To Th E Assessee 4 Ii The Ao Issued Notice U S 148 On 28 3 2007 On The Ground That The Assessee Had Incorrectly Claimed De Duction U S 80 Hhc On Depb Credits Resulting In Under Assessment Of Income As Per The Amendment Of Taxation Laws 2005 The A O Served On The Assessee Notices U S 143 2 And 142 1 Of The A Ct The Ao Held That In View Of The Taxation Laws Amendment 2 005 And In Ita Nos 3880 3882 To 3884 Mum 09 Page 6 Of 12 View Of The Fact That Assessee Has Export Turnover Exceeding Rs 10 Crores The Assessee Is Not Eligible To Claim Deduction And Accordingly Re Worked Deduction U S 80 Hhc Of The Ac T Being Aggrieved Assessee Went In Appeal Before The Cit A Ppeals Challenging The Reopening Of Assessment U S 147 Of The Act The Cit Appeals Held That The Ao Had Prima Facie Reaso N To Believe That Income Had Escaped Assessment As Depb Sale Rec Eipts Were Not Taxed The Cit Appeals Further Held That In V Iew Of The Amendment Income From These Sales Was Taxable And Therefore The Ao Was Duty Bound To Reopen The Assessment Be Ing Aggrieved Assessee Is In Appeal Before This Tribuna L 4 Iii Learned Counsel For Assessee Submitted That The Re Opening Of Assessment U S 147 Is Bad In Law As It W As Done After Four Years From The End Of The Relevant Assessment Year The Assessee Had Declared All The Facts Before The Ao The Assessment Was Completed U S 143 3 Of The Act On 2 7 2 2004 Learned Counsel For Assessee Strongly Relied On The Decision Of The Jurisdictional High Court In The Case Of Sesa Goa Pvt Ltd Vs Jcit 2007 294 Itr 101 In Addition The Learned Couns El For Assessee Also Relied On The Following Decisions 1 Ipca Laboratories Ltd Vs Dcit 251 Itr 416 2 Parikh Petrol Chemicals Agencies P Ltd Vs Acit 266 Itr 196 3 Caprihans India Ltd Vs Dcit 266 Itr 566 4 Hindustan Lever Ltd Vs Acit 268 Itr 339 5 Desai Brothers Ltd Vs Dcit D 272 Itr 335 Ita Nos 3880 3882 To 3884 Mum 09 Page 7 Of 12 6 Mrpl Vs Acit 282 Itr 516 7 Devidayal Rolling Mills Vs Acit 285 Itr 514 8 Cartini India Vs Acit 291 Itr 355 4 Iv On The Other Hand Learned Departmental Representative Supported The Orders Of The Authorit Ies Below And Submitted That The Ao Had Reason To Believe That Th Ere Is Escapement Of Income And The Assessment Was Reopene D As Per The Amended Provisions Of Law As Per The Change I N Law It Is The Duty Of The Ao To Reopen The Assessment Where T He Assessee Has Claimed Excess Deduction Incorrectly Leading To Under Assessment 4 V We Have Heard Both Sides And Perused Material On Record If The Ao Has Reason To Believe That Incom E Chargeable To Tax Has Escaped Assessment The Ao Can Reopen Th E Assessment By Resorting To The Provisions Of Sectio N 147 Of The Act In The Case In Hand Subsequent To Passing Of The Assessment Order U S 143 3 On 27 2 2004 The Income Tax Act Was Amended By Taxation Laws Amendment Act 2005 Keeping In View This Amendment The Ao Has Come To The Conc Lusion That Income Has Escaped Assessment And After Duly Record Ing Reasons Reopened The Assessment U S 147 Of The Act In Our Considered Opinion Reopening Is Valid In Law As Th E Same Is Based On Certain Materials That Have Come To The Po Ssession Of The Ao Subsequent To Completion Of Assessment U S 1 43 3 Of The Act And This Material Which Is In The Form Of A Mendment Of Act Has Led The Ao To Believe That Income Has Escap Ed Ita Nos 3880 3882 To 3884 Mum 09 Page 8 Of 12 Assessment This Is The View Which Any Reasonable Person Would Take And It Cannot Be Said That There Is Change Of Opinion Or That There Is No Escapement Of Income The Decision Of The Jurisdictional High Court In The Case Of Case Sesa Goa Pvt Ltd Supra Relied On By Learned Counsel For Assessee Re Fer To The Fact Where Subsequent Judgments Of The Jurisdiction Al High Court Are The Basis For Reopening Of Assessment The Fac Ts In Hand Are Different Hence The Case Law Viz Sesa Goa Pvt Ltd Supra Relied On By The Learned Counsel For Assessee Has N O Application To The Facts Of The Present Case The Other Case La Ws Relied On By Learned Counsel For Assessee Are Distinguishable On Facts And Have No Application To The Present Case In View Of Our Above Discussion We Are Of The Considered Opinion That T His Ground Is Devoid Of Any Merits And Requires To Be Rejected A Ccordingly This Ground Of Appeal Is Rejected 5 Ground Nos 3 4 And 5 Are Identical To Ground Nos 3 4 And 5 Of Ita No 3880 Mum 2009 For The Reasons Give N By Us In Paragraph 2 Iii Of This Order We Set Aside The Or Der Of The Cit Appeals On This Issue And Direct The Ao To Re Compute The Deduction Under Sec 80 Hhc Of The Act In Accordance With The View Taken By The Special Bench In The Aforemention Ed Case Needless To Say The Assessee Will Be Given Reasonab Le Opportunity Of Being Heard By The Ao In The Fresh P Roceedings 6 Ground No 6 Relates To Treatment Of Interest Inc Ome As Income From Other Sources The Ao Treated Interest Income Earned On Bank Fds As Income From Other Sources O N Appeal Ita Nos 3880 3882 To 3884 Mum 09 Page 9 Of 12 The Cit Appeals Upheld The Order Of The Ao Being Aggrieved Assessee Is In Appeal Before This Tribunal We Have Heard Rival Submissions And Perused Materia L On Record It Is Not Clear From The Orders Of The Aut Horities Below The Nature Of Bank Deposits Kept By The Assessee It Is Very Much Necessary To Find Out The Nature Of Bank Depos Its To Decide The Issue Involved In This Appeal Therefore We R Emit The Issue Back To The File Of The Ao To Decide The Nature Of Bank Deposits If The Bank Deposits Were Kept For The Purpose Of B Usiness The Ao Is Directed To Allow Netting Of Interest In Acco Rdance With Decision Of The Special Bench Of The Tribunal In Th E Case Of Lalsons Enterprises Vs Dcit 89 Itr 25 If The Ao Comes To The Conclusion That Bank Deposits Were Not Kept For The Purpose Of Business He Is Directed To Disallow The Claim By F Ollowing The Decision Of The Special Bench Of The Tribunal In Th E Case Of M S Topman Exports Ita No 5769 Mum 2006 And M S Kalpataru Colours Chemicals Ita 5651 Mum 2006 2009 Tiol 531 Itat Mum Sb It Is Ordered Accordingly 7 Ground No 7 Is Inter Connected With Ground No 6 It Is Contended That If Interest Income Is Treated As Inc Ome From Other Sources 10 Of The Income May Be Allowed As Indire Ct Cost For Earning Such Interest This Ground Of Appeal Is D Ismissed In View Of Direction Given With Regard To Ground No 6 If The Ao Comes To Conclusion That The Interest Income From F Drs Is Income From Other Sources The Alternative Ground R Aised By The Assessee May Be Considered As Per Law Ita Nos 3880 3882 To 3884 Mum 09 Page 10 Of 12 8 In The Result The Appeal Is Treated As Partly A Llowed 9 Ita No 3884 Mum 2009 A Y 2002 03 The Assessee Has Raised As Many As Eight Grounds Of App Eal Ground No 8 Is General In Nature And Does Not Require Adju Dication 9 I Ground No 1 Relates To Reopening Of Assessmen T U S 147 Of The Act At The Time Of Hearing Learned C Ounsel For Assessee Did Not Press This Ground Accordingly Gr Ound No 1 Is Dismissed For Non Prosecution 9 Ii So Far As The Ground Nos 2 3 4 Which Are Id Entical To Ground Nos 3 5 And 7 In Ita No 3880 Mum 2009 For The Reasons Given By Us In Paragraph 2 Iii 1 Of This O Rder We Set Aside The Order Of The Cit Appeals On This Issue A Nd Direct The Ao To Re Compute The Deduction Under Sec 80 Hhc Of T He Act In Accordance With The View Taken By The Special Bench In The Aforementioned Case Needless To Say The Assessee W Ill Be Given Reasonable Opportunity Of Being Heard By The Ao In The Fresh Proceedings 9 Iii Ground No 5 Relates To Treatment Of Interest Income As Income From Other Sources The Ao Treated Inter Est Income On Fds As Income From Other Sources On Appeal T He Cit Appeals Upheld The Order Of The Ao Being Aggr Ieved Assessee Is In Appeal Before This Tribunal We Have Heard Rival Submissions And Perused Materia L On Record It Is Not Clear From The Orders Of The Aut Horities Below The Nature Of Bank Deposits Kept By The Assessee It Is Very Ita Nos 3880 3882 To 3884 Mum 09 Page 11 Of 12 Much Necessary To Find Out The Nature Of Bank Depos Its To Decide The Issue Involved In This Appeal Therefore We R Emit The Issue Back To The File Of The Ao To Decide The Nature Of Bank Deposits If The Bank Deposits Were Kept For The Purpose Of B Usiness The Ao Is Directed To Allow Netting Of Interest In Acco Rdance With Decision Of The Special Bench Of The Tribunal In Th E Case Of Lalsons Enterprises Vs Dcit 89 Itr 25 If The Ao Comes To The Conclusion That Bank Deposits Were Not Kept For The Purpose Of Business He Is Directed To Disallow The Claim By F Ollowing The Decision Of The Special Bench Of The Tribunal In Th E Case Of M S Topman Exports Ita No 5769 Mum 2006 And M S Kalpataru Colours Chemicals Ita 5651 Mum 2006 2009 Tiol 531 Itat Mum Sb It Is Ordered Accordingly 9 Iv Ground No 6 Is Inter Connected With Ground No 5 Wherein It Is Contended That Even If Interest Incom E Is Being Treated As Income From Other Sources Payment Of In Terest Should Be Allowed To Be Adjusted As Admissible Expe Nses U S 57 Iii Of The Act Ground No 7 Is Inter Conne Cted With Ground No 6 Wherein Is Contended That If Interes T Income Is Treated As Income From Other Sources 10 Of The In Come May Be Allowed As Indirect Cost For Earning Such Intere St Ground Nos 6 7 Are Dismissed In View Of Direction Given To The Ao With Regard To Ground No 6 If The Ao Comes To Conclusi On That The Interest Income From Fdrs Is Income From Other Sour Ces The Alternative Ground Raised By The Assessee May Be Co Nsidered As Per Law After Giving Reasonable Opportunity To The Assessee Ita Nos 3880 3882 To 3884 Mum 09 Page 12 Of 12 10 In The Result The Appeal Is Partly Allowed Order Pronounced In Open Court On 29th Janu Ary 2010 Sd Sd J Sudhakar Reddy V Durga Rao Accountant Member Judicial Member Mumbai D A T E D 29th January 2010 Eks True Copy Copy To 1 The Appellant 2 The Respondent 3 Cit Concerned 4 Cit A Concerned 5 Departmental Representative I Bench By Order Asst Registrar Itat Mumbai