M/s. Prashant Casting Pvt. Ltd.,, RAJKOT-GUJARAT v. The Assistant Commissioner of Income Tax, Circle-5,, RAJKOT-GUJARAT

ITA 4/RJT/2011 | 2000-2001
Pronouncement Date: 30-09-2011 | Result: Partly Allowed

Appeal Details

RSA Number 424914 RSA 2011
Assessee PAN AABCP6352L
Bench Rajkot
Appeal Number ITA 4/RJT/2011
Duration Of Justice 8 month(s) 19 day(s)
Appellant M/s. Prashant Casting Pvt. Ltd.,, RAJKOT-GUJARAT
Respondent The Assistant Commissioner of Income Tax, Circle-5,, RAJKOT-GUJARAT
Appeal Type Income Tax Appeal
Pronouncement Date 30-09-2011
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted DB
Tribunal Order Date 30-09-2011
Date Of Final Hearing 29-08-2011
Next Hearing Date 29-08-2011
Assessment Year 2000-2001
Appeal Filed On 11-01-2011
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH RAJKOT BEFORE SHRI A.L. GEHLOT (AM) AND SHRI N.R.S. GANESA N (JM) I.T.A. NO.04/RJT/2011 (ASSESSMENT YEAR 2000-01) M/S PRASHANT CASTING PVT LTD VS ACIT CIR.5 OPP JAYANT SOCIETY RAJKOT MAVADI PLOT RAJKOT PAN : AABCP6352L (APPELLANT) (RESPONDENT) I.T.A. NO.06/RJT/2011 (ASSESSMENT YEAR 2000-01) ACIT CIR.5 VS M/S PRASHANT CASTING PVT LTD RAJKOT RAJKOT (APPELLANT) (RESPONDENT) DATE OF HEARING : 29-08-2011 DATE OF PRONOUNCEMENT : 30-09-2011 APPELLANT BY : SHRI RK DOSHI RESPONDENT BY: SHRI MK SINGH O R D E R PER AL GEHLOT AM THESE ARE CROSS APPEALS PERTAINING TO ASSESSMENT Y EAR 2000-01. THE APPEALS ARISE OUT OF THE ORDER OF THE CIT(A)-IV RA JKOT DATED 27-10-2010. ITA NO.04/RJT/2011 ASSESSEES APPEAL 2. GROUND NO.1 IS GENERAL IN NATURE AND DOES NOT RE QUIRE ANY ADJUDICATION. ITA NO.04 & 06/RJT/2011 2 3. GROUND NO.2 IS IN RESPECT OF REOPENING OF ASSESS MENT U/S 147 AND GROUND NO.3 IS IN RESPECT OF CALCULATION OF DEDUCTION U/S 80HHC ON SALE PROCEEDS OF DEPB LICENCE. THE LD.AR OF THE ASSESSEE HAS NOT PR ESSED THESE GROUNDS. THEREFORE THEY ARE DISMISSED AS SUCH. 4. GROUND NO.4 IS IN RESPECT OF CALCULATION OF DEDU CTION U/S 80HHC ON INTEREST INCOME ON THE DELAYED PAYMENT BY CUSTOMER AMOUNTING TO RS. 6 57 041 AND FD INTEREST AMOUNTING TO RS.16 400. THE ASSESS ING OFFICER DISALLOWED 90% OF THE INTEREST INCOME WHILE CALCULATING DEDUCTION U/S 80HHC OF THE ACT. THE CIT(A) FOLLOWING THE JUDGMENT OF THE APEX COURT IN THE CASE OF LIBERTY INDIA LTD VS CIT 317 ITR 218 (SC) CONFIRMED THE ACTION OF THE ASSESSING OFFICER. 5. THE CONTENTION OF THE ASSESSEE IS THAT INTEREST ON DELAYED PAYMENT OF SALE CONSIDERATION BY CUSTOMER HAS IMMEDIATE NEXUS WITH THE BUSINESS PROFIT AND IS IN FACT PART AND PARCEL OF THE SALE CONSIDERATION. TH E LD.AR SUBMITTED THAT THE ASSESSING OFFICER HAS ASSESSED THE INTEREST INCOME AS PART OF THE BUSINESS INCOME; HOWEVER HE DID NOT TREAT THE INTEREST INCO ME AS INCOME FROM BUSINESS WHILE COMPUTING DEDUCTION U/S 80HHC OF THE ACT. IT IS ALSO THE SUBMISSION OF THE LD.AR THAT THE INTEREST INCOME IS RS.6 73 441 AGAIN ST WHICH THE ASSESSEE PAID INTEREST ON BORROWED FUNDS AMOUNTING TO RS.6 72 040 . THEREFORE IT SHOULD BE SET OFF AND ONLY THE NET INCOME IS REQUIRED TO BE C ONSIDERED FOR THE PURPOSE OF CALCULATION OF DEDUCTION U/S 80HHC. 6. THE LD.DR ON THE OTHER HAND RELIED UPON THE OR DER OF CIT(A). ITA NO.04 & 06/RJT/2011 3 7. WE HAVE HEARD THE LD.REPRESENTATIVES OF THE PART IES RECORD PERUSED. AS REGARD THE SUBMISSION OF THE LD.AR THAT THE INTERES T INCOME SHOULD BE SET OFF AGAINST INTEREST PAYMENT IS NOT ACCEPTABLE AS THE A SSESSEE HAS FAILED TO ESTABLISH THE NEXUS IN BETWEEN THE INTEREST INCOME AND THE INTEREST EXPENDITURE. EVEN OTHERWISE NORMALLY INTEREST INCOME IS ASSESSAB LE UNDER THE HEAD INCOME FROM OTHER SOURCES AND THE ASSESSEE IS ENTITLED FO R ONLY THAT PART OF INTEREST EXPENDITURE WHICH IS INCURRED TO EARN INTEREST INCO ME AS PROVIDED IN SECTION 57 OF THE ACT. IF INCOME IS ASSESSABLE AS BUSINESS INCOM E THEN INTEREST PAID ON BORROWED FUND IS ALLOWABLE U/S 36(1)(III). THEREFO RE THE CONTENTION THAT SET OFF OF INTEREST INCOME IS NOT ACCEPTABLE. 7.1 HOWEVER WITH REGARD TO EXCLUSION OF 90% THE INT EREST INCOME ON THE DELAYED PAYMENTS BY THE CUSTOMERS WHILE WORKING OUT DEDUCTION U/S 80HHC WE HAVE TO SEE WHETHER SUCH INTEREST IS PART OF SALE C ONSIDERATION OR IT IS AN INDEPENDENT SOURCE OF INCOME. THE MEANING OF SALE DESCRIBED IN THE OXFORD DICTIONARY IS AN ACT OF SELLING OR MAKING OFFER TO ANOTHER FOR A PRICE. IT IS ALSO DEFINED AS AN EXCHANGE OF THING FOR A PRICE. THE ORDINARY CONCEPT OF SALE OF MOVABLE PROPERTY IS THAT SOMETHING IS HANDED OVER F OR A PRICE AS A RESULT OF NEGOTIATION AND AGREEMENT. IN SALE THERE IS AN AGR EEMENT BETWEEN THE PARTIES WHERE ONE PERSON KNOWN AS THE SELLER HANDS OVER A THINGS OR PROPERTY TO THE OTHER PERSON KNOWN AS THE BUYER FOR CONSIDERATION U SUALLY IN TERMS OF MONEY WHICH HAS BEEN AGREED BETWEEN THE PARTIES. THE SAL E CONSIDERATION INCLUDES SOME RIGHT INTEREST PROFIT OR BENEFIT. IT IS ACC RUING TO ONE PARTY FOR SOME FORBEARANCE DETRIMENT LOSS OR RESPONSIBILITY GIVE N SUFFER OR UNDERTAKEN BY THE ITA NO.04 & 06/RJT/2011 4 OTHER. ON CONSIDERATION OF THE MEANING SALE AND SALE CONSIDERATION OFTEN INTEREST ON LATE PAYMENT OF SALE CONSIDERATION IS P ART AND PARCEL OF SALE CONSIDERATION AS ITS GENERATION IS OUT OF THE SAME AGREEMENT FOR SALE. THUS THERE IS A DIRECT NEXUS WITH THE BUSINESS OF THE AS SESSEE. FOR THE PURPOSE OF CALCULATION OF DEDUCTION U/S 80HHC OF SUCH INTEREST WE MAY QUOTE THE EXPLANATION (BAA) TO SECTION 80HHC WHICH READ AS UN DER: (BAA) PROFITS OF THE BUSINESS MEANS THE PROFITS OF THE BUSINESS AS COMPUTED UNDER THE HEAD PROFITS AND GAINS OF BUSIN ESS OR PROFESSION AS REDUCED BY (1) NINETY PER CENT OF ANY SUM REFERRED TO IN CLAUS ES (IIIA) (IIIB) (IIIC) (IIID) AND (IIIE) OF SECTION 28 OR OF ANY R ECEIPTS BY WAY OF BROKERAGE COMMISSION INTEREST RENT CHARGES OR A NY OTHER RECEIPT OF A SIMILAR NATURE INCLUDED IN SUCH PROFIT S; AND (2) THE PROFITS OF ANY BRANCHY OFFICE WAREHOUSE O R ANY OTHER ESTABLISHMENT OF THE ASSESSEE SITUATE OUTSIDE INDIA . 7.2 THE ABOVE CLAUSE (BAA) WAS INTRODUCED BY AMENDM ENT TO SECTION 80 HHC FOR AND FROM ASSESSMENT YEAR 1992-93. IT DEFINES TH E EXPRESSION PROFITS OF BUSINESS FOR THE PURPOSES OF SECTION 80 HHC TO MEAN PROFITS OF BUSINESS AS COMPUTED UNDER S. 28 OF THE ACT AS REDUCED BY 90 P ERCENT OF ANY SUM REFERRED TO IN CLAUSE (IIIA) (IIIB) AND (IIIC) OF SECTION 28 OR RECEIPTS BY WAY OF BROKERAGE COMMISSION INTEREST RENT CHARGES OR ANY OTHER REC EIPT OF SIMILAR NATURE INCLUDED IN SUCH PROFITS. WE ARE NOT CONCERNED WITH THE REMA INING REQUISITE OF THAT EXPLANATION. THE NARROW POINT WHICH ARISES FOR DETE RMINATION IN THIS CASE IS WHETHER INTEREST ON SALE CONSIDERATION CAME WITHIN THE WORD INTEREST UNDER THE ABOVE EXPLANATION. ACCORDING TO THE DEPARTMENT INT EREST RECEIPT IS PROVIDED IN EXPLANATION (BAA) TO SECTION 80HHC BROKERAGE COMM ISSION INTEREST RENT ITA NO.04 & 06/RJT/2011 5 LABOUR CHARGES THEREFORE INTEREST IS REQUIRED TO BE REDUCED FROM BUSINESS PROFITS AS CONTEMPLATED BY THE ABOVE EXPLANATION. 7.3 THE EXPORT PROFITS WERE REQUIRED TO BE COMPUTED IN THE RATIO OF EXPORT TURNOVER TO TOTAL TURNOVER AS CONTEMPLATED BY THE F OLLOWING FORMULA: PROFIT OF BUSINESS _ X EXPORT TURNOVER * TOTAL TURNOVER 7.4 EXPLANATION (BAA) WAS INTRODUCED INTO THE ACT B Y FINANCE (NO.2) ACT 1991 WITH EFFECT FROM 1 ST APRIL 1992. UNDER THE CIRCULAR OF CBDT BEARING NO . 621 DT. 19 TH DEC. 1991 IT HAS BEEN STATED THAT THE FORMULA GA VE DISTORTED FIGURE OF EXPORT PROFITS WHEN RECEIPTS LIKE INTEREST COMM ISSION ETC. WHICH DO NOT HAVE ELEMENT OF TURNOVER ARE INCLUDED BY THE ASSESSEE IN P&L A/C. THEREFORE EXPLN. (BAA) CAME TO BE INTRODUCED. UNDER THAT EXPLANATION PROFITS OF BUSINESS FOR THE PURPOSE OF SECTION 80 HHC DOES NOT INCLUDE RECEIPT S WHICH DO NOT HAVE ELEMENT OF TURNOVER LIKE RENT COMMISSION INTEREST ETC. H OWEVER AS SOME EXPENDITURE MIGHT BE INCURRED IN EARNING SUCH INCOMES AND AD HO C 10 PERCENT DEDUCTION FROM SUCH INCOMES IS PROVIDED TO ACCOUNT FOR THOSE EXPEN SES. THE DEPARTMENT CANNOT INVOKE EXPLANATION (BAA) IN EVERY MATTER INVOLVING RECEIPTS BY WAY OF BROKERAGE COMMISSION INTEREST RENT LABOUR CHARGES ETC. TH ESE ITEMS OF INCOME HAVE GOT TO BE SEEN IN THE CONTEXT OF THE BUSINESS ACTIVITY OF THE ASSESSEE. TO GIVE AN EXAMPLE IN THE CASE OF MANUFACTURING COMPANY WHIC H UNDERTAKES EXPORTS RECEIPT OF INTEREST OR COMMISSION MAY NOT BE OPERAT IONAL INCOME BECAUSE THEY DO NOT HAVE THE ELEMENT OF TURNOVER AND CONSEQUENTLY E XPLN. (BAA) WILL APPLY. HOWEVER THAT WILL NOT BE THE CASE IF THE ASSESSEE IS CARRYING ON THE BUSINESS OF ITA NO.04 & 06/RJT/2011 6 FINANCING BECAUSE IN THE CASE OF FINANCING THE IN TEREST INCOME WHICH ACCRUES TO THE ASSESSEE WILL HAVE THE ELEMENT OF TURNOVER AND IN SUCH A CASE RECEIPTS LIKE INTEREST WILL NOT ATTRACT EXPLN. (BAA). THE POINT IS THAT IN EVERY MATTER THE AO WILL HAVE TO ASCERTAIN WHETHER RECEIPT OF INTEREST COMM ISSION LABOUR CHARGES ETC. WERE A PART OF OPERATIONAL INCOME. FOR THIS PURPOSE ONE CANNOT LAY DOWN ANY STANDARD TEST FOR DECIDING WHAT WOULD CONSTITUTE OP ERATIONAL INCOME. IT HAVE TO ASCERTAIN AS TO WHAT IS THE DOMINANT BUSINESS OF TH E COMPANY AND WHETHER RECEIPTS LIKE INTEREST COMMISSION ETC. ACCRUES AS A PART OF THE MAIN BUSINESS ACTIVITY OR WHETHER THEY ACCRUE OUT OF INCIDENTAL B USINESS. THE TEST TO BE APPLIED IN ALL SUCH MATTERS IS WHETHER INTEREST SERVICE C HARGES COMMISSION ACCRUES OUT OF THE MAIN BUSINESS ACTIVITY OF THE COMPANY AND WH ETHER THEY WERE OPERATIONAL INCOME THE DEPARTMENT JUST LOOKS AT THE NOMENCLATU RE OF THE RECEIPT AND IF IT FINDS THAT THE NOMENCLATURE IS RENT INTEREST COMM ISSION THEN WITHOUT ANY FURTHER INQUIRY INTO THE NATURE OF BUSINESS THE DEPARTMENT INVOKES EXPLN. (BAA) WHICH IS NOT THE PURPOSE AND THE OBJECT OF THAT EXPLANATION. THE EXPLANATION (BAA) ALSO BASED ON ACCOUNTING AND COMMERCIAL PRINCIPLE THAT B USINESS PROFIT ALWAYS COME THROUGH BUSINESS ACTIVITIES WHICH IS CALLED TURNOVE R THAT IS THE REASON THE FORMULA STIPULATED FOR CALCULATION OF DEDUCTION BASED ON BU SINESS PROFIT AND TURNOVER. AN INCOME COME THROUGH TURNOVER IS ALWAYS A BUSINESS P ROFIT. BUT THERE ARE SOME INDEPENDENT ITEMS OF INCOME LIKE INTEREST OR COMMIS SION WHICH ARE NEVER COME THROUGH TURNOVER UNLESS ASSESSEE HAS BUSINESS OF SU CH NATURE. THEREFORE FACTS OF EACH CASE TO SEE FOR CALCULATION OF DEDUCTION UN DER SECTION 80 HHC AND ITS EXPLANATION (BAA). ITA NO.04 & 06/RJT/2011 7 7.5 AT THIS STAGE WE WOULD LIKE TO REFER TO JUDGMEN T OF HONBLE GUJARAT HIGH CURT IN THE CASE OF NIRMA INDUSTRIES LTD V. DEPUTY COMMISSIONER OF INCOME TAX (2006) 283 ITR 402 (GUJ). THAT WAS ALSO A CASE WHE RE INTEREST WAS RECEIVED BY THE ASSESSEE FROM THE DEBTORS FOR LATE PAYMENT OF T HE SALE PROCEEDS AND THE QUESTION WAS AS TO WHETHER THIS INTEREST CAN BE TRE ATED AS THE INCOME DERIVED FROM THE BUSINESS FOR THE PURPOSE OF SECTION 80-I O F THE ACT. ANSWERING THE QUESTION IN FAVOUR OF THE ASSESSEE THE HONBLE GUJ ARAT HIGH COURT RELIED UPON THE JUDGMENT OF THE APEX COURT IN THE CASE OF COMMI SSIONER OF INCOME TAX ORISSA V. COVINDA CHOUDHURY & SONS GOSANINUAGAON ORISSA (1993) 203 ITR 881 IN WHICH CASE THE SUPREME COURT HAD HELD THAT I NTEREST WAS OF THE SAME NATURE AS OTHER TRADING RECEIPTS IN THE FOLLOWING M ANNER:- THE ASSESSEE IS A CONTRACTOR. HIS BUSINESS IS TO ENTER INTO CONTRACTS. IN THE COURSE OF THE EXECUTION OF THESE CONTRACTS HE HAS ALSO TO FACE DISPUTES WITH THE STATE GOVERNMENT AND H HAS ALSO TO RECKON WITH DELAYS IN PAYMENT OF AMOUNTS THAT ARE D UE TO HIM. IF THE AMOUNTS ARE NOT PAID AT THE PROPER TIME AND INT EREST IS AWARDED OR PAID FOR SUCH DELAY SUCH INTEREST IS ONLY AN AC CRETION TO THE ASSESSEES RECEIPTS FROM THE CONTRACTS. IT IS OBVI OUSLY ATTRIBUTABLE AND INCIDENTAL TO THE BUSINESS CARRIED ON BY HIM. IT WOULD NOT BE CORRECT AS THE TRIBUNAL HAS HELD TO SAY THAT THIS INTEREST IS TOTALLY DE HORS THE CONTRACT BUSINESS CARRIED ON BY THE ASS ESSEE. IT IS WELL SETTLED THAT INTEREST CAN BE ASSESSED UNDER THE HEA D INCOME FROM OTHER SOURCES ONLY IF IT CANNOT BE BROUGHT WITHIN ONE OR THE OTHER OF THE SPECIFIC HEADS OF CHARGE. WE FIND IT DIFFICULT TO COMPREHEND HOW ITA NO.04 & 06/RJT/2011 8 THE INTEREST RECEIPTS BY THE ASSESSEE CAN BE TREATE D AS RECEIPTS WHICH FLOW TO HIM DE HORS THE BUSINESS WHICH IS CAR RIED ON BY HIM. IN OUR VIEW THE INTEREST PAYABLE TO HIM CERTAINLY PARTAKES OF THE SAME CHARACTER AS THE RECEIPTS FOR THE PAYMENT OF W HICH HE WAS OTHERWISE ENTITLED UNDER THE CONTRACT AND WHICH PAY MENT HAS BEEN DELAYED AS A RESULT OF CERTAIN DISPUTES BETWEEN THE PARTIES. IT CANNOT BE SEPARATED FROM THE OTHER AMOUNTS GRANTED TO THE ASSESSEE UNDER THE AWARD AND TREATED AS INCOME FRO M OTHER SOURCES. THE HONBLE GUJARAT HIGH COURT APPRECIATED THE ISSU E FROM ANOTHER ANGLE FOR ARRIVING AT THE SAME CONCLUSION. IT OBSERVED THAT WHEN THE ASSESSEE ENTERS INTO A CONTRACT FOR SALE OF ITS PRODUCTS IT COULD EITHER STIPULATE (A) THAT INTEREST AT THE SPECIFIED FATE WOULD BE CHARGED ON THE UNPAID SALE PRICE AND ADDED TO THE OUTSTANDING TILL THE POINT OF TIME OF REALIZATION; (B) THAT IN CASE OF DELAY THE PAYMENT FOR SALE OF PRODUCTS WORTH RS.100/- TO CARR Y THE SALE PRICE OF RS.102/- FOR FIRST MONTHS DELAY RS.104/- FOR SECOND MONTHS DE LAY RS.106/- FOR THIRD MONTHS DELAY AND SO ON. IF THE CONTENTION OF REVENUE IS A CCEPTED MERELY BECAUSE THE ASSESSEE HAS DESCRIBED THE ADDITIONAL SALE PROCEEDS AS INTEREST IN CASE OF CONTRACT AS PER ILLUSTRATION (A) ABOVE. SUCH PAYM ENT WOULD NOT BE PROFITS DERIVED FROM INDUSTRIAL UNDERTAKING BUT IN CASE OF ILLUSTR ATION (B) ABOVE IF THE PAYMENT IS DESCRIBED AS SALE PRICE IT WOULD BE PROFITS DERIVED FROM THE INDUSTRIAL UNDERTAKING. THIS CAN NEVER BE BECAUSE IN SUM AND SUBSTANCE THE SE ARE ONLY TWO MODES OF REALIZING SALE CONSIDERATION THE OBJECT BEING TO R EALIZE SALE PROCEEDS AT THE EARLIER AND WITHOUT DELAY. PURCHASER PAYS HIGHER S ALE PRICE IF IT DELAYS PAYMENT OF SALE PROCEEDS. IN OTHER WORDS THIS IS A CONVER SE SITUATION TO OFFERING OF CASH DISCOUNT. THUS IN PRINCIPLE IN REALITY THE TRAN SACTION REMAINS THE SAME AND ITA NO.04 & 06/RJT/2011 9 THERE IS NO DISTINCTION AS TO THE SOURCE. IT IS IN CORRECT TO STATE THAT THE SOURCE FOR INTEREST IS THE OUTSTANDING SALE PROCEEDS. THUS AC CORDING TO THE HONBLE GUJARAT HIGH COURT WHEN INTEREST IS PAID ON DELAYED PAYMEN T IT CAN BE TREATED AS HIGHER SALE PRICE WHICH IS CONVERSE SITUATION TO OFFERING OF CASH DISCOUNT BECAUSE THE TRANSACTION REMAINS THE SAME AND THERE IS NO DISTIN CTION AS TO THE SOURCE. LOOKING FROM THIS ANGLE THE INTEREST BECOMES PART OF THE HIRE SALE PRICE AND IS CLEARLY DERIVED FROM THE SALES MADE AND IS NOT DIVO RCED THEREFROM. IT IS THUS THE DIRECT RESULT OF THE SALE OF GOODS AND THE INCOME D ERIVED FROM THE BUSINESS OF INDUSTRIAL UNDERTAKING. 7.6 IN THE LIGHT OF ABOVE DISCUSSION WE FIND THAT T HE JUDGMENT RELIED UPON BY THE CIT(A) IN THE CASE OF LIBERTY INDIA LTD (SUPRA) IS DISTINGUISHABLE ON FACTS AS IN THE CASE UNDER CONSIDERATION THE CLAIM OF THE ASSES SEE WAS FOR DEDUCTIONS U/S 80HHC & 80-I IN RESPECT OF INTEREST ON SALE CONSIDE RATION AND NOT IN RESPECT OF DEPB. AS PER ABOVE DISCUSSION THE NATURE OF INTERE ST ON SALE CONSIDERATION AND DEPB ARE DIFFERENT NATURE OF TRANSACTION. AS STATE D ABOVE THE INTEREST ON DELAYED PAYMENT IS PART AND PARCEL OF THE SALE PROC EEDS. THEREFORE WHILE CALCULATING DEDUCTION U/S 80HHC THE INTEREST RECEI VED BY THE ASSESSEE ON THE DELAYED REALIZATION OF THE SALE PROCEEDS IS TO BE I NCLUDED IN THE BUSINESS PROFIT. AS ALSO SINCE THE INTEREST RECEIVED ON DELAYED REA LISATION OF THE SALE PROCEEDS IS PART AND PARCEL OF THE SALE CONSIDERATION THE SAME IS ALSO TO BE INCLUDED IN THE TOTAL TURNOVER. ACCORDINGLY WE DIRECT THE ASSESS ING OFFICER TO INCLUDE THE INTEREST RECEIVED ON DELAYED REALIZATION OF THE SALE PROCEED S IN THE PROFITS OF THE BUSINESS AS WELL AS IN THE TOTAL TURNOVER WHILE WORKING OUT DEDUCTION U/S 80HHC OF THE ACT. ITA NO.04 & 06/RJT/2011 10 8. THE NEXT GROUND IS IN RESPECT OF DEDUCTION U/S 8 0HHC ON THE FOLLOWING ITEMS: SPECIAL DISCOUNT ON PURCHASE RS. 4 24 632 RATE DIFFERENCE RS. 6 857 SHORT SUPPLY OF MATERIAL RS. 697 KASAR INCOME RS. 2 721 TOTAL RS. 4 34 909 9. AFTER HEARING THE LEARNED REPRESENTATIVES OF THE PARTIES AND ON EXAMINATION OF THE NATURE OF ABOVE ITEMS SPECIAL D ISCOUNTS ON PURCHASES RATE DIFFERENCE SHORT SUPPLY OF MATERIAL AND KASAR INCO ME WE FIND THAT THEY ARE IN RESPECT OF PURCHASES. FROM ACCOUNTING POINT OF VIE W THERE ARE TWO METHODS OF ACCOUNTING OF THESE ITEMS. FIRST ONE IS THAT WHATE VER THE GROSS PURCHASES IS DEBITED AND ACCORDINGLY SHOWN IN THE PROFIT AND LOS S ACCOUNT. THE SPECIAL DISCOUNT RATE DIFFERENCE ETC. ON PURCHASES ARE SE PARATELY CREDITED IN THE RESPECTIVE ACCOUNT AND IS SHOWN AS INCOME IN THE PR OFIT AND LOSS ACCOUNT. THE OTHER WAY OF ACCOUNTING THESE ITEMS IS THAT THEY AR E TO CREDIT IN THE RESPECTIVE PURCHASES ACCOUNT AND ONLY THE NET AMOUNT IS SHOWN IN THE PROFIT AND LOSS ACCOUNT. THE NET RESULT OF BOTH THE METHOD OF ACCO UNTING SHOULD BE THAT THE PURCHASES SHOULD BE SHOWN AT THE PRICE ON WHICH THE ASSESSEE RECEIVED THE GOODS. IN THE CASE UNDER CONSIDERATION THE ASSESSE E HAS FOLLOWED THE FIRST METHOD OF ACCOUNTING WHICH IS ALSO PERMISSIBLE. HO WEVER WHILE CALCULATING PROFIT ITA NO.04 & 06/RJT/2011 11 FOR THE PURPOSE OF CALCULATION OF DEDUCTION U/S 80H HC THE NET EFFECT OF THE PURCHASES IS TO BE GIVEN FOR WHICH THIS DISCOUNT E TC. ARE TO REDUCED FROM THE COST OF PURCHASES. THE ULTIMATE RESULT WILL BE THAT THE PROFIT OF THE BUSINESS WILL BE INCREASED. WE ARE THEREFORE OF THE VIEW THAT IN EITHER WAY OF THE ABOVE METHOD OF ACCOUNTING THE ASSESSEE IS ENTITLED FOR DEDUCTI ON U/S 80HHC ON THESE ITEMS. WE THEREFORE SET ASIDE THE ORDERS OF REVENUE AUTH ORITIES ON THIS ISSUE AND DIRECT THE ASSESSING OFFICER TO CALCULATE THE DEDUCTION U/ S 80HHC BY TREATING THE ABOVE INCOME AS BUSINESS PROFIT OR REDUCE THE COST OF PUR CHASES. 10. THE NEXT GROUND OF APPEAL IS IN RESPECT OF DEDU CTION U/S 80I IN RESPECT OF DEPB. AS STATED ABOVE THE ASSESSEE HAS NOT PRESSE D THIS GROUND. THEREFORE THE SAME IS DISMISSED. 11. THE OTHER PART OF GROUND NO.5(II) IS IN RESPECT OF CALCULATION OF DEDUCTION U/S 80I IN RESPECT OF INTEREST INCOME. AS PER THE DETAILED DISCUSSION MADE ABOVE WITH REGARD TO ISSUE RELATING TO DEDUCTION U/S 80HH C WE FIND THAT OTHER THAN FD INTEREST INTEREST ON DELAYED PAYMENT OF SALE CONSIDERATION IS PART AND PARCEL OF SALES REALIZATION. IN RESPECT OF FD INTEREST AND C ALCULATION OF DEDUCTIONS U/S 80HHC & 80-I WE CONFIRM THE ORDER OF CIT(A). HOWEV ER THE INTEREST ON SALE CONSIDERATION IS DERIVED FROM INDUSTRIAL UNDERTAKIN G OF THE ASSESSEE AND IS THUS ENTITLED FOR DEDUCTION U/S 80I OF THE ACT ALSO. TH E ASSESSING OFFICER IS DIRECTED ACCORDINGLY. ITA NO.04 & 06/RJT/2011 12 12. IN RESPECT OF OTHER ITEMS OF KASAR AND DISCOUNT ETC. AS PER DISCUSSION AT PARAGRAPH 9 ABOVE WE ARE OF THE VIEW THAT THE ASSE SSEE IS ENTITLED FOR DEDUCTION U/S 80I ALSO. THE ASSESSING OFFICER IS DIRECTED AC CORDINGLY. ITA NO.06/RJT/2011 BY REVENUE 13. THE GROUNDS RAISED BY THE REVENUE IN ITS APPEAL ARE THAT THE CIT(A) ERRED IN GIVING DEDUCTION U/S 80HHC AND 80IB ON THE SAME INCOME IN SPITE OF SPECIFIC PROVISIONS OF SECTION 80IB(13) R.W.S. 80IB (9) OF THE ACT. 14. AFTER HEARING THE LD.REPRESENTATIVES OF THE PAR TIES WE FIND THAT THIS ISSUE IS COVERED BY THE JUDGMENT OF THE BOMBAY HIGH COURT IN THE CASE OF ASSOCIATED CAPSULES PVT LTD 273 CTR (BOM) 408 WHEREIN IT HAS B EEN HELD THAT SECTION 80IA(9) DOES NOT AFFECT THE COMPUTABILITY OF DEDUCT ION UNDER VARIOUS PROVISIONS UNDER HEAD C OF CHAPTER VIA BUT IT AFFECTS THE A LLOWABILITY OF DEDUCTIONS COMPUTED UNDER VARIOUS PROVISIONS UNDER HEAD C OF CHAPTER VIA SO THAT THE AGGREGATE DEDUCTION UNDER SECTION 80IA AND OTHER PR OVISIONS UNDER HEAD C OF CHAPTER VIA DO NOT EXCEED 100% OF THE PROFITS OF TH E BUSINESS OF THE ASSESSEE. IN THE LIGHT OF THIS THE ORDER OF CIT(A) IS CONFIR MED. 15. IN THE RESULT APPEAL OF THE ASSESSEE IS PARTLY ALLOWED AND THE APPEAL OF THE REVENUE IS DISMISSED. SD/- SD/- (N.R.S. GANESAN) (A.L. GEHLOT) JUDICIAL MEMBER ACCOUNTANT MEMBER RAJKOT DT : SEPTEMBER 2011 PK/- ORDER PRONOUNCED IN OPEN COURT ON 30-09-2011. SD/- SD/- JM AM ITA NO.04 & 06/RJT/2011 13 COPY TO: 1. ASSESSEE 2. REVENUE 3. THE CIT(A)-IV AHMEDABAD 4. THE CIT-III RAJKOT 5. THE DR I.T.A.T. RAJKOT (TRUE COPY) BY ORDER ASSTT.REGISTRAR ITAT RAJKOT