M/S. SHREE GANESH FORGINGS LTD, MUMBAI v. THE DCIT CIR 2(3), MUMBAI

ITA 5029/MUM/2007 | 2004-2005
Pronouncement Date: 29-07-2011 | Result: Partly Allowed

Appeal Details

RSA Number 502919914 RSA 2007
Assessee PAN AAACS7821E
Bench Mumbai
Appeal Number ITA 5029/MUM/2007
Duration Of Justice 4 year(s) 11 day(s)
Appellant M/S. SHREE GANESH FORGINGS LTD, MUMBAI
Respondent THE DCIT CIR 2(3), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 29-07-2011
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted K
Tribunal Order Date 29-07-2011
Date Of Final Hearing 04-07-2011
Next Hearing Date 04-07-2011
Assessment Year 2004-2005
Appeal Filed On 18-07-2007
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH K MUMBAI BEFORE SHRI J. SUDHAKAR REDDY(AM) AND SMT. ASHA VIJAYARAGHAVAN (JM) ITA NO. 5029/MUM/2007 ASSESSMENT YEAR-2004-05 SHREE GANESH FORGINGS LTD. 412 EMCA HOUSE SHAHID BHAGAT SINGH ROAD FORT MUMBAI-400 001 PAN-AAACS 7821E VS. THE DCIT CIRCLE 2(3) MUMBAI (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI RAHUL HAKANI RESPONDENT BY: SHRI P. NAIK O R D E R DATE OF HEARING : DATE OF PRONOUNCEMENT : 29 TH JULY 2011 PER ASHA VIJAYARAGHAVAN (JM) THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED A GAINST THE ORDER DATED 22.5.2007 PASSED BY THE LD. CIT(A)-XXXIII MU MBAI FOR THE ASSESSMENT YEAR 2004-05. 2. THE FACTS IN BRIEF ARE THAT THE ASSESSEE FILED I TS RETURN OF INCOME FOR THE A.Y. 2004-05 ON 15.10.2004 DECLARING A TOTAL IN COME OF RS. 1 58 07 470/-. IN THE ASSESSMENT ORDER WHILE COMP LETING THE ASSESSMENT U/S. 143(3) OF THE I.T. ACT THE AO HAS REJECTED THE ASSESSEES CLAIM OF DEDUCTION U/S. 80HHC AS THE PROFIT OF BUSI NESS ITSELF IS A LOSS. FURTHER THE AO HELD THAT THE INCOME FROM FIXED DEPO SITS OF RS. 12 44 024/- AS INCOME FROM OTHER SOURCES AGAINST TH E ASSESSEES CLAIM THAT IT IS THE INCOME FROM BUSINESS INCOME. ITA NO. 5029/M/07 2 3. THE LD. CIT(A) UPHELD THE DECISION OF THE AO THA T THE ASSESSEE IS NOT ENTITLED FOR DEDUCTION U/S. 80HHC OF THE I.T. A CT. 4. WITH RESPECT TO SECOND ISSUE WHETHER INTEREST IN COME RECEIVED FROM THE FIXED DEPOSITS IS ASSESSABLE UNDER THE HEAD INC OME FROM OTHER SOURCES OR NOT. THE LD. CIT(A) DISCUSSED THIS ISSU E AT PARA 4.1 TO 4.6 OF HIS ORDER AND DISMISSED THE ASSESSEES CLAIM. 5. AGGRIEVED ASSESSEE IS IN APPEAL BEFORE US AND R AISED THE FOLLOWING GROUNDS: 1. THE LD. CIT(A) HAS ERRED IN CONFIRMING THE DISA LLOWANCE OF APPELLANTS CLAIM U/S. 80HHC AT NIL AS AGAINST R S. 39 07 367/- CLAIMED BY THEM WITHOUT CONSIDERING AND PROPERTY IMPLEMENTING THE PROVISIONS OF TAXATION LA WS (AMENDMENTS) ACT 2005. 2. LD. CIT(A) HAS FURTHER ERRED IN CONFIRMING THE I NTEREST INCOME OF RS. 12 44 024/- ASSESSABLE AS INCOME FROM OTHER SOURCES AS AGAINST BUSINESS INCOME DECLARED B Y THE APPELLANT. 6. WITH RESPECT TO GROUND NO. 1 WE FIND THAT THE I SSUE IS COVERED BY THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL I N THE CASE OF TOPMAN EXPORTS (SUPRA) WHICH WAS IN FAVOUR OF THE ASSESSEE HAS SI NCE BEEN REVERSED BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF KALPATARU COLOURS & CHEMICALS REPORTED IN 233 CTR 313 WHICH READS AS FOLLOWS: AS REGARDS THE DEDUCTION UNDER SECTION 80HHC THE LEGISLATURE SUBSTITUTED EXPLANATION (BAA) IN SECTION 80HHC SO AS TO EXCLUDE 90 PER CENT. OF THE PROFITS RECEIVED ON TRANSFER OF DEP B FROM THE PROFITS OF BUSINESS FOR THE PURPOSES OF SECTION 80H HC AND INSERTED THE SECOND AND THIRD PROVISOS TO SECTION 80HHC(3). THE SECOND PROVISO PROVIDED THAT IN THE CASE OF AN ASSESSEE HA VING AN EXPORT ITA NO. 5029/M/07 3 TURNOVER NOT EXCEEDING RS. 10 CRORES THE PROFITS C OMPUTED UNDER SECTION 80HHC(3) SHALL BE INCREASED BY 90 PER CENT. OF THE SUM REFERRED TO IN SECTION 28(IIID). THE THIRD PROVISO PROVIDED THAT IN THE CASE OF AN ASSESSEE HAVING AN EXPORT TURNOVER EXCEE DING RS. 10 CRORES THE PROFITS COMPUTED UNDER SECTION 80HHC(3) SHALL BE INCREASED BY 90 PER CENT. OF THE SUM REFERRED TO IN SECTION 28(IIID) SUBJECT TO THE TWO CONDITIONS SET OUT THEREIN. WHAT CONSTITUTES PROFITS UNDER SECTION 28(IIID) IS THE AMOUNT RECEIV ED ON TRANSFER OF THE DEPB CREDIT AND NOT THE AMOUNT OF CREDIT WHICH T HE ASSESSEE WAS ENTITLED TO UNDER THE DEPB SCHEME. IN OTHER WORD S THE AMOUNT EQUIVALENT TO THE FACE VALUE OF DEPB AS WELL AS THE AMOUNT RECEIVED IN EXCESS OF THE DEPB WOULD CONSTITUTE PROF ITS OF BUSINESS UNDER SECTION 28(IIID) AND MERELY BECAUSE A PART OF SUCH PROFITS OF BUSINESS (FACE VALUE) WAS OFFERED TO TAX IN THE YEA R IN WHICH THE CREDIT ACCRUED TO THE ASSESSEE WOULD NOT BE A GROUN D TO HOLD THAT SUCH PRO-FIT WAS NOT COVERED UNDER SECTION 28(IIID) . WHERE THE FACE VALUE OF THE DEPB CREDIT IS OFFERED TO TAX AS BUSINE SS PROFITS UNDER SECTION 28(IIID) IN THE YEAR IN WHICH THE CREDIT AC CRUED TO THE ASSESSEE THEN ANY FURTHER PROFIT ARISING ON TRANSF ER OF THE DEPB CREDIT WOULD BE TAXED AS PROFITS OF BUSINESS UNDER SECTION 28(IIID) IN THE YEAR IN WHICH THE TRANSFER OF THE DEPB CREDIT TO OK PLACE. THERE IS ANOTHER PERSPECTIVE FROM WHICH THE ISSUE C AN BE LOOKED AT. THE DEPB CREDIT TO WHICH AN EXPORTER IS E NTITLED IS A FORM OF AN EXPORT INCENTIVE. NO PART OF THE CREDIT THAT IS AVAILABLE UNDER THE DEPB SCHEME CAN FALL FOR CLASSIFICATION UN DER CLAUSE (IIIB) OF SECTION 28 WHICH DEALS WITH CASH ASSISTANCE REC EIVED OR RECEIVABLE AGAINST ANY SCHEME OF THE GOVERNMENT OF INDIA. CLAUSE (IIIB) WAS ENACTED AT A TIME WHEN THE EXPORT INCENT IVES THAT WERE AVAILABLE WERE (I) IMPORT ENTITLEMENT LICENCES; (II ) CASH COMPENSATORY SUPPORT ; AND (III) DUTY DRAWBACK. THE DEPB SCHEME WAS NOT IN EXISTENCE WHEN CLAUSE (IIIB) CAME TO BE ENACTED INTO SECTION 28 BY THE FINANCE ACT OF 1990. THE DEPB SCHE ME WAS BROUGHT INTO EXISTENCE WITH EFFECT FROM APRIL 1 19 97. CLAUSE (IIID) OF SECTION 28 WAS INSERTED BY THE AMENDING ACT OF 2 005 WITH EFFECT FROM APRIL 1 1998. THE VALUE OF THE DEPB CREDIT CA NNOT BE REGARDED AS A CASH ASSISTANCE WHICH IS RECEIVED OR RECEIVABLE BY A PERSON AGAINST EXPORTS UNDER ANY SCHEME OF THE GOVE RNMENT OF INDIA. IT CANNOT BE INFERRED FROM THE SPEECH OF THE FINANC E MINISTER THAT THE INSERTION OF CLAUSE (IIID) IN SECTION 28 W AS MADE WITH A VIEW TO TAX ONLY THE AMOUNT WHICH HAS BEEN RECEIVED IN EXCESS OF THE FACE VALUE OF THE DEPB CREDIT. DEPB CREDIT WAS I NTRODUCED WITH ITA NO. 5029/M/07 4 EFFECT FORM APRIL 1 1997 WHICH WAS AFTER THE INSE RTION OF CLAUSE (IIIB) IN SECTION 28 ; SECTION 28(IIIB) REFERS TO C ASH ASSISTANCE RECEIVED BY THE ASSESSEE FROM THE GOVERNMENT PURSUA NT TO A SCHEME OF THE GOVERNMENT. THE AMOUNT RECEIVED ON TH E TRANSFER OF THE DEPB CREDIT IS NOT RECEIVED BY THE ASSESSEE FROM THE GOVERNMENT PURSUANT TO A SCHEME OF THE GOVERNMENT W ITHIN THE MEANING OF CLAUSE (IIIC) ; AND WHEN SECTION 28(IIID ) SPECIFICALLY DEALS WITH PROFITS REALISED ON THE TRANSFER OF THE DEPB CR EDIT IT WOULD BE IMPERMISSIBLE AS A MATTER OF FIRST PRINCIPLE TO BIF URCATE THE FACE VALUE OF THE DEPB AND THE AMOUNT RECEIVED IN EXCESS OF THE FACE VALUE OF THE DEPB. THE ENTIRETY OF THE SALE CONSIDER ATION WOULD FALL WITHIN THE PURVIEW OF SECTION 28(IIID). IN THESE CIRCUMSTANCES WE SET ASIDE THE ISSUE TO THE FILE OF THE AO TO DECIDE IN LIGHT OF THE DECISIONS OF THE BOMBAY HIGH COURT IN THE CASE OF KALPATARU COLOURS & CHEMICALS(SUPRA). 7. WITH RESPECT TO GROUND NO. 2 THE LD. COUNSEL FO R THE ASSESSEE SUBMITTED THAT THE INTEREST INCOME WAS RECEIVED FROM PARTIES ON ACCOUNT OF LATE PAYMENT AND ALSO ON FDRS ISSUED AGAINST LEGAL BUSINESS OBLI GATIONS. HE RELIED ON THE DECISION IN THE CASE OF ACIT VS CHOKSI HERAEUS (P) LTD. 41 DTR 44 WHEREIN IT HAS BEEN HELD THAT LATE PAYMENT RECEIVED FROM THE CUSTO MERS WILL PARTAKE THE CHARACTER OF SAME RECEIPTS ON WHICH IT IS DERIVED. 8. THE LD. COUNSEL FOR THE ASSESSEE ALSO RELIED IN THE CASE OF HERO CYCLES LTD. VS ACIT 84 TTJ 485 (CHAND.) WHEREIN IT HAS B EEN HELD THAT INTEREST FROM CUSTOMERS ON LATE PAYMENT AND IPRS ARE PROFITS OF B USINESS FOR THE PURPOSE OF SEC. 80HHC. 9. THE LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED TH AT NEITHER BEFORE THE AO NOR BEFORE THE LD. CIT(A) THE ASSESSEE CLAIMED T HAT IT WAS INTEREST RECEIVED FROM CUSTOMERS FOR BELATED PAYMENT AND NO EVIDENCE WAS FILED WITH REFERENCE TO THE SAME. WE FIND THAT THE ENTIRE EXERCISE IS ACAD EMIC SINCE IN VIEW OF THE ITA NO. 5029/M/07 5 DECISION OF THE EARLIER GROUND 90% DEPB REALIZATION OF RS. 2 50 80 339/- HAS TO BE REMOVED FROM PROFITS. AS A RESULT OF THIS THER E WILL BE A NEGATIVE PROFIT U/S. 80HHC(3). HENCE ASSESSEE WILL NOT BE ENTITLED TO A NY RELIEF UNDER SECTION 80HHC WHETHER INTEREST INCOME IS CONSIDERED AS BUSINESS I NCOME OR OTHER SOURCES. IN VIEW OF THIS THE GROUND RAISED BY THE ASSESSEE IS DISMISSED. 10. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED ON THIS 29 TH DAY OF JULY 2011 SD/- SD/- (J. SUDHAKAR REDDY) (ASHA VIJA YARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEM BER MUMBAI DATED 29 TH JULY 2011 RJ COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR K BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR I.T.A.T MUMBAI ITA NO. 5029/M/07 6 DATE INITIALS 1. DRAFT DICTATED ON: 1 5 .7. 2011 SR. PS/PS 2. DRAFT PLACED BEFORE AUTHOR: 20.07.2011 SR. PS/PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER: JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER: JM/AM 5. APPROVED DRAFT COMES TO THE SR. PS/PS: SR. PS/PS 6. ORDER PRONOUNCED ON: SR. PS/PS 7. FILE SENT TO THE BENCH CLERK: 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK: SR. PS/PS 9. DATE ON WHICH FILE GOES TO AR 10. DATE OF DISPATCH OF ORDER: