M/s. R. MUNJAL & CO., MUMBAI v. DCIT - 16(3), MUMBAI

ITA 6940/MUM/2006 | 2003-2004
Pronouncement Date: 16-02-2010 | Result: Allowed

Appeal Details

RSA Number 694019914 RSA 2006
Assessee PAN AAAFR8205Q
Bench Mumbai
Appeal Number ITA 6940/MUM/2006
Duration Of Justice 3 year(s) 1 month(s) 26 day(s)
Appellant M/s. R. MUNJAL & CO., MUMBAI
Respondent DCIT - 16(3), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 16-02-2010
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted K
Tribunal Order Date 16-02-2010
Date Of Final Hearing 23-12-2009
Next Hearing Date 23-12-2009
Assessment Year 2003-2004
Appeal Filed On 20-12-2006
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL 'K' BENCH MUMBAI BEFORE SMT. P. MADHAVI DEVI JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH ACCOUNTANT MEMBER ITA NO. 6932/MUM/2006 (ASSESSMENT YEAR: 2003-04) DCIT - 16(3) M/S. R. MUNJAL & CO. MATRU MANDIR TARDEO ROAD 201 PRASAD CHAMBERS MUMBAI 400007 VS. SWADESH MILL COMPOUND OPERA HOUSE MUMBAI 400004 PAN - AAAFR 8205 Q APPELLANT RESPONDENT ITA NO. 6940/MUM/2006 (ASSESSMENT YEAR: 2003-04) M/S. R. MUNJAL & CO. DCIT - 16(3) 201 PRASAD CHAMBERS MATRU MANDIR TARDEO ROAD SWADESH MILL COMPOUND VS. MUMBAI 400007 OPERA HOUSE MUMBAI 400004 PAN - AAAFR 8205 Q APPELLANT RESPONDENT APPELLANT BY: SHRI AJIT KUMAR SINHA RESPONDENT BY: NONE O R D E R PER B. RAMAKOTAIAH A.M. THESE CROSS APPEALS ARE BY THE ASSESSEE AND THE REV ENUE AGAINST THE ORDER OF THE CIT(A) XVII MUMBAI DATED 10.10.2006. 2. THE REVENUE IS CONTESTING TWO ISSUES AND THE ASSESS EE IS CONTESTING ONE ISSUE BOTH ON COMPUTATION OF DEDUCTION UNDER S ECTION 80HHC. GROUND NO. 1 IN REVENUE APPEAL IS WITH REFERENCE TO DIRECT ION OF THE CIT(A) TO INCLUDE FOREIGN EXCHANGE DIFFERENCE OF RS.2 70 640/ - PERTAINING TO EXPORTS OF EARLIER YEARS IN THE TURNOVER OF THIS YEAR. GROUND NO. 2 IN REVENUE APPEAL AND GROUND IN CROSS APPEAL BY THE ASSESSEE IS WITH REFERENCE OF INCLUSION OF INTEREST UNDER SECTION 80HHC ON FIXED DEPOSITS AND THE DIRECTIONS OF THE CIT(A) IN THIS REGARD. THESE ARE CONSIDERED TOGETHE R. ITA NO. 6932 & 6940/MUM/2006 M/S. R. MUNJAL & CO. 2 ISSUE OF FOREIGN EXCHANGE GAINS 3. WHILE COMPLETING THE ASSESSMENT UNDER SECTION 143(3 ) THE A.O. EXCLUDED THE EXCHANGE DIFFERENCE OF RS.2 70 640/- P ERTAINING TO EXCHANGE DIFFERENCE ON EXPORT OF EARLIER YEARS BUT REALISED DURING THE YEAR. AFTER CONSIDERING THE VARIOUS DECISIONS OF THE ITAT THE A .O. EXCLUDED THE AMOUNTS FROM CONSIDERATION HOLDING THAT THEY WOULD BE FALLI NG PART OF THE TURNOVER OF THE YEAR OF EXPORT. THE CIT(A) HOWEVER FOLLOWING THE DECISION OF THE ITAT E BENCH IN THE CASE OF ACIT VS. M/S. VINOD KUMAR & CO . IN ITA NO. 2922 2923 & 2924/MUM/2004 HELD THAT THE ASSESSEE IS ENTI TLED FOR INCLUSION OF FOREIGN EXCHANGE GAIN IN THE TURNOVER OF THE YEAR O F RECEIPT. ACCORDINGLY THE ASSESSEES CONTENTIONS WERE ACCEPTED. 4. IT WAS SUBMITTED THAT THIS ISSUE IS CRYSTALLISED BY THE DECISION OF THE SPECIAL BENCH IN THE CASE OF ACIT VS. PRAKASH L SHA H 306 ITR (AT)1 (MUM) (SB) WHEREIN IT WAS HELD THAT THE YEAR OF REALIZATI ON IS IMMATERIAL SO LONG AS THE AMOUNT WAS RECEIVED IN CONVERTIBLE FOREIGN EXCH ANGE WITHIN THE PERIOD OF SIX MONTHS FROM THE END OF THE PREVIOUS YEAR OR WIT HIN SUCH PERIOD AS THE COMPETENT AUTHORITY MAY ALLOW IN THE CASE AND THAT FOREIGN EXCHANGE GAIN WOULD BECOME PART OF EXPORT TURNOVER OF THE YEAR OF EXPORT BUT NOT THE YEAR OF RECEIPT OF SALE PROCEEDS. ACCORDINGLY THE CIT(A) S ORDER IS MODIFIED AND THE A.O. IS DIRECTED TO EXCLUDE THE DISPUTED AMOUNT OF FOREIGN EXCHANGE FLUCTUATION DIFFERENCE FROM THE INCOME OF THE CURRE NT YEAR AND INCLUDE IT IN THE INCOME OF THE PRECEDING YEAR IN WHICH EXPORTS W ERE MADE BY THE ASSESSEE AND ALLOW THE DEDUCTION ACCORDINGLY IN ACC ORDANCE WITH AND SUBJECT TO THE PROVISIONS OF THE ACT IN SUCH EARLIE R YEAR(S). HE MAY EXAMINE THE PROVISIONS OF SECTION 155(13) TO CONSIDER THE A LLOWANCE OF THE ABOVE AMOUNT IN THE EARLIER YEARS. WITH THESE DIRECTIONS THE GROUND IS CONSIDERED ALLOWED. ISSUE OF NETTING OF INTEREST 5. THE ASSESSEE HAD DEBITED INTEREST TO THE TUNE OF RS .6 34 421/- TO THE P & L ACCOUNT AFTER NETTING OF INTEREST RECEIVED OF RS.5 93 155/- FROM THE ITA NO. 6932 & 6940/MUM/2006 M/S. R. MUNJAL & CO. 3 BANK FIXED DEPOSITS. IT WAS SUBMITTED THAT THE ASSE SSEE HAD OBTAINED/ BORROWED LOAN FROM STATE BANK OF INDIA DIAMOND BRA NCH MUMBAI FOR THE PURPOSE OF BUSINESS IN THE FORM OF EXPORT PACKING C REDIT LIMIT OF ALMOST RS.2 CRORES AND THE SAID LIMIT WAS SECURED BY THE B ANK IN THE FORM OF TDRS LIENED TO THE BANK. IT WAS SUBMITTED THAT THE ASSES SEE HAS EARNED INTEREST ON SUCH DEPOSITS AMOUNTING TO RS.5 93 155/- AND REF LECTED IN THE CREDIT SIDE OF THE BANK DEPOSIT ACCOUNT AND ASSESSEE HAS PAID I NTEREST ON THE LOAN OBTAINED TO THE TUNE OF RS.12 27 577/- AND THEREFOR E CLAIMED NET INTEREST OF RS.6 34 421/-. THE A.O. HOWEVER RELYING ON VARIOU S CASE LAW CONSIDERED THAT INTEREST RECEIVED ON FIXED DEPOSIT IS TO BE TR EATED AS INCOME FROM OTHER SOURCES AND ACCORDINGLY EXCLUDED THE SAME. THE CIT( A) HOWEVER DIRECTED A.O. TO CONSIDER INTEREST INCOME AS BUSINESS INCOME FOLLOWING THE HON'BLE BOMBAY HIGH COURT JUDGEMENT IN THE CAST OF CIT VS. INDO SWISS JEWELS LTD. 284 ITR 389 AND FURTHER DIRECTED TO CONSIDER ONLY 9 0% OF THE GROSS INTEREST INCOME TO BE REDUCED AS PER EXPLANATION (BAA) TO SE CTION 80HHC. THE REVENUE IS AGGRIEVED ON THE DIRECTION IN TREATING T HE ABOVE AS BUSINESS INCOME AND THE ASSESSEE IS AGGRIEVED ON THE DIRECTI ON TO EXCLUDE 90% OF GROSS AMOUNT WITHOUT NETTING IT OFF. 6. AFTER CONSIDERING THE ARGUMENTS AND EXAMINING THE R ECORD WE ARE OF THE VIEW THAT THE DIRECTION OF THE CIT(A) IN CONSID ERING THE INTEREST INCOME RECEIVED ON FIXED DEPOSIT FOR THE PURPOSE OF EXPORT CREDIT LIMIT IS CORRECTLY HELD TO BE INCOME FROM BUSINESS. ACCORDINGLY THE R EVENUES GROUND IS DISMISSED. WITH REFERENCE TO THE ASSESSEES APPEAL THIS ISSUE IS ALSO DECIDED BY THE HON'BLE SPECIAL BENCH IN THE CASE OF LALSON S ENTERPRISES AS REPORTED IN 89 ITD 25 WHEREIN FOR THE PURPOSE OF CONSIDERATI ON OF INTEREST INCOME NETTING OF INTEREST IS TO BE CONSIDERED IF THERE I S NEXUS. IN THE PRESENT CASE THERE IS NEXUS WITH THE EARNING OF INTEREST TO THE PAYMENT OF INTEREST AS THE LOAN WAS OBTAINED FOR THE PURPOSE OF EXPORT AND OUT OF THE LIMITS SANCTIONED DEPOSIT WAS MADE. ACCORDINGLY WE MODIFY THE DIRECTI ON OF THE CIT(A) AND DIRECT THE A.O. TO CONSIDER NET OF INTEREST INCOME IF ANY ONLY TO BE CONSIDERED FOR EXCLUSION UNDER EXPLANATION (BAA) OF SECTION 80HHC. ACCORDINGLY THE ASSESSEES GROUND IS ALLOWED. ITA NO. 6932 & 6940/MUM/2006 M/S. R. MUNJAL & CO. 4 7. IN THE RESULT REVENUES APPEAL IS PARTLY ALLOWED A ND ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 16 TH FEBRUARY 2010. SD/- SD/- (P. MADHAVI DEVI) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI DATED: 16 TH FEBRUARY 2010 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) XVII MUMBAI 4. THE CIT XVI MUMBAI CITY 5. THE DR K BENCH ITAT MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT MUMBAI BENCHES MUMBAI N.P.