The DCIT, Circle-4,, Ahmedabad v. Mamta Machinery Pvt.Ltd.,, Ahmedabad

ITA 824/AHD/2008 | 2003-2004
Pronouncement Date: 16-07-2010 | Result: Dismissed

Appeal Details

RSA Number 82420514 RSA 2008
Assessee PAN AABCM8241P
Bench Ahmedabad
Appeal Number ITA 824/AHD/2008
Duration Of Justice 2 year(s) 4 month(s) 11 day(s)
Appellant The DCIT, Circle-4,, Ahmedabad
Respondent Mamta Machinery Pvt.Ltd.,, Ahmedabad
Appeal Type Income Tax Appeal
Pronouncement Date 16-07-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted C
Tribunal Order Date 16-07-2010
Date Of Final Hearing 07-07-2010
Next Hearing Date 07-07-2010
Assessment Year 2003-2004
Appeal Filed On 05-03-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'C' [BEFORE SHRI BHAVNESH SAINI JM & SHRI A N PAHUJA AM ] ITA NO.285/AHD/2008 (ASSESSMENT YEAR:-2003-04) MAMTA MACHINERY PVT. LTD. 5/1/1-A PHASE-I GIDC VATVA AHMEDABAD [PAN: AABCM 8241 P] V/S DEPUTY COMMISSIONER OF INCOME-TAX CIRCLE-4 AHMEDABAD [APPELLANT] [RESPONDENT] ITA NO.824/AHD/2008 (ASSESSMENT YEAR:-2003-04) DEPUTY COMMISSIONER OF INCOME-TAX CIRCLE-4 AHMEDABAD V/S MAMTA MACHINERY PVT. LTD. 5/1/1-A PHASE-I GIDC VATVA AHMEDABAD [APPELLANT] [RESPONDENT] ASSESSEE BY :- SHRI M J SHAH AR REVENUE BY:- SHRI K M MAHESH DR O R D E R A N PAHUJA: THESE CROSS APPEALS BY THE REVENUE AND THE ASSESSE E AGAINST AN ORDER DATED 20-12-2007 OF THE LD. CIT(A PPEALS)-VIII AHMEDABAD RAISE THE FOLLOWING GROUNDS:- ITA NO.285/AHD/2008[ASSESSEE] 1 YOUR APPELLANT BEING AGGRIEVED BY THE ORDER PASSED BY LEARNED CIT(A)-VIII AHMEDABAD DATED 20-12-2007 PRESENTS T HIS APPEAL ON FOLLOWING GROUNDS. 2 THE LEARNED CIT(A)-VIII AHMEDABAD HAS ERRED IN C ONFIRMING THE PENALTY LEVIED ON DEPRECIATION OF RS.127107/- ON FA CTORY BUILDING THOUGH EXPLAINED. THE PENALTY LEVIED BE DELETED. 3 THE LEARNED CIT(A)-VIII AHMEDABAD HAS ERRED IN C ONFIRMING PENALTY LEVIED U/S 271(1)(C) ON EXCLUSION OF INTERE ST INCOME OF RS.352062/- AND COMMISSION INCOME OF RS.1963490/- F ROM BUSINESS PROFITS FROM COMPUTATION OF DEDUCTION U/S 80HHC THOUGH EXPLAINED. THE PENALTY LEVIED BE DELETED. ITA NOS.285&824/AHD/2008 MAMTA MACHINERY PVT. LTD . 2 4 THE APPELLANT CRAVES LEAVE TO ADD AMEND ALTER EDIT DELETE MODIFY OR CHANGE ALL OR ANY OF THE GROUNDS OF APPEAL AT TH E TIME OF OR BEFORE HEARING OF THIS APPEAL. ITA NO.824/AHD/2008[REVENUE] 1 THE LD. CIT(A) ERRED IN LAW AND ON THE FACTS OF THE CASE IN DELETING THE PENALTY LEVIED U/S 271(1)(C) CORRESPONDING TO D ISALLOWANCE U/S 80HHC ON ACCOUNT OF (A) INCLUSION OF EXCISE DUTY AN D SALES-TAX IN THE TOTAL TURNOVER (B) EXCLUSION OF 90% OF RECEIPTS AMOUNTING TO RS.11 44 445/- BEING RATE DIFFERENCE IN FOREIGN EX CHANGE FROM THE PROFITS OF THE BUSINESS AND (C) EXCLUSION OF OTHER OPERATING INCOME OF RS.1 21 93 772/- (COMPRISING OF PACKING INCOME O F RS.7 34 405/- SERVICE CHARGES OF RS.1 12 05 016/- AND ERECTION AN D INSTALLATION EXPENSES OF RS.2 54 351/-) FROM THE PROFITS OF THE BUSINESS. 2 THE LD. CIT(A) ERRED IN LAW AND ON THE FACTS OF T HE CASE IN DELETING THE PENALTY LEVIED U/S 271(1)(C) CORRESPONDING TO D ISALLOWANCE OF SALES PROMOTION EXPENSES OF RS.61 977/-. 3 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE AO. 4 IT IS THEREFORE PRAYED THAT THE ORDER OF THE LD. CIT(A) MAY BE CANCELLED AND THAT OF THE AO MAY BE RESTORED TO THE ABOVE EFFECT . 2 FACTS IN BRIEF AS PER RELEVANT ORDERS ARE THAT RETURN DECLARING INCOME OF RS.55 99 610/- FILED ON 29-11 -2003 BY THE ASSESSEE MANUFACTURING PLASTIC PROCESSING MACHINER Y AFTER BEING PROCESSED ON 7.1.2004 U/S.143(1) OF THE INCOME-TAX ACT 1961 [HEREINAFTER REFERRED TO AS THE ACT] WAS SELECT ED FOR SCRUTINY WITH THE ISSUE OF NOTICE U/S 143(2) OF THE ACT ON 25-11- 2004. SUBSEQUENTLY THE ASSESSMENT WAS COMPLETED U/S. 143 (3) OF THE ACT ON 28-11-2005 DETERMINING INCOME OF RS.74 75 780/- . INTER ALIA FOLLOWING DISALLOWANCES WERE MADE: (I) CLAIM U/S.80HHC RS.16 38 529/- (II) DEPRECIATION ON FACTORY BUILDING RS. 1 27 107/- (III) SALES PROMOTION EXPENSES RS. 61 .977/- 2.1 WHILE COMPUTING DEDUCTION U/S 80HHC OF THE A CT THE AO INCLUDED EXCISE DUTY(RS.91 18 240/-) AND SALES TAX( RS.31 26 235/-) ITA NOS.285&824/AHD/2008 MAMTA MACHINERY PVT. LTD . 3 IN THE TOTAL TURNOVER AND EXCLUDED 90% OF THE INTER EST INCOME(RS.3 56 768/-) COMMISSION(RS.19 63 490/-) AN D FOREIGN EXCHANGE RATE DIFFERENCE(RS.11 44 455/-) FROM THE P ROFITS OF THE BUSINESS BESIDES HOLDING THAT RECEIPTS ON ACCOUNT O F PACKING INCOME(RS.7 34 405/-) SERVICE CHARGES(RS.1 12 05 01 6/-) AND INSTALLATION/COMMISSIONING CHARGES(RS.2 54 351/-) W ERE NOT DERIVED FROM THE BUSINESS OF EXPORT OF GOODS BY THE ASSESSE E. SIMULTANEOUSLY PENALTY PROCEEDINGS U/S. 271(1)(C) OF THE ACT WERE ALSO INITIATED FOR FURNISHING INACCURATE PARTICULAR S OF INCOME. ON APPEAL THE LD. CIT(A) UPHELD THE AFORESAID DISALLO WANCES VIDE HIS DATED 24-02-2006 WHILE DIRECTING THE AO TO INCLUD E THE AMOUNT ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION IN THE PROF ITS OF THE BUSINESS WHILE DETERMINING DEDUCTION U/S 80HHC OF THE ACT. A FTER RECEIPT OF THE APPELLATE ORDER IN RESPONSE TO A SHOWCAUSE NOT ICE DATED 2.3.2007 BEFORE LEVY OF PENALTY THE ASSESSEE SUBMI TTED THEIR REPLY VIDE LETTER DATED 13.3.2007. AFTER CONSIDERING THE REPLY OF THE ASSESSEE THE AO WHILE RELYING ON DECISIONS IN THE CASE OF BANARAS TEXTORIUM VS CIT (1988) 169 ITR 782(ALL.) AND ZEEKO O SHOE FACTORY VS CIT (1981) 127 ITR 837(ALL.) MOTOR GENERAL FINANCE LTD VS. CIT 254 ITR 449(DEL.). AND JAMNADAS & CO VS. CIT (1794) 210 ITR 218 (GUJ) AND INVOKING EXPLANATION 1 TO SEC. 271(1)(C) OF THE ACT CONCLUDED THAT THE A SSESSEE IS LIABLE TO PENALTY FOR FURNISHING INACCURATE PARTICULARS OF INCOME OF RS. 18 27 613/- ON ACCOUNT OF AFORESAID DISALLOWANCES. ACCORDINGLY A PENALTY OF RS.6 71 647/- WAS IMPOSED @ 100% OF THE TAX SOUGHT TO BE EVADED ON THE INCOME O F RS.18 27 613/-. 3. ON APPEAL THE LEARNED CIT(A) WHILE RELYI NG UPON DECISION IN THE CASE OF M. SAJJANRAJ NAHAR V. CIT 283 ITR 230( MAD.) REJECTED THE CONTENTIONS ON BEHALF OF THE ASSESSEE REGARDING RE CORDING OF SATISFACTION ON THE GROUND THAT THE AO HAD SPECIFICALLY MENTIONED IN TH E ASSESSMENT ORDER THAT PENALTY PROCEEDINGS HAD BEEN INITIATED FOR FURNISHI NG INACCURATE PARTICULARS OF INCOME FOR THIS ASSESSMENT YEAR. AS REGARDS CLAIM F OR DEPRECIATION ON BUILDING THE LD. CIT(A) UPHELD THE LEVY OF PENALTY IN THE L IGHT OF ORDER OF HIS PREDECESSOR ITA NOS.285&824/AHD/2008 MAMTA MACHINERY PVT. LTD . 4 FOR THE PRECEDING ASSESSMENT YEAR. REGARDING LEVY OF PENALTY IN RELATION TO EXCLUSION OF 90% OF THE INTEREST & COMMISSION RECEI PTS FROM THE PROFITS OF THE BUSINESS WHILE COMPUTING DEDUCTION U/S 80HHC OF TH E ACT THE LD. CIT(A) SUSTAINED THE PENALTY ON THE GROUND THAT THE ASSES SEE WAS WELL AWARE THAT EVEN IN THE EARLIER YEARS 90% OF SUCH AMOUNTS WERE EXCLU DED FROM THE PROFITS OF THE BUSINESS AND JUDICIAL DECISIONS WERE AGAINST THE ASSESSEE. SINCE THE LD. CIT(A) IN QUANTUM APPEAL HAD DIRECTED TO INCLUDE AMOUNT O F FOREIGN EXCHANGE RATE DIFFERENCE IN THE PROFITS OF THE BUSINESS WHILE THE ITAT IN THE ASSESSEE S OWN CASE FOR THE AY 2002-03 ALLOWED THE RELIEF IN RESP ECT OF PACKING INCOME SERVICE CHARGES AS ALSO INSTALLATION AND COMMISSIONING RECE IPTS AND INCLUSION OF EXCISE DUTY AND SALES TAX IN THE TOTAL TURNOVER WHILE COMP UTING DEDUCTION U/S 80HHC OF THE ACT IN THEIR ORDER DATED 31.1.2006 IN QUANTUM APPEAL THE LD. CIT(A) CANCELLED THE PENALTY IN RELATION TO THESE AMOUNTS BESIDES CANCELLING THE PENALTY ON ACCOUNT OF DISALLOWANCE OF SALES PROMOTION EXPEN SES. THE RELEVANT FINDINGS OF THE LD. CIT(A) ARE AS UNDER: 3.2.2 I HAVE GONE THROUGH THE PENALTY ORDER AS WEL L AS CAREFULLY CONSIDERED THE SUBMISSIONS AND ARGUMENTS OF THE LEA RNED COUNSEL. AS REGARDS THE EXCLUSION OF INTEREST AND COMMISSION IN COME FROM BUSINESS PROFITS FOR COMPUTATION OF DEDUCTION U/S.80 HHC I FIND THAT EVEN IN THE EARLIER YEARS THE SAME WAS NOT ALLOWED IN FAVOUR O F THE APPELLANT AND THE JUDICIAL DECISIONS ARE AGAINST THE APPELLANT. THERE FORE THE APPELLANT SHOULD HAVE EXCLUDED THE SAID INCOME FROM BUSINESS PROFITS FOR COMPUTATION OF DEDUCTION U/S. 80HHC. THEREFORE AS THE APPELLANT H AS FURNISHED INACCURATE PARTICULARS OF INCOME BY NOT EXCLUDING I NTEREST AND COMMISSION INCOME FROM THE BUSINESS PROFITS FOR COMPUTATION OF DEDUCTION U/S. 80HHC THE LEVY OF PENALTY IN RESPECT OF THESE TWO ITEMS I S CONFIRMED. AS REGARDS THE RATE DIFFERENCE IN FOREIGN EXCHANGE THE SAME HA S BEEN ALLOWED BY THE CIT(A). FURTHER IN RESPECT OF PACKING INCOME SERVI CE CHARGES AND ERECTION AND INSTALLING CHARGES AND COMMISSIONING INCOME TH E APPELLANT HAS GOT RELIEF IN THE PRECEDING YEAR I.E. A.Y. 2002-03 AS P ER THE ORDER OF ITAT AHMEDABAD 'A' BENCH IN THE CASE OF THE APPELLANT VI DE ORDER DATED 31-1- 2006 THEREFORE PENALTY IN RESPECT OF THE SAID ITE MS IS DELETED. SIMILARLY REGARDING THE COMPUTATION OF 80HHC BY INCLUDING EXC ISE DUTY AND SALES TAX IN THE TOTAL TURNOVER IN THE SAID COMPUTATION T HE APPELLANT HAS GOT RELIEF AND THEREFORE NO PENALTY SHOULD BE LEVIED IN RESPE CT OF THE CORRESPONDING COMPUTATION AND DISALLOWANCE OF DEDUCTION U/S.80HHC . THUS THE PENALTY OF CONCEALMENT IS SUSTAINED CORRESPONDING TO DISALL OWANCE OF DEDUCTION U/S.80 HHC RELATING TO EXCLUSION OF INTEREST AND CO MMISSION INCOME FROM BUSINESS PROFITS ONLY. ITA NOS.285&824/AHD/2008 MAMTA MACHINERY PVT. LTD . 5 3.3. AS REGARDS DISALLOWANCE OF SALES PROMOTION EXP ENSES THE A.R. CONTENDED THAT IT IS ONLY A DISALLOWANCE OF EXPENDI TURE THEREFORE NO PENALTY SHOULD BE LEVIED. I FIND THE CONTENTION OF THE A.R. AS ACCEPTABLE AS THE APPELLANT HAS FURNISHED ALL THE PARTICULARS THE REOF AND THERE IS NO MALAFIDE INTENTION IN CLAIMING THE SAID EXPENSES. T HEREFORE PENALTY IN RESPECT OF THE SAME IS DELETED. 4. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAINST THE FINDINGS OF THE LD. CIT(A) IN UPHOLDING THE LEVY OF PENALTY IN RELATION TO DEPRECIATION OF RS.1 27 107/- ON FACTORY BUILDING A ND EXCLUSION OF 90% OF INTEREST AND COMMISSION INCOME FROM THE PROF ITS OF THE BUSINESS WHILE COMPUTING DEDUCTION U/S 80HHC OF THE ACT WHILE THE REVENUE IS IN APPEAL AGAINST CANCELLATION OF PENALT Y IN RESPECT OF REMAINING DISALLOWANCES. AT THE OUTSET BOTH THE PA RTIES AGREED THAT ISSUES RAISED IN THESE APPEALS ARE SQUARELY COVERED BY THE DECISION DATED 29.1.2010 OF THE ITAT IN THE ASSESSEES OWN C ASE FOR THE AYS.2001-02 & 2002-03 AND DECISION DATED 27.2.2009 IN QUANTUM APPEAL IN ITA NO.711/AHD./2006 FOR THE AY 2003-04 AS ALSO DECISION DATED 31.1.2006 IN QUANTUM APPEAL FOR THE AY 2002-0 3 IN ITA NO.2056/AHD./2005. 5. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE AS ALSO THE DECISIONS RELIED UPON. ADVERT ING FIRST TO THE GROUND NO.2 RAISED IN THE APPEAL OF THE ASSESSEE O N ACCOUNT OF LEVY OF PENALTY IN RELATION TO CLAIM FOR DEPRECIATION ON BUILDING WE FIND THAT WHILE ADJUDICATING A SIMILAR ISSUE IN THE AY 2 001-02 THE ITAT VIDE THEIR ORDER DATED 29.1.2010 IN ITA NO. 670/AHD /2007 CONCLUDED AS UNDER:- 12. REGARDING ADDITION UNDER SECTION 40A ON INCOME -TAX REFUND AND DEPRECIATION ON BUILDING WE ARE OF THE VIEW THAT THESE ARE NOT BONA FIDE MISTAKES BECAUSE ASSESSEE IS NOT A TAX PAYER WHICH DOES NOT GET SUPPORT FROM TECHNICAL EXPERTS. ITS ACCOUNTS ARE AUDITED UN DER SECTION 44AB WHERE IT IS EXPECTED THAT SUCH MISTAKES IF ANY SHOULD H AVE BEEN POINTED OUT. IT IS ALSO NOT A CASE WHERE ASSESSEE IS FILING RETURN FOR THE FIRST TIME IT IS ASSESSED TO TAX FOR LONG. CASE OF THE ASSESSEE IS C OVERED UNDER EXPLANATION 1B TO SECTION 271(L)(C) IN RESPECT OF I NTEREST ON IT REFUND. THE ITA NOS.285&824/AHD/2008 MAMTA MACHINERY PVT. LTD . 6 EXPLANATION OF THE ASSESSEE IS NOT SATISFACTORY AND AMOUNT OF INTEREST RECEIVED BY THE ASSESSEE WAS NOT DISCLOSED BY IT. I N RESPECT OF TWO OTHER ITEMS DISALLOWANCE CLAIMED ON ROYALTY AND DEPRECIAT ION NO SUCH REPLY WAS FILED BY THE ASSESSEE BEFORE THE AO ON THE GROUND T HAT AO HAD INITIATED PENALTY ONLY IN RESPECT OF ONE ITEM I.E. INTEREST O N IT REFUND. WE NOTICE THAT AO HAD ISSUED A GENERAL PENALTY NOTICE BY VIRTUE OF NOTE MADE BY HIM AT THE END OF THE ORDER ISSUE PENALTY NOTICE THERE FORE IT CANNOT BE SAID THAT AO ONLY INTENDED TO CALL FOR ASSESSEES EXPLANATION IN RESPECT OF ONE ITEM VIZ. INTEREST ON IT REFUND ONLY. THUS THE CASE OF T HE ASSESSEE IS COVERED UNDER EXPLANATION 1A TO SECTION 271(1)(C) IN CASE O F THESE TWO ITEMS. EVEN OTHERWISE THE EXPLANATION FURNISHED BEFORE US I.E. IT WAS A BONA FIDE MISTAKE IS NOT ACCEPTABLE BECAUSE A MISTAKE IS BONA FIDE WHEN EITHER THE ASSESSEE IS NOT AWARE OF THE TAXATION LAWS OR IS FO LLOWING CONSISTENTLY A PARTICULAR METHOD AND THERE IS SUDDEN CHANGE IN LAW OR ISSUE IS SO COMPLICATED THAT HE IS UNABLE TO ANALYZE AND UNDERS TAND THE RIGHT IMPLICATION. BUT WHERE ISSUES ARE SO SIMPLE SUCH AS NOT CLAIMING DEDUCTION IN RESPECT OF PAYMENTS TO BE MADE OUTSIDE IF TDS I S NOT DONE OR NO DEPRECIATION SHOULD BE CLAIMED IN RESPECT OF THE BU ILDING WHICH IS GIVEN ON RENT AND INCOME THEREFROM IS REGULARLY ASSESSED UND ER THE HEAD 'INCOME FROM HOUSE PROPERTY' THEN SUCH MISTAKES CANNOT BE B ONA FIDE. WHEN A CLAIM IS MADE IN THE CASE OF ASSESSEE WHOSE ACCOUNT S ARE AUDITED UNDER SECTION 44AB THEN IT IS EXPECTED THAT SUCH PERSON I S CAREFUL ENOUGH TO MAKE CLAIM IN ACCORDANCE WITH LAW. THEREFORE IN OU R CONSIDERED VIEW EXPLANATION OF THE ASSESSEE IS NOT ACCEPTABLE THAT IT HAS COMMITTED A BONA FIDE MISTAKE. IN C1T VS. SRI SARADHA TEXTILES PROCE SSORS (P) LTD. (SUPRA) ON WHICH ASSESSEE HAS RELIED THAT ASSESSEE HAD FIL ED REVISED RETURN ACCEPTING THE CLAIM OF DEPRECIATION HON'BLE MADRAS HIGH COURT HAD CONSIDERED THAT ASSESSEE DID NOT HAVE ANY MALA FID E INTENTION. IN OUR CONSIDERED VIEW THE QUESTION OF INTENTION BEING MAL A FIDE OR NOT IS NO LONGER NECESSARY IN VIEW OF THE DECISION IN THE CAS E OF UNION OF INDIA VS. DARMENDRA TEXTILES (2008) 306 ITR 277 (SC). WE ACCO RDINGLY CONFIRM LEVY OF PENALTY IN RESPECT OF CLAIMS OF PAYMENT OF ROYALTY WITHOUT MAKING TDS INTEREST ON IT REFUND AND DEPRECIATION ON FACT ORY BUILDING . 5.1 SINCE NO FRESH ARGUMENT OR EXPLANATION H AS BEEN GIVEN BEFORE US BY THE LD. AR ON BEHALF OF THE ASSESSEE E XCEPT REFERRING TO THE AFORESAID DECISION FOLLOWING THE VIEW TAKEN IN THE AFORESAID DECISION WE UPHELD THE LEVY OF PENALTY U/S 271(1)( C) OF THE ACT IN RELATION TO THE DISALLOWANCE OF CLAIM FOR DEPRECIAT ION ON BUILDING EXPLANATION OF THE ASSESSEE BEING NOT BONAFIDE. THE REFORE GROUND NO. 2 IN THE APPEAL OF THE ASSESSEE IS DISMISSED. 6. AS REGARDS GROUND NO.3 IN THE ASSESSEES APPEAL IN RESPECT OF LEVY OF PENALTY ON EXCLUSION OF INTEREST INCOME OF RS.352062/- AND ITA NOS.285&824/AHD/2008 MAMTA MACHINERY PVT. LTD . 7 COMMISSION INCOME OF RS.1963490/- FROM BUSINESS PRO FITS WHILE COMPUTING OF DEDUCTION U/S 80HHC WE FIND THAT WHIL E ADJUDICATING A SIMILAR ISSUE IN RELATION TO COMMISSION RECEIPTS IN THE AY 2001-02 THE ITAT VIDE THEIR ORDER DATED 29.1.2010 IN ITA NO . 670/AHD/2007 CONCLUDED AS UNDER:- 14 IN RESPECT OF DEDUCTION UNDER SECTION 80 HHC W E FIND THAT LEVY OF PENALTY IS CONFINED ONLY TO THE ADDITION OF RS.23.3 3.691/- BEING PAYMENT OF COMMISSION. THE ASSESSEE HAD TAKEN A VIEW THAT THIS COMMISSION INCOME IS FROM MANUFACTURING ACTIVITY AND IS DIRECTLY RELA TED TO IT. THE CLAIM OF ASSESSEE WAS MADE FOR DEDUCTION UNDER SECTION 80 HH C THEREON BUT THIS CLAIM WAS NEGATED. LD. CIT(A) HAD DIRECTED TO VERIF Y WHETHER THERE IS ANY ITEM OF DEBATABLE NATURE. 15 IN OUR CONSIDERED VIEW RECEIPT OF COMMISSION CAN NOT BE CLEARLY SAID TO BE INCOME FROM OTHER SOURCES UNLESS ONE EXAMINES ACCOUNTS VOUCHERS AND NATURE OF RECEIPT. THERE COULD BE COMMISSION DI RECTLY COMING FROM MANUFACTURING AND COMMISSION INCOME WHICH IS NOT DI RECTLY SO CONNECTED. THIS IS LIKE INTEREST INCOME WHICH MAY PERTAIN TO M ANUFACTURING ACTIVITY / EXPORT ACTIVITIES OR IT MAY NOT HAVE DIRECT NEXUS. THIS ISSUE IS DEBATABLE AND CAN BE DECIDED ONLY AFTER LONG DRAWN DELIBERATI ONS. ACCORDINGLY IT CANNOT BE SAID THAT CLAIM OF THE ASSESSEE WAS PRIMA FACE WRONG AND WOULD FALL WITHIN THE AMBIT OF SECTION 271(1)(C). S INCE THE ISSUE IS TO A GREAT EXTENT DEBATABLE AND ASSESSEE HAD CONSIDERED THE CO MMISSION RECEIPT AS ITS BUSINESS INCOME AND CLAIMED DEDUCTION THEREON U NDER SECTION 80 HHC; IT CANNOT BE SAID THAT CLAIM WAS NOT AT ALL BONA FI DE. AS A RESULT LEVY OF PENALTY UNDER SECTION 271(1)(C) ON THIS AMOUNT IS C ANCELLED. 6.1 BUT IN RESPECT OF LEVY OF PENALTY ON THE EXCLU SION OF COMMISSION AND INTEREST RECEIPTS IN THE AY 2002-03 THE ITAT IN THEIR ORDER DATED 29.1.2010 IN ITA NO. 671/AHD/200 7 HELD AS UNDER:- 16. IN THIS YEAR PENALTY UNDER SECTION 271(1)(C) I S LEVIED ON ADDITION MADE BY THE A O BY DISALLOWING THE CLAIM OF ASSESSE E FOR DEDUCTION UNDER SECTION 80HHC ON COMMISSION INTEREST ETC. THE AO L EVIED THE PENALTY IN RESPECT OF ENTIRE ADDITION WITHOUT IDENTIFYING AS T O WHICH ITEMS WERE IN THE KNOWLEDGE OF THE ASSESSEE THAT THEY WERE REQUIRED T O BE EXCLUDED. THE ID. CIT(A) PRACTICALLY RESTORED THE MATTER TO THE FILE OF AO FOR WORKING OUT THOSE ITEMS OF ADDITION FOR CALCULATING DEDUCTION UNDER S ECTION 80HHC WHICH WERE IN THE KNOWLEDGE OF ASSESSEE. 17. WE HAVE HEARD ID. AR AND ID. DR. SINCE IT HAS T O BE SATISFIED AS TO WHICH ITEM UNDER EXPLANATION (BAA) TO SECTION 80HHC IS CLEARLY ITA NOS.285&824/AHD/2008 MAMTA MACHINERY PVT. LTD . 8 DISALLOWABLE AND WHICH ITEMS ARE DEBATABLE WE RESTO RE THE MATTER TO THE FILE OF AO FOR RE-WORKING OUT THE LEVY OF PENALTY A FTER GIVING AN OPPORTUNITY OF BEING HEARD AND IDENTIFYING CLEARLY THOSE ITEMS WHICH CANNOT AT ALL BE TREATED AS INCOME DERIVED FROM EXPORT ACTIVITIES. N O PENALTY UNDER SECTION 271(1)(C) CAN BE LEVIED IN RESPECT OF ITEMS OF EXCL USION OF INCOME WHICH ARE DEBATABLE. WE ACCORDINGLY ALLOW THE APPEAL OF A SSESSEE BUT FOR STATISTICAL PURPOSES. 6.11 IN THE INSTANT CASE THE LD. AR ON BEHAL F OF THE ASSESSEE DID NOT REFER US TO ANY ARGUMENT OR EXPLANATION EXC EPT REFERRING TO THE AFORESAID DECISIONS. FOLLOWING THE VIEW TAKEN B Y A CO-ORDINATE BENCH IN THEIR AFORESAID DECISION FOR THE AY 2001-0 2 WE CANCEL THE PENALTY IN RELATION TO THE AMOUNT OF COMMISSION. TH US GROUND NO.3 IN THE APPEAL OF THE ASSESSEE IN RESPECT OF LEVY OF PENALTY IN RELATION TO COMMISSION RECEIPTS IS ALLOWED. 6.2 AS REGARDS PENALTY IN RELATION TO AN AMOUNT OF RS 3 56 768/- WE FIND THAT THE ITAT IN QUANTUM APPEAL IN ITA NO.7 11/AHD./2006 IN THEIR ORDER DATED 27.2.2009 UPHELD THE FINDINGS OF THE AO SINCE THE ASSESSEE DID NOT CHALLENGE THE ACTION OF THE AO IN ASSESSING THE INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES N OR PLACED ANY MATERIAL ON RECORD THAT SUCH INTEREST WAS ASSESSABL E UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. ACCO RDINGLY THE ITAT UPHELD THE FINDINGS OF THE CIT(A)/AO IN ASSESSING T HE INCOME UNDER THE HEAD OTHER SOURCES WHILE COMPUTING DEDUCTION U/ S 80HHC OF THE ACT. WE FIND THAT HONBLE SUPREME COURT HAVE HELD I N TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LTD. [1997] 227 ITR 172 THAT INTEREST EARNED ON DEPOSITS PLACED FOR THE PURPOSES OF OBTAINING LOANS FOR BUSINESS CANNOT BE TREATED AS BUSINESS INCOME BUT ONLY AS INCOME FROM OTHER SOURCES. THE DECISION IN TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LTD. [1997] 227 ITR 172 HAS BEEN FOLLOWED IN CIT V. AUTOKAST LTD. [2001] 248 ITR 110 (SC). LIKEWISE IN CIT V. DR. V. P. GOPINATHAN [2001] 248 ITR 449 (SC) INTEREST ON FIXED DEPOSITS WAS HELD NOT TO QUALIFY FOR SETTING OFF AGAINST INTEREST ON LOAN S BORROWED. IN THE CONTEXT OF SECTION 80HHC OF THE ACT HONBLE APEX COURT IN CIT V. STERLING FOODS [1999] 237 ITR 579 (SC) AND PANDIAN CHEMICALS LTD. V. CIT [2003] 262 ITR 278 (SC) ITA NOS.285&824/AHD/2008 MAMTA MACHINERY PVT. LTD . 9 REITERATED THE NEXUS THEORY AND DECLINED TO TREAT S UCH INTEREST EARNED AS BUSINESS INCOME. EVEN HONBLE JURISDICTIONAL HIGH COURT IN T HE CASE OF CIT VS.GASKETS AND RADIATORS DISTRIBUTORS 296 ITR 440(GUJ) IN THE CON TEXT OF DEDUCTION U/S 80HHC OF THE ACT IN RESPECT OF INCOME ON ACCOUNT OF INTEREST ON FIXED DEPOSITS HELD IDENTICAL QUESTION CAME TO BE CONSIDERED BY THE HO N'BLE SUPREME COURT IN PANDIAN CHEMICALS LTD. V. CIT [2003] 262 ITR 278 AND THE QUESTION WHICH WAS POSED FOR CONSIDERATION BEFORE THE APEX COURT WAS W HETHER THE INTEREST ON DEPOSITS WITH THE TAMIL NADU ELECTRICITY BOARD SHOU LD BE TREATED AS INCOME DERIVED BY THE INDUSTRIAL UNDERTAKING FOR THE PURPO SE OF SECTION 80HH OR NOT AND THE HON'BLE SUPREME COURT HAS OBSERVED THAT SECTION 80HH OF THE INCOME-TAX ACT GRANTS DEDUCTION IN RESPECT OF PROFITS AND GAIN S 'DERIVED FROM' AN INDUSTRIAL UNDERTAKING AND THE WORDS 'DERIVED FROM' IN SECTION 80HH OF THE INCOME-TAX ACT 1961 MUST BE UNDERSTOOD AS SOMETHING WHICH HAS A D IRECT OR IMMEDIATE NEXUS WITH THE ASSESSEE'S INDUSTRIAL UNDERTAKING. THE SUP REME COURT HELD THAT INTEREST DERIVED BY THE INDUSTRIAL UNDERTAKING OF THE ASSESS EE ON DEPOSITS MADE WITH THE TAMIL NADU ELECTRICITY BOARD FOR THE SUPPLY OF ELEC TRICITY FOR RUNNING THE INDUSTRIAL UNDERTAKING COULD NOT BE SAID TO FLOW DIRECTLY FROM THE INDUSTRIAL UNDERTAKING ITSELF AND WAS NOT PROFITS OR GAINS DERIVED BY THE UNDERTA KING FOR THE PURPOSE OF THE SAID DEDUCTION UNDER SECTION 80HH. IN G.T.N. TEXTIL ES LTD. V. DY. CIT [2005] 279 ITR 72 THE KERALA HIGH COURT HELD THAT INTEREST ON BANK DEPOSITS WAS NOT PROFIT DERIVED FROM EXPORT OF GOODS. THE KERALA HIGH COURT HAS FURTHER HELD THAT THE INTEREST EARNED BY THE ASSESSEE ON FIXED DEPOSITS COMMISSION RECEIVED ON SALE OF MACHINERY ETC. WERE NOT BUSINESS INCOME AND CO NSEQUENTLY THE ASSESSEE WAS NOT ENTITLED TO COMPUTATION OF ELIGIBLE DEDUCTI ON UNDER SECTION 80HHC OF THE ACT BY INCLUDING THOSE RECEIPTS UNDER BUSINESS INCO ME. THEREFORE CONSIDERING THE AFORESAID TWO DECISIONS WE MUST HOLD THAT THE TRIBUNAL AS WELL AS THE COMMISSIONER OF INCOME-TAX (APPEALS) BOTH COMMITTE D AN ERROR IN TREATING THE INTEREST ON DEPOSITS AS 'BUSINESS INCOME' AND GRANT ING THE ASSESSEE THE DEDUCTION UNDER SECTION 80HHC OF THE ACT.. 6.21 THE LD. AR ON BEHALF OF THE ASSESSEE DID N OT PLACE ANY MATERIAL BEFORE US THAT THEIR CLAIM FOR INCLUSION OF INTEREST INCOME WAS BONAFIDE WHILE THE ITAT IN QUANTUM APPEAL HAVE CONCLUDED THAT NO MATERIAL WAS PLACED BEFORE THEM THAT SUCH INTEREST WAS BUSINESS INCOME. EVEN IN THEIR EX PLANATION FILED BEFORE THE AO BEFORE LEVY OF PENALTY AND EVEN BEFORE US THERE IS NO SUCH MATERIAL. APPARENTLY THE CLAIM OF THE ASSESSEE IN THIS REGARD WAS NOT B ONAFIDE WHEN VIEWED IN THE LIGHT OF AFORESAID DECISIONS OF THE HONBLE APEX CO URT AND JURISDICTIONAL HIGH COURT. IN THESE CIRCUMSTANCES WE ARE OF THE OPINI ON THAT THE LD. CIT(A) WAS JUSTIFIED IN UPHOLDING THE LEVY OF PENALTY IN RELAT ION TO EXCLUSION OF INTEREST RECEIPTS WHILE COMPUTING DEDUCTION U/S 80HHC OF THE ACT THE ONUS LAID DOWN UPON THE ITA NOS.285&824/AHD/2008 MAMTA MACHINERY PVT. LTD . 10 ASSESSEE IN TERMS OF EXPLANATION 1 TO SEC. 271(1)( C) OF THE ACT HAVING NOT BEEN DISCHARGED. THEREFORE GROUND NO.3 IN RELATION TO I NTEREST AMOUNT IS DISMISSED. 7. NOW COMING TO GROUND NO.1 IN THE APPEAL OF THE REVENUE IN RESPECT OF LEVY PENALTY U/S 271(1)(C) OF THE ACT I N RELATION TO DEDUCTION U/S 80HHC OF THE ACT ON ACCOUNT OF INCLU SION OF EXCISE DUTY AND SALES TAX IN THE TOTAL TURNOVER AND EXCLUS ION OF 90% OF THE RECEIPTS ON ACCOUNT OF FOREIGN EXCHANGE RATE DIFFER ENCE PACKING INCOME SERVICE CHARGES AND ERECTION AND INSTALLATI ON EXPENSES WHILE DETERMINING PROFITS OF THE BUSINESS WE FIND THAT THE ITAT IN QUANTUM APPEAL IN ITA NO.711/AHD./2006 VIDE THEIR O RDER DATED 27.2.2009 WHILE RELYING UPON DECISION DATED 31.3.2 006 IN THE ASSESSEES OWN CASE FOR THE AY 2002-03 IN ITA NO.20 56/AHD./2005 ALLOWED THE CLAIM OF THE ASSESSEE IN RELATION TO I NCLUSION OF EXCISE DUTY AND SALES TAX IN THE TOTAL TURNOVER AND EXCLUS ION OF 90% OF THE RECEIPTS ON ACCOUNT OF PACKING INCOME SERVICE CHAR GES AND ERECTION AND INSTALLATION EXPENSES . AS REGARDS AMOUNT ATTR IBUTABLE TO FOREIGN EXCHANGE DIFFERENCE THE LD. CIT(A) IN HIS ORDER DATED 24.2.2006 IN QUANTUM APPEAL HAD ALLOWED THE CLAIM A ND THIS ACTION OF THE LD. CIT(A) IS STATED TO HAVE NOT BEEN DISP UTED IN FURTHER APPEAL BY THE REVENUE. IN THESE CIRCUMSTANCES PENA LTY LEVIED BY THE AO IN RELATION TO INCLUSION OF EXCISE DUTY AND SAL ES TAX IN THE TOTAL TURNOVER AND EXCLUSION OF 90% OF THE RECEIPTS ON AC COUNT OF FOREIGN EXCHANGE RATE DIFFERENCE PACKING INCOME SERVICE C HARGES AND ERECTION AND INSTALLATION EXPENSES WHILE DETERMININ G PROFITS OF THE BUSINESS DOES NOT SURVIVE. WHERE AN ORDER OF ASS ESSMENT OR REASSESSMENT ON THE BASIS OF WHICH PENALTY HAS BEEN LEVIED ON TH E ASSESSEE HAS ITSELF BEEN SET ASIDE THE PENALTY CANNOT STAND BY ITSELF . H ONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. R.DALMIA (1992)107 TAXATION 107 HE LD THAT NO PENALTY SURVIVES AFTER DELETION OF ADDITIONS FORMING THE BASIS FOR THE LEVY OF PENALTY. SINCE THE VERY BASIS UPON WHICH THE PENALTY HAS BEEN IMPOSED DOES NOT EXIST WE HAVE NO ALTERNATIVE BUT TO UPHOLD THE DECISION OF THE L D. CIT(A) IN CANCELING THE PENALTY ITA NOS.285&824/AHD/2008 MAMTA MACHINERY PVT. LTD . 11 IN RELATION TO THE AFORESAID AMOUNTS. THEREFORE GR OUND NO.1 IN THE APPEAL OF THE REVENUE IS DISMISSED. . 8. AS REGARDS PENALTY LEVIED IN RELATION TO DISALLO WANCE OF SALES PROMOTION EXPENSES WE FIND THAT WHILE ADJUDICATION A SIMILAR ISSUE THE ITAT IN THEIR ORDER DATED 29.1.2010 IN ITA NO. 670/AHD./2008 FOR THE AY 2001-02 CANCELLED THE PENALTY IN RELATION TO DISALLOWANCE OF SALES PROMOTION EXPENSES IN PARA 13 OF THEIR ORDER. FOLLOWING THE VIEW TAKEN IN THE AFORESAID DECISION BY A CO-ORDINA TE BENCH WE HAVE NO ALTERNATIVE BUT TO UPHOLD THE FINDINGS OF T HE LD. CIT(A) THAT THE ASSESSEE HAVING FURNISHED ALL THE PARTICULARS T HEREOF NO PENALTY CAN BE LEVIED ON THE GROUND OF FURNISHING INACCURAT E PARTICULARS OF INCOME. THUS GROUND NO.2 IN THE APPEAL OF THE REVE NUE IS ALSO DISMISSED. 9. GROUND NOS. 3 & 4 IN THE APPEAL OF THE REVENUE BEING GENERAL IN NATURE AND GROUND NO.1 IN THE APPEAL OF THE ASSE SSEE BEING MERE PREAMBLE DO NOT REQUIRE ANY SEPARATE ADJUDICATION WHILE NO ADDITIONAL GROUND HAVING BEEN RAISED IN TERMS OF RE SIDUARY GROUND NO.4 IN THE APPEAL OF THE ASSESSEE ALL THESE GROUN DS ARE DISMISSED. 10 IN THE RESULT APPEAL OF THE ASSESSEE IS PARTLY ALLOWED WHILE THAT OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE COURT TODAY ON 16 - 7 -2010 SD/- SD/- (BHAVNESH SAINI) JUDICIAL MEMBER (A N PAHUJA) ACCOUNTANT MEMBER DATE : 16-07-2010 COPY OF THE ORDER FORWARDED TO: 1. MAMTA MACHINERY PVT. LTD. 5/1/1-A PHASE-I GID C VATVA AHMEDABAD 2. DCIT CIRCLE-4 AHMEDABAD ITA NOS.285&824/AHD/2008 MAMTA MACHINERY PVT. LTD . 12 3. CIT CONCERNED 4. CIT(A)-VIII AHMEDABAD 5. DR ITAT C BENCH AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT AHMEDABAD