Nath Bros. Exim Internationao Ltd, v. ITO, New Delhi

ITA 932/DEL/2009 | 1999-2000
Pronouncement Date: 28-01-2011 | Result: Dismissed

Appeal Details

RSA Number 93220114 RSA 2009
Bench Delhi
Appeal Number ITA 932/DEL/2009
Duration Of Justice 1 year(s) 10 month(s) 16 day(s)
Appellant Nath Bros. Exim Internationao Ltd,
Respondent ITO, New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 28-01-2011
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted F
Tribunal Order Date 28-01-2011
Date Of Final Hearing 25-01-2011
Next Hearing Date 25-01-2011
Assessment Year 1999-2000
Appeal Filed On 13-03-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH F DELHI) BEFORE SHRI G.E. VEERABHADRAPPA HONBLE VICE PRESIDENT AND SHRI A.D. JAIN JUDICIAL MEMBER ITA NO. 932(DEL)2009 ASSESSMENT YEAR: 1999-2000 M/S. NATH BROS. EXIM INTERNATIONAL LTD. INC OME TAX OFFICER 102 A BANGLA SAHIB MARG N. DELHI. V. WARD 13(4) NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI O.S. BAJPAI SR.ADVOCATE RESPONDENT BY: SHRI H.K . LAL SR. DR ORDER PER A.D. JAIN J.M. THIS IS ASSESSEES APPEAL FOR THE ASSESSMENT YEAR 1 999-2000 TAKING THE FOLLOWING GROUNDS:- 1. THAT THE LEARNED CIT(A) ERRED IN LAW AND FACTS FOR THE PURPOSE OF SECTION 80HHC OF THE ACT IN NOT REDUCING 90% OF IN TEREST RECEIPTS ON FDRS AMOUNTING TO ` 14 93 265/- WHICH WERE PLEDGED WITH THE BANK FOR AVAILING SHORT TERM OVER DRAFT AND BANK GUARANT EE FACILITIES REQUIRED AND USED FOR THE PURPOSE OF EXPORT BUSINES S OF THE ASSESSEE. 2. THAT THE LEARNED CIT(A) ERRED IN REJECTING THE CONTENTION OF THE ASSESSEE THAT EVEN IF THE INTEREST ON BANK DEPOSITS IS TREATED AS INCOME FROM OTHER SOURCES IT SHOULD ONLY BE THE NETTED FIGURE ( ` 10 05 425/-) AND NOT THE GROSS FIGURE ( ` 14 93 265/-) OF INTEREST. ITA 932(DEL)09 2 3. THAT THE LEARNED CIT(A) ERRED IN LAW AND FACTS BY REDUCING 90% OF INCOME UNDER INSURANCE CLAIM ` 42 363/- MISC. INCOME ` 44 577/- SUPPLIERS BALANCES WRITTEN BACK ` 62 522/- AND EMPLOYEES BALANCE WRITTEN BACK AT ` 5 753/- TO ARRIVE AT PROFITS OF THE BUSINESS AS PER EXPLANATION (BAA) TO SECTION 80HHC. THE INCOME UN DER THESE HEADS BE TREATED AS EXPORT BUSINESS INCOME. 2. AN APPLICATION HAS BEEN FILED FOR ADMISSION OF A DDITIONAL GROUND. THE ADDITIONAL GROUND TAKEN IS AS FOLLOWS:- (A) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE CIT(A) ERRED IN NOT TREATING INTEREST OF `4 14 93 265/- AS EXPORT PROFIT U/S 80 HHC WHEN THE AFORESAID INTEREST WAS RECEIVED ON TH E FDRS PLEDGED AGAINST THE CC LIMIT AND BANK GUARANTEE TAKEN FROM THE BANK AND THE BORROWINGS AGAINST THE CC LIMIT WERE UTILIZED FOR E XPORT BUSINESS AND BANK GUARANTEES WERE GIVEN TO APPAREL EXPORT PROMOT ION COUNCIL AND CUSTOMS AUTHORITIES IN CONNECTION WITH EXPORT B USINESS. 3. IT IS SEEN THAT THE ADDITIONAL GROUND TAKEN IS M ERELY AN AMPLIFICATION OF THE ORIGINAL GROUND NO.1. THEREFORE THE REQUE ST FOR ADMISSION OF THE ADDITIONAL GROUND IS ACCEPTED. 4. APROPOS GROUND NOS. 1&2 THE FACTS ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND EXPORT OF GARMENTS. DURING THE YEAR IT CLAIMED DEDUCTION OF ` 46 40 111/- U/S 80HHC OF THE I.T. ACT. THE AO OBSERVED THAT BESIDES BUSINESS INCOME FROM S ALES/EXPORT OF GARMENTS AND JOB WORK THE ASSESSEE COMPANY HAD SHO WN SUBSTANTIAL INCOME FROM INTEREST ON FDRS BONDS AND INTEREST INCOME FR OM INCOME TAX DIVIDEND ON UNITS AND OTHER MISC.INCOME. IN THE PR OFIT AND LOSS ACCOUNT THE ITA 932(DEL)09 3 ASSESSEE HAD SHOWN INTEREST OF ` 10 05 444/- ON FDRS PLEDGED WITH BANKS. THIS WAS ARRIVED BY REDUCING INTEREST OF ` 4 87 840/- PAID ON LOANS AGAINST FDRS FROM THE TOTAL INTEREST RECEIVED OF ` 14 93 285/-. THE COMPUTATION OF DEDUCTION U/S 80 HHC OF THE ACT AS FILED WITH THE RETURN SHOWED THAT THE ASSESSEE HAD TREATED THE INTEREST AND DIVIDEND INCO ME AS BUSINESS INCOME AND WHILE COMPUTING THE PROFITS OF THE BUSINESS AS PER EXPLANATION (BAA) TO SECTION 80 HHC OF THE ACT IT HAD REDUCED 90% OF TH ESE SUMS AND IN RESPECT OF INTEREST IT HAD REDUCED 90% OF NET INTEREST I. E. AFTER DEDUCTING THE INTEREST PAID FROM THE INTEREST RECEIVED. FROM TH E ASSESSEES BALANCE SHEET THE AO OBSERVED THAT THE ASSESSEE HAD SHOWN EXPORT PROFIT RESULTS OF ` 64 50 000/- AS ON 31.3.1998 AS WELL AS ON 31.3.99. IT WAS OBSERVED THAT AS AGAINST THESE THE TOTAL SECURED LOANS AS ON 31.3.9 8 STOOD AT ` 1 38 37 176/- AND AT ` 7 96 742/- AS ON 31.3.99. FROM THIS THE AO OBS ERVED THAT THE ASSESSEE WAS HAVING HUGE SURPLUS FUNDS DURING THE Y EAR. AS SUCH THE AO ASKED THE ASSESSEE AS TO WHY INTER ALIA THE INTER EST INCOME HAD BEEN TREATED AS INCOME FROM BUSINESS AND WHY THE SAME BE NOT TRE ATED AS INCOME FROM OTHER SOURCES AS ALSO AS TO WHY THE GROSS INTEREST RECEIVED BEFORE NETTING BE NOT TREATED AS INCOME FROM OTHER SOURCES. ITA 932(DEL)09 4 5. IN RESPONSE THE ASSESSEE SUBMITTED THAT THE ONL Y BUSINESS OF THE COMPANY WAS MANUFACTURING AND EXPORT OF GARMENTS; T HAT THE ASSESSEE HAD NEITHER BORROWED NOR INTRODUCED FURTHER CAPITAL TO DEPOSIT IN FIXED DEPOSITS IN BANKS OR IN OTHER ORGANIZATIONS; THAT IT WAS TH E SURPLUS FUNDS OF THE ASSESSEE WHICH WERE NOT REQUIRED TEMPORARILY FOR S OME TIME WERE DEPOSITED IN BANKS ON A SHORT TERM BASIS; AND THAT SOME DEPO SITS WERE MADE WITH THE BANKS TO AVAIL WORKING CAPITAL LIMITS. THE ASSESS EE RELIED ON THE FOLLOWING CASE LAWS:- 1. MADRAS HIGH COURT IN THE CASE CIT V. NSC SHOES [2 002] 258 ITR 749; 2. MUMBAI HIGH COURT IN THE CASE OF CIT V. NAGPUR ENG G. [2000] 258 ITR 806; 3. BOMBAY HIGH COURT CIT V. PUNIT COMMERCIAL 245 ITR 806; 4. CIT V. K.K. DOSHI & CO. 245 ITR 844; 5. BOMBAY HIGH COURT CIT V.PARAMOUNT PROMISES P. LTD. 190 ITR 259; AND 6. SUPREME COURT IN VELLORE ELECTRIC CORPORATION LTD. V. CIT [1997] 227 ITR 557. 6. REJECTING THE ASSESSEES STAND THE AO OBSERVED THAT IN THE CASES OF NANJI TOPAN BHAI & CO. V. ACIT 243 ITR 192 ABAD ENTERPRISES V. CIT 253 ITR 319 AND CIT V. JOSE THOMAS 253 ITR 553 T HE HONBLE KERALA HIGH COURT HAS HELD THAT WHERE THE ASSESSEE EXPORTE R HAD OFFERED A FIXED DEPOSIT IN BANK AS SECURITY OR A LOAN TRANSACTION C ONNECTED WITH ITS EXPORT BUSINESS THE INTEREST EARNED ON SUCH DEPOSIT CANNO T BE TREATED AS INCOME FROM EXPORT BUSINESS FOR PURPOSES OF ALLOWING DEDUC TION U/S 80HHC OF THE ITA 932(DEL)09 5 ACT; THAT MOREOVER THE ASSESSEE WAS HAVING HUGE SU RPLUS FUNDS AND THE INTEREST EARNED WAS ON ACCOUNT OF DEPLOYMENT OF SUC H SURPLUS FUNDS DUE TO WHICH THE INCOME ACCRUED FROM SUCH ACTIVITY COULD NOT BE TREATED AS THE ASSESSEES BUSINESS INCOME; THAT IN CIT V. COCHIN REFINERIES LTD. 154 ITR 345 IT HAS BEEN HELD THAT PROFITS AND GAINS ARE WE LL UNDERSTOOD TO MEAN ONLY THE BUSINESS INCOME AND NOT ANY OTHER INCOME SO LO NG AS THE COMPANY HAS NO BUSINESS OF LENDING MONEY AND SO LONG AS THE ADM ITTED CASE OF THE COMPANY IS THAT THE INCOME BY WAY OF INTEREST DERIV ED IS ONLY ON ACCOUNT OF THE PECULIAR SITUATION ARISING FROM THE TIME SCHEDU LE FOR REPAYMENT OF LOANS IT CANNOT BE STATED THAT THE INCOME YIELDED BY THE DEPOSITS OR INVESTMENTS WAS RECEIVED IN THE COURSE OF THE COMPANYS BUSINES S SO AS TO BE TREATED AS A BUSINESS PROFIT; THAT THEREFORE UNLESS THE ASSESSE E IS ABLE TO SHOW THAT THE INCOME RECEIVED BY WAY OF INTEREST FROM THE FIXED D EPOSIT IS INCOME DERIVED FROM THE EXPORT BUSINESS IT WILL NOT BE ENTITLED T O TREAT SUCH INCOME AS PROFITS OF BUSINESS FOR THE PURPOSE OF COMPUTING DE DUCTION U/S 80HHC OF THE ACT. IT WAS IN THIS MANNER THAT THE AO TREATED THE INTEREST INCOME OF THE ASSESSEE AS THE INCOME FROM OTHER SOURCES FOR THE PURPOSE OF DEDUCTION U/S 80HHC OF THE ACT. 7. BY VIRTUE OF THE IMPUGNED ORDER THE LD. CIT(A) CONFIRMED THE AFORESAID ACTION OF THE AO. ITA 932(DEL)09 6 8. AGGRIEVED THE ASSESSEE HAS TAKEN GROUND NO.1 AN D THE ADDITIONAL GROUND BEFORE US. 9. THE LEARNED COUNSEL FOR THE ASSESSEE HAS ARGUED THAT THE TOTAL AMOUNT OF FIXED DEPOSIT WAS ` 88 80 047/-. ATTENTION HAS BEEN DRAWN TO THE DETA ILS OF FDRS AS PER THE BALANCE SHEET WHICH ARE AT PAGE 31 OF THE ASSESSEES PAPER BOOK (APB FOR SHORT). IT HAS BEEN CONTEND ED THAT OUT OF THIS AMOUNT OF ` 88 80 047/- A SUM OF ` 82 52 749/- WAS AGAINST THE CASH CREDIT LIMIT WITH THE INDIAN OVERSEAS BANK. IT HAS BEEN STATED THAT THE AMOUNT DRAWN AGAINST THIS LIMIT WAS UTILIZED FOR BUSINESS OF EXPORT; THA T A FIXED DEPOSIT OF ` 1 50 000/- WAS KEPT UNDER LIEN AGAINST A SEPARATE C ASH LIMIT WHICH WAS ALSO UTILIZED FOR THE BUSINESS OF EXPORT; THAT THE FDRS AMOUNTING TO ` 4 77 298/- WERE AGAINST THE BANK GUARANTEE GIVEN TO THE STATE BANK OF INDIA AS MARGIN MONEY FOR WARRANTIES GIVEN TO THE CUSTOMERS CENTRA L EXCISE AND APPAREL EXPORT PROMOTION COUNCIL AUTHORITIES AGAIN FOR THE EXPORT BUSINESS. IT HAS BEEN POINTED OUT THAT APB 32 IS A COPY OF THE BANK CERTIFICATE DATED 4.6.99 GIVING THE EXACT NUMBERS OF FDRS PLEDGED WITH THE I NDIAN OVERSEAS BANK. IT HAS BEEN STATED THAT THESE FDRS ARE APPEARING IN THE ASSESSEES BALANCE SHEET AT APB 11. IT HAS BEEN ARGUED THAT THE AUT HORITIES BELOW HAVE GONE WRONG IN REFERRING TO THE RESERVES AND SUPPLIES OF THE ASSESSEE BEING AT ` ITA 932(DEL)09 7 7.5 CRORES AS ON 31.3.98 AND AT ` 8 CRORES AS ON 31.3.99. IT HAS BEEN SUBMITTED THAT THE RESERVES AND SUPPLIES ARE DEPLOY ED IN DIFFERENT ASSETS LIKE FIXED ASSETS AS PER SCHEDULE I OTHER INVESTMENTS A S PER SCHEDULE II CURRENT ASSETS LOANS AND ADVANCES CLOSING STOCK SUNDRY D EBTORS FDRS ETC. AND BEING ACCUMULATED OVER THE YEARS THEY ARE NOT TO BE READ IN THE CONTEXT OF THE FDRS. 10. THE LEARNED COUNSEL FOR THE ASSESSEE HAS FURTHE R ARGUED THAT AS PER SECTION 80HHC(1) OF THE ACT WHERE AN ASSESSEE IS E NGAGED IN THE BUSINESS OF EXPORT OUT OF INDIA OF ANY GOODS OR MERCHANDISE DEDUCTION OF PROFIT DERIVED BY THE ASSESSEE FROM EXPORT OF GOODS OR MER CHANDISE SHALL BE ALLOWED. IT HAS BEEN CONTENDED THAT THE WORDS BU SINESS OF EXPORT USED IN THE SECTION INCLUDE ALL ACTIVITIES WHICH ARE INTEGR AL TO AND INEXTRICABLE FROM THE BUSINESS AND ALL OF THEM PUT TOGETHER CONSTITUT E THE BUSINESS OF EXPORT. IT HAS BEEN CONTENDED THAT THE CONTROVERSY REGARDING DERIVED FROM AND ATTRIBUTABLE TO HAS BEEN CONSIDERED IN CAMBAY ELECTRIC SUPPLY INDUSTRIAL CO. LTD. V. CIT 113 ITR 84(SC) CIT V. STERLING F OODS 237 ITR 579(SC) AND PANDIAN CHEMICALS LTD. V. CIT 262 ITR 278(SC) ; THAT THESE DECISIONS HAVE BEEN CONSIDERED IN CIT V. ELTEK SGS P. LTD. 300 ITR 6(DEL) AND IT WAS HELD THAT THERE IS A MATERIAL DIFFERENCE BETWEE N THE LANGUAGE USED IN SECTIONS 80HH AND 80IB OF THE ACT THAT WHILE SECTI ON 80HH REQUIRES THAT ITA 932(DEL)09 8 THE PROFITS AND GAINS SHOULD BE DERIVED FROM THE IN DUSTRIAL UNDERTAKING SECTION 80 IB REQUIRES THAT THE PROFITS AND GAINS S HOULD BE DERIVED FROM ANY BUSINESS OF THE INDUSTRIAL UNDERTAKING THAT IS TH ERE NEED NOT NECESSARILY BE A DIRECT NEXUS BETWEEN THE ACTIVITY OF AN INDUSTRIA L UNDERTAKING AND THE PROFITS AND GAINS. IT HAS BEEN CONTENDED THAT ELT EK (SUPRA) WAS FOLLOWED IN CIT V. JAGDISH PRASAD M.JOSHI 318 ITR 420(BOM); T HAT IN LIBERTY INDIA V. CIT 317 ITR 218(SC) THE QUESTION OF DIFFERENT LAN GUAGE IN SECTION 80HHC OF THE ACT HAS NOT BEEN CONSIDERED AND THEREFORE LIBERTY INDIA(SUPRA) IS DISTINGUISHABLE ON THE PRINCIPLE OF SUB SILENTIO. IT HAS BEEN CONTENDED THAT IN CIT V. SHRIRAM PISTONS & RINGS LTD. 325 ITR 46 (DEL) ELTEK (SUPRA) HAS NOT BEEN CONSIDERED. IT HAS BEEN SUBMITTED THA T AS SUCH THE INTEREST INCOME OF ` 14 93 265/- WAS INCOME OF INTEREST EARNED ON FDRS P LEDGED AGAINST CASH CREDIT LIMIT AND BANK GUARANTEE UTILIZ ED FOR THE BUSINESS OF EXPORT AND THE SAME SHOULD BE TREATED AS PROFITS OF EXPORT ELIGIBLE FOR DEDUCTION U/S 80HHC OF THE ACT. RELIANCE HAS BEEN PLACED ON: 1. CIT V. KARNAL COOPERATIVE SUGAR MILLS 243 ITR 2(S C); 2. CIT V. BOKARO STEEL LTD. 236 ITR 315(SC); 3. CIT V TAMIL NADU DAIRY DEVELOPMENT CORPORATION LT D. [1995] 216 ITR 535(MAD); 4. CIT V. TIRUPATI FLOUR MILLS LTD. [1992] 193 ITR 2 52(CAL); 5. CIT V. LOK HOLDING [2009] 308 ITR 356(BOM); 6. CIT V. EXCELLENT COMMERCIAL ENTERPRISES & INVESTME NTS LTD. [2005] 197 CTR 187: [2006] 282 ITR 423(DEL)RELIED O N; AND ITA 932(DEL)09 9 7. VBC INDUSTRIES LTD. V. DCIT [2010] 132 TTJ (VISAK HA) 621. 11. THE LD. DR ON THE OTHER HAND HAS PLACED STRON G RELIANCE ON THE IMPUGNED ORDER IN THIS REGARD. IT HAS BEEN CONCURR ENTLY NOTICED BY THE AUTHORITIES BELOW THAT THE ASSESSEE COULD NOT SUBMI T ANYTHING TO PROVE A DIRECT NEXUS BETWEEN THE INTEREST INCOME RECEIVED O N FDRS AND THE CASH CREDIT FACILITY ALLEGEDLY TAKEN BY IT; THAT ALSO N O NEXUS HAS BEEN PROVED BY THE ASSESSEE BETWEEN THE LOAN FACILITIES AVAILED AN D THE AMOUNT INVESTED IN FIXED DEPOSIT; THAT FURTHER NOTHING WAS PRODUCED B EFORE THE AUTHORITIES BELOW TO PROVE ANY NEXUS BETWEEN THE INTEREST INCOM E EARNED AND THE INTEREST EXPENDITURE INCURRED; THAT ON THE CONTRARY AS PER THE DETAILS FILED PAST SURPLUS FUNDS HAD BEEN UTILIZED FOR TAKING FIX ED DEPOSITS AND THE FDRS WERE PLEDGED WITH THE BANK FOR AVAILING CASH CREDIT FACILITY; THAT SINCE THE MONEY TAKEN ON CASH CREDIT FACILITIES WAS USED FOR BUSINESS PURPOSES IT IS A BUSINESS EXPENDITURE; THAT NO NEXUS HAVING BEEN PRO VED BETWEEN THE INTEREST INCOME RECEIVED FROM THE FIXED DEPOSIT AND THE INTE REST PAID ON CASH CREDIT FACILITIES AVAILED FOR BUSINESS PURPOSES THE INTER EST INCOME FROM FIXED DEPOSIT HAS RIGHTLY BEEN TREATED AS INCOME FROM OTH ER SOURCES; AND THAT CIT V. SHRI RAM HONDA POWER EQUIP 289 ITR 475(DEL) AND CIT V. MEREENA CREATIONS 330 ITR 199(DEL) ARE IN FAVOUR OF THE DE PARTMENT IN THIS REGARD. ITA 932(DEL)09 10 12. HAVING HEARD THE PARTIES IN THIS REGARD AND HAV ING PERUSED THE MATERIAL ON RECORD CONCERNING THE ISSUE WE DO NOT FIND ANY FORCE IN THE STAND TAKEN BY THE ASSESSEE. UNDENIABLY THE ISSU E STANDS COVERED IN FAVOUR OF THE DEPARTMENT BY SHRI RAM HONDA(SUPRA). THE REIN IT HAS BEEN HELD INTER ALIA THAT WHERE SURPLUS FUNDS ARE PARKED WIT H THE BANK AND INTEREST IS EARNED THEREON IT CAN ONLY BE CATEGORIZED AS INCOM E FROM OTHER SOURCES; THAT IT GOES ENTIRELY OUT OF RECKONING FOR THE PURPOSES OF SECTION 80HHC; THAT INTEREST EARNED ON FDRS FOR THE PURPOSE OF AVAILING CREDIT FACILITIES FROM THE BANK DOES NOT HAVE AN IMMEDIATE NEXUS WITH THE EXPO RT BUSINESS AND THEREFORE IT HAS TO NECESSARILY BE TREATED AS INCO ME FROM OTHER SOURCES AND NOT BUSINESS INCOME WHERE THERE IS A SPECIFIC FIND ING BY THE AO THAT THE INTEREST INCOME IS NOT BUSINESS INCOME(AS IN THE PR ESENT CASE). MEREENA CREATIONS(SUPRA) IS ALSO DIRECTLY ON THE ISSUE AND DIRECTLY AGAINST THE ASSESSEE HOLDING THAT EVEN IN A CASE WHERE THE EXP ORTER IS REQUIRED TO MANDATORILY KEEP MONIES IN FIXED DEPOSIT IN ORDER TO AVAIL OF CREDIT FACILITY FOR THE EXPORT BUSINESS AND INTEREST IS EARNED ON F IXED DEPOSITS FOR THE PURPOSE OF AVAILING OF CREDIT FACILITIES FROM THE B ANK THE INTEREST INCOME HAS TO BE TREATED AS INCOME FROM OTHER SOURCES AND NOT BUSINESS INCOME AS IT DOES NOT HAVE AN IMMEDIATE NEXUS WITH THE EXPORT BU SINESS AND THAT IT GOES OUT OF THE RECKONING FOR THE PURPOSES OF SECTION 80 HHC. ITA 932(DEL)09 11 13. CONCERNING THE ASSESSEES ARGUMENTS THAT LIBER TY INDIA (SUPRA) IS DISTINGUISHABLE ON THE PRINCIPLE OF SUB SILENTIO A S IT IS NOT ON THE QUESTION OF A DIFFERENT LANGUAGE IN SECTION 80 HHC IT IS TO B E NOTED THAT LIBERTY INDIA(SUPRA) IS A JUDGMENT RENDERED BY THE HONBL E SUPREME COURT AND IT IS NOT WITHIN THE DOMAIN OF THE TRIBUNAL TO COMMENT ON THIS ARGUMENT. 14. SHRIRAM PISTONS & RINGS LTD.(SUPRA) HOLDS TH AT INTEREST ON FDRS WITH GOVERNMENT DEPOSITS CANNOT BE EXCLUDED FROM TH E TOTAL TURN OVER FOR THE PURPOSE OF SPECIAL DEDUCTION U/S 80HHC OF THE A CT. IN HOLDING SO LIBERTY INDIA(SUPRA) WAS FOLLOWED. SHRI RAM HONDA POWER EQUIP(SUPRA) WAS REFERRED TO. THE LEARNED COUNS EL FOR THE ASSESSEE HAS CONTENDED THAT SHRIRAM PISTONS & RINGS LTD.(SUPR A) DOES NOT CONSIDER ELTEK(SUPRA). 15. IN THIS REGARD IT IS SEEN THAT SHRIRAM PISTON S & RINGS LTD.(SUPRA) IS A JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT DIRECTLY ON THE ISSUE FOLLOWING LIBERTY INDIA (SUPRA) AND REFERRING TO SHRI RAM HONDA POWER EQUIP(SUPRA) WHEREAS ELTEK(SUPRA) IS CONCERNIN G SECTION 80HH AND 80IB OF THE ACT AND NOT SECTION 80HHC THEREOF. ITA 932(DEL)09 12 16. THEREFORE FINDING NO ERROR IN THE ORDER OF THE LD. CIT(A) IN THIS REGARD THE SAID ORDER ON THIS ISSUE IS UPHELD. G ROUND NO.1 AND THE ADDITIONAL GROUND THUS STAND REJECTED. 17. TURNING TO GROUND NO.2 AS PER THE ASSESSEE TH E LD. CIT(A) HAS ERRED IN REFUSING THE BENEFIT OF NETTING OF INTEREST TO T HE ASSESSEE. 18. THE AO OBSERVED THAT ACCORDING TO HIM NETTING OF INTEREST IMPLIES GROSS INCOME REDUCED BY ANY EXPENDITURE INCURRED DI RECTLY TO EARN THAT INCOME; THAT SO ANY INTEREST INCURRED IN EARNING T HE INTEREST INCOME ITSELF SHALL BE DEDUCTIBLE FROM THE GROSS INTEREST IN COMP UTING THE INTEREST INCOME; THAT IN THE ASSESSEES CASE THE ASSESSEE HAD FAILE D TO ESTABLISH ANY DIRECT RELATIONSHIP BETWEEN THE INTEREST INCURRED AND THE INTEREST EARNED ON THE FDRS AND THE INTEREST WAS INCURRED ON BORROWINGS MA DE FOR VARIOUS OTHER PURPOSES OF BUSINESS; THAT SO NETTING OF INTEREST WAS ALSO NOT AVAILABLE TO THE ASSESSEE. THE AO RELIED ON CIT V. DR. V.P. GOPIN ATHAN 248 ITR 449(SC). 19. THE LD. CIT(A) UPHELD THE AOS VIEW. 20. THE LEARNED COUNSEL FOR THE ASSESSEE HAS CONTEN DED THAT THE BENEFIT OF NETTING NEEDS BE ALLOWED TO THE ASSESSEE BY DEDUCTI NG INTEREST PAYMENT OF ` 4 87 860/- SINCE THE ASSESSEE WOULD NOT BE REQUIRE D TO PAY INTEREST OF ` 4 87 860/- IF THE SUM OF ` 88 80 047/- WAS NOT BLOCKED IN THE FDRS REQUIRED ITA 932(DEL)09 13 FOR CASH CREDIT LIMIT. DR. V.P. GOPINATHAN (SUP RA) HAS BEEN SOUGHT TO BE DISTINGUISHED ON FACTS SUBMITTING THAT THEREIN NO FDRS WERE PURCHASED FOR BUSINESS PURPOSES. 21. THE LD. DR PER CONTRA SUPPORTING THE LD. CIT( A)S ORDER HAS LAID STRESS ON SOUTH INDIA SHIPPING CORPORATION LTD. V. CIT 240 ITR 24(MAD) RELIED ON BY THE LD. CIT(A). 22. ON THIS ISSUE AGAIN WE FIND NO FORCE IN THE S TANCE ADOPTED BY THE ASSESSEE. AS HELD IN SOUTH INDIA SHIPPING CORPOR ATION LTD.(SUPRA) INTEREST PAID ON OVER-DRAFT FOR THE PURPOSE OF BUSI NESS IS NOT DEDUCTIBLE FROM THE INTEREST EARNED ON MONIES KEPT IN FIXED DEPOSIT SINCE SUCH INCOME DERIVED BY WAY OF INTEREST ON FIXED DEPOSITS IS TO BE TAXED AS INCOME FROM OTHER SOURCES. SOUTH INDIA SHIPPING CORPORATION LTD.(SUPRA) IS SQUARELY APPLICABLE AND NO COUNTER THERETO HAS BEEN PRODUCE D. APROPOS DR. V.P. GOPINATHAN (SUPRA) THE RATIO THEREIN IS THAT INTE REST RECEIVED FROM THE BANK ON FIXED DEPOSIT IS INCOME IN THE HANDS OF THE ASSE SSEE AND IS NOT DEDUCTIBLE. 23. AS SUCH GROUND NO.2 IS ALSO FOUND TO BE SHORN OF MERIT AND IS REJECTED AS SUCH. 24. CONCERNING GROUND NO.3 AS PER THE ASSESSEE TH E LD. CIT(A) HAS ERRED IN REDUCING 90% OF INCOME UNDER INSURANCE CLAIM OF ` 42 363/- MISC. INCOME AT ` 44 577/- SUPPLIERS BALANCES WRITTEN BACK AT ` 62 522/- AND ITA 932(DEL)09 14 EMPLOYEES BALANCE WRITTEN BACK AT ` 5 753/- TO ARRIVE AT PROFITS OF THE BUSINESS AS PER EXPLANATION (BAA) TO SECTION 80 HHC (3) OF THE ACT EVEN THOUGH SUCH INCOME NEEDS TO BE TREATED AS EXPORT BU SINESS INCOME. 25. OBSERVING THAT THIS INCOME HAD BEEN EARNED IN F OREIGN CURRENCY AND HAD BEEN BROUGHT TO INDIA WITHIN THE STIPULATED PER IOD AND ALLOWANCE OF DEDUCTION U/S 80HHC THEREON WAS TO BE CONSIDERED T HE AO ASKED THE ASSESSEE TO EXPLAIN AS TO WHY 90% OF SUCH INCOME BE NOT TAKEN OUT FOR COMPUTING THE PROFITS OF BUSINESS FOR THE COMPUTATI ON OF DEDUCTION U/S 80 HHC IN ACCORDANCE WITH THE EXPLANATION (BAA)THERET O. SINCE THE ASSESSEE DID NOT FILE ANY REPLY THE AO RECOMPUTED THE DEDU CTION U/S 80HHC AFTER TAKING OUT 90% OF SUCH INCOME IN ACCORDANCE WITH E XPLANATION (BAA) TO SECTION 80HHC. 26. THE LEARNED CIT(A) CONFIRMED THE AOS ACTION. 27. THE LEARNED COUNSEL FOR THE ASSESSEE HAS CONTEN DED THAT THE INCOME OF ` 62 522/- REPRESENTING SUPPLIERS BALANCES WRITTEN BACK IS CREDIT BALANCES APPEARING IN THE SUPPLIERS ACCOUNT WHICH REMAINED UNCLAIMED AND WERE WRITTEN BACK. IT HAS BEEN CONTENDED THAT SUCH INCO ME IS ENTITLED TO DEDUCTION U/S 80HHC. RELIANCE IN THIS REGARD HAS BEEN PLACE D ON CIT V. ABDUL REHMAN INDUSTRIES 293 ITR 475(MAD). APROPOS THE AMOUNT OF ` 42 363/- REPRESENTING INSURANCE CLAIM RECEIVED IT HAS BEEN CONTENDED THAT THIS TOO IS ITA 932(DEL)09 15 AN INTEGRAL AND INEXTRICABLE PART OF THE EXPORT BUS INESS ELIGIBLE FOR DEDUCTION U/S 80 HHC. IT HAS BEEN SUBMITTED THAT IT RELATES TO SURPLUS ARISING OUT OF CAR ACCIDENT CLAIMS WHERE THE CARS WERE USED FOR THE P URPOSE OF THE EXPORT BUSINESS. SO FAR AS REGARDS THE MISC. INCOME OF ` 44 577/- IT HAS ALSO BEEN CLAIMED AS ELIGIBLE FOR DEDUCTION U/S 80 HHC ON TH E SAME PREMISES AS PUT FORWARD FOR THE INCOME UNDER INSURANCE CLAIM. CO NCERNING THE INCOME OF ` 5 753/- I.E. SUPPLIERS BALANCES WRITTEN BACK IT HAS BEEN CONTENDED THAT THIS WAS EMPLOYEES BONUS NOT CLAIMED BY THEM AND WAS ALS O AN INTEGRAL AND INEXTRICABLE PART OF THE EXPORT BUSINESS ELIGIBLE FOR DEDUCTION U/S 80HHC. RELIANCE HAS BEEN PLACED ON:- 1. CIT V. UNITED INDIA SHOE CORPORATION 302 ITR 326( MAD); AND 2. SOUTHERN SEA FOODS LTD. V. JCIT 288 ITR 151(MAD). 28. THE LD. DR ON THE OTHER HAND HAS PLACED STRON G RELIANCE ON THE IMPUGNED ORDER WITH REGARD TO THIS ISSUE. IT HAS B EEN SUBMITTED THAT THE ASSESSEE FAILED TO ESTABLISH ANY NEXUS BETWEEN ANY OF THESE INCOMES RECEIVED AND THE EXPORT ACTIVITIES OF THE ASSESSEE. 29. HERE ALSO WE FIND NO SUBSTANCE IN THE GRIEVANC E SOUGHT TO BE RAISED BY THE ASSESSEE. THESE INCOMES WERE UNDENIABLY NO T DIRECTLY DERIVED FROM THE ASSESSEES EXPORT ACTIVITIES. DEDUCTION U/S 8 0HHC OF THE ACT IS ALLOWABLE ONLY ON INCOME DERIVED FROM EXPORT ACTIVI TIES. AS CORRECTLY ITA 932(DEL)09 16 OBSERVED BY THE LD. CIT(A) RECEIPTS FROM INSURANCE CLAIM MISC.INCOME AND SUPPLIERS BALANCES WRITTEN BACK ARE IN NO MANNER C ONNECTED WITH THE EXPORT ACTIVITIES OF THE ASSESSEE. PANDIAN CHEMICALS( SUPRA) [RELIED ON BY THE LD. CIT(A)] HOLDS THAT THE AMOUNT RECEIVED FROM INSURA NCE IS NOT INCOME DERIVED FROM INDUSTRIAL UNDERTAKING. M/S. PARRY AGRO INDUSTRIES PVT. LTD. V. JCIT[2007] 292 ITR 542 (KER) [RELIED ON BY THE LD. CIT(A)] HAS HELD THAT FOR COMPUTATION OF PROFITS FOR THE PURPOSE OF DEDUC TION U/S 80HHC OF THE ACT MISC.INCOME IS NOT INCLUDIBLE. 30. UNITED INDIA SHOE CORPN.(SUPRA) IT IS SEEN DEALT WITH INCOME FROM JOB WORK. THE JOB WORK WAS FOUND BY THE TRIBUNAL TO BE LINKED TO THE MANUFACTURING ACTIVITY OF THE ASSESSEE. IT WAS I N THESE FACTS THAT THE HONBLE MADRAS HIGH COURT HELD THAT 90% OF THE JOB WORK PURPOSE SHOULD NOT HAVE BEEN EXCLUDED FROM BUSINESS PROFITS WHILE COMPUTING DEDUCTION U/S 80 HHC OF THE ACT. UNITED INDIA SHOE CORPN.(SUP RA) IS THUS NOT APPLICABLE. 31. SOUTHERN SEA FOODS LTD.;(SUPRA) IS ALSO DIFFE RENT ON FACTS. THEREIN THE EXPORT WAS MADE BY THE ASSESSEE THROUGH EXPORT HOUSE AND SERVICE CHARGES WERE RECEIVED FROM THE EXPORT HOUSE IN INDI AN CURRENCY. THE SERVICING CHARGES WERE FOUND TO BE NOT PART OF EXPO RT SALE TURN OVER. THE BUSINESS OF THE ASSESSEE THEREIN WAS MANUFACTURING PROCESSING AND EXPORT OF ITA 932(DEL)09 17 MARINE PRODUCTS. THE INCOME DERIVED FROM FREEZING AND PROCESSING OF MARINE PRODUCTS WITHOUT WHICH FREEZING AND PROCESS ING THE EXPORT COULD NOT BE MADE WAS AN INCOME EARNED BY USING THE ENTIRE U NDERTAKING OF THE COMPANY I.E. MACHINERY AND POWER AND OTHER MANUFA CTURING AND ADMINISTRATIVE SET UP. IT WAS HELD THAT THE SUM S O RECEIVED COULD BE REGARDED AS BUSINESS PROFIT. IT WAS ON THOSE FACT S THAT THE FREEZING AND PROCESSING CHARGES WERE HELD TO FORM PART OF THE BU SINESS PROFITS AS THE ACTIVITY OF FREEZING AND PROCESSING WOULD HAVE A DI RECT AND IMMEDIATE NEXUS TO THE ACTIVITY OF EXPORT. THESE NOT BEING THE FA CTS HEREIN SOUTHERN SEA FOODS LTD.;(SUPRA) IS ALSO NOT APPLICABLE. 32. ACCORDINGLY GROUND NO.3 IS ALSO FOUND TO BE BE REFT OF ANY MERIT WHATSOEVER AND IS REJECTED AS SUCH. 33. IN THE RESULT THE APPEAL OF THE ASSESSEE IS DI SMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 28.01.2011. SD/- SD/- (G.E. VEERABHADRAPPA) (A.D. JAIN VICE PRESIDENT JUDICIAL MEMB ER DATED: 28.01.2011 *RM COPY FORWARDED TO: ITA 932(DEL)09 18 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR TRUE COPY BY ORDER DEPUTY REGISTRAR