M/s. Ess Kay International exports, Amritsar. V. Assistant Commissioner of Income tax, Amritsar.

CO 4/ASR/2013

• Counselvise Citation: [2013] 124 COUNSELVISE.COM (IT) 7386 (ITAT-AMRITSAR)
• Duration Of Justice: 10 month(s) 24 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 31-12-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 17-12-2013
• Assessment Year: 2001-2002
• Appeal Filed On: 06-02-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SSH S K BANSL
• Assessee Lawyers: AMRIK CHAND
• Section: 80HHC; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. BEFORE SH. H.S. SIDHU, JUDICIAL MEMBER AND SH. B.P.JAIN, ACCOUNTANT MEMBER I.T.A. NO.389(ASR)/2009 ASSESSMENT YEAR:2004-05 PAN :AAAFE5499B INCOME TAX OFFICER, VS. M/S. ESS KAY INTERNATIONAL EXPORTS, WARD 5(1), AMRITSAR. 389, GREEN AVENUE, AMRITSAR. (APPELLANT) (RESPONDENT) C.O. NO.27(ASR)/2009 (ARISING OUT OF ITA NO.389(ASR)/2009) ASSESSMENT YEAR:2004-05 PAN :AAAFE5499B M/S. ESS KAY INTERNATIONAL EXPORTS, VS. INCOME TAX OFFICER, AMRITSAR. WARD-5(1), AMRITSAR. (APPELLANT) (RESPONDENT) I.T.A.NOS. 31 & 32(ASR)/2013 ASSESSMENT YEARS: 2000-01 & 2001-02 PAN :AAAFE5499B ASSTT. COMMR. OF INCOME TAX, VS. M/S. ESS KAY INTER NATIONAL EXPORTS, CIRCLE-V, AMRITSAR. AMRITSAR. (APPELLANT) (RESPONDENT) C.O.NOS. 03 & 04(ASR)/2013 (ARISING OUT OF ITA NOS. 31 & 32(ASR)/2013) ASSESSMENT YEARS: 2000-01 & 2001-02 2 M/S. ESS KAY INTERNATIONAL EXPORTS, VS. ASSTT. COM MR. OF INCOME TAX, AMRITSAR. AMRITSAR. (APPELLANT) (RESPONDENT) DEPARTMENT BY: SH.AMRIK CHAND, DR RESPONDENT BY:S/SH. S.K.BANSL & TARUN BANSAL, ADV OCATES DATE OF HEARING:17/12/2013 DATE OF PRONOUNCEMENT:31/12/2013 ORDER PER BENCH ; THESE THREE APPEALS OF THE REVENUE ARISE FROM THRE E DIFFERENT ORDERS OF THE CIT(A), AS PER DETAILS GIVEN BELOW: SL.NO. ITA NO. CIT(A) ORDER DATED A.Y. 1. 389(ASR)/2009 BHATINDA 19.06.2009 2004-05 2. 31(ASR)/2013 AMRITSAR 07.11.2012 2000-01 3. 32(ASR)/2013 AMRITSAR 02.11.2012 2001-02 2. THE GROUNDS RAISED BY THE REVENUE IN ALL THE APP EALS YEAR-WISE ARE REPRODUCED HEREUNDER: ITA NO.389(ASR)/2009 FOR THE A.Y. 2004-05 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, LD. CIT(A) WAS JUSTIFIED IN COMPUTING THE PRO FITS U/S 80HHC OF 3 THE INCOME TAX ACT, AT 48,09,195/- AND DIRECTING T HIS OFFICE TO RECOMPUTED THE INCOME AS PER HIS DIRECTIONS, WITHOU T APPRECIATING THE FACT THAT THE ASSESSEE IN THIS CASE HAS ADOPTED DOU BLE STANDARD OF ACCOUNTING IN AS MUCH AS WHILE COMPUTING THE TAXABL E INCOME, IT HAS DEDUCTED FROM ITS PROFITS THE INTEREST PAID TO PA RTNERS AND DEPRECATION TOTALING RS.26,55,612/- TO WORK OUT TAXABLE INCOME BUT ON THE OTHER HAND WHILE COMPUTING PROFIT U/S 80HHC THIS EXPENDIT URE OF RS.26,55,612/- HAS NOT BEEN ADDED TO THE INDIRECT COST THEREBY WORKING OUT THE PROFIT U/S 80HHC AT RS.48,09,195/- 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, LD. CIT(A) WAS JUSTIFIED WHILE CALCULATING DEDUCTION U/ S 80HHC, THE ASSESSEE TOOK INTO CONSIDERATION THE NET INTEREST A ND NOT THE GROSS INTEREST, THEREBY INCREASING DEDUCTION U/S 80HHC. 3. APPELLANT CRAVES LEAVE TO AMEND OR ADD ANY ONE O R MORE GROUNDS OF APPEAL. ITA NO.31(ASR)/2013 FOR THE A.Y. 2000-01 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE ORDER OF THE LD. CIT(A) IS BAD IN LAW. 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, LD. CIT(A) HAS ERRED IN ALLOWING RELIEF OF RS.5,64,981 /- BY HOLDING THAT DEDUCTION U/S 80HHC IS TO BE WORKED OUT BY GRANTING NETTING OF BANK INTEREST ( I.E. BANK INTEREST VIS-A-VIS FDR INTERES T RECEIVED) WHEREAS THE AO HAD COMPUTED DEDUCTION U/S 80HHC BY ADOPTING GROSS INTEREST RECEIVED ON FDR. 3. THAT THE ORDER OF THE LD. CIT(A) BE VACATED AND THAT OF THE AO BE RESTORED. 4. THAT THE APPELLANT CRAVES LEAVE TO ADD OR AMEND MORE GROUNDS OF APPEAL. AT THE TIME OF HEARING OF APPEAL ITA NO.32(ASR)/2013 FOR THE A.Y. 2001-02 4 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE ORDER OF THE LD. CIT(A) IS BAD IN LAW. 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, LD. CIT(A) HAS ERRED IN ALLOWING RELIEF OF RS.27,94,75 3/- BY HOLDING THAT DEDUCTION U/S 80HHC IS TO BE WORKED OUT BY GRANTING NETTING OF BANK INTEREST ( I.E. BANK INTEREST VIS-A-VIS FDR INTERES T RECEIVED) WHEREAS THE AO HAD COMPUTED DEDUCTION U/S 80HHC BY ADOPTING GROSS INTEREST RECEIVED ON FDR. 3. THAT THE ORDER OF THE LD. CIT(A) BE VACATED AND THAT OF THE AO BE RESTORED. 4. THAT THE APPELLANT CRAVES LEAVE TO ADD OR AMEND MORE GROUNDS OF APPEAL. AT THE TIME OF HEARING OF APPEAL 3. THE ASSESSEE HAS ALSO FILED CROSS OBJECTIONS IN THE ABOVE SAID APPEALS AND THE GROUNDS RAISED IN DIFFERENT YEARS ARE REPRO DUCED HEREUNDER: I) C.O.NO.27(ASR)/2009 FOR THE A.Y.2004-05 1) THAT THE CIT(A) HAS RIGHTLY DIRECTED TO THE A.O. IN COMPUTING THE DEDUCTION U/S 80HHC ON THE BASIS OF THE ASSESSM ENT YEAR 2003-04 WHICH IS THE ACCEPTED POSITION IN THE DEPARTMENT AN D THE ORDER OF CIT(A) DESERVES TO BE SUSTAINED ON THE BASIS OF DOC TRINE OF CONSISTENCY AND THE BINDING JUDGMENT OF HONBLE SUP REME COURT IN THE CASE OF BERGER PAINTS AS REPORTED IN 266 ITR 19 . 2) THAT THE APPELLANT CRAVES LEAVE TO ADD OR AMEND ANY GROUND OF CROSS-OBJECTIONS BEFORE THE APPEAL IS FINALLY HEARD OR DISPOSED OFF. II) C.O.NO.03(ASR)/2013 FOR THE A.Y. 2000-01 1. THAT THE HONBLE CIT(A) HAS RIGHTLY ALLOWED (NET TING OF BANK INTEREST RECEIVED MINUS BANK INTEREST PAID) HAVING BEARING ON DEDUCTION U/S 80HHC ON THE BASIS OF FACTS & CIRCUMS TANCES OF THE APPELLANT, AS WELL AS RECENT JUDGMENT OF THE APEX C OURT DATED 08/02/2012 IN THE CASE OF ACG ASSOCIATES CAPSULES P VT. LTD. VS. CIT 5 2. THAT THE LD. CIT(A) HAS RIGHTLY DIRECTED THE A.O . TO CONSIDER 90% OF DEPB/DUTY DRAWBACK RECEIVED/EXPORT INCENTIVE S, AS PER THE AMENDMENT BROUGHT IN THE SECTION 80HHC W.E.F. 01.04 .1998 RETROSPECTIVELY INTRODUCED BY FINANCE ACT, 2005. 3. THAT THE RESPONDENT CARVES LEAVE TO ADD OR AMEND ANY GROUND OF CROSS OBJECTIONS BEFORE THE APPEAL IS FINALLY HEARD OR DISPOSED OFF. III) C.O.NO.04(ASR)/2013 FOR THE A.Y. 2001-02 1. THAT THE HONBLE CIT(A) HAS RIGHTLY ALLOWED (NET TING OF BANK INTEREST RECEIVED MINUS BANK INTEREST PAID) HAVING BEARING ON DEDUCTION U/S 80HHC ON THE BASIS OF FACTS & CIRCUMS TANCES OF THE APPELLANT, AS WELL AS RECENT JUDGMENT OF THE APEX C OURT DATED 08/02/2012 IN THE CASE OF ACG ASSOCIATES CAPSULES P VT. LTD. VS. CIT 2. THAT THE LD. CIT(A) HAS RIGHTLY DIRECTED THE A.O . TO CONSIDER 90% OF DEPB/DUTY DRAWBACK RECEIVED/EXPORT INCENTIVE S, AS PER THE AMENDMENT BROUGHT IN THE SECTION 80HHC W.E.F. 01.04 .1998 RETROSPECTIVELY INTRODUCED BY FINANCE ACT, 2005. 3. THAT THE RESPONDENT CARVES LEAVE TO ADD OR AMEND ANY GROUND OF CROSS OBJECTIONS BEFORE THE APPEAL IS FINALLY HEARD OR DISPOSED OFF. 4. FIRST OF ALL, WE TAKE UP APPEAL OF THE REVENUE IN ALL THE ASSESSMENT YEARS SINCE THE ISSUE INVOLVED IN ALL THESE APPEALS IS IDENTICAL. THE BRIEF FACTS DURING THE ASSESSMENT YEAR 2004-05 IN ITA NO.389(AS R)/2009, AS ARGUED BY THE LD. COUNSEL FOR THE ASSESSEE ARE THAT THE ASSES SEE HAS RECEIVED THE INTEREST AND PAID INTEREST WITH UNION BANK OF INDIA AND HONG KONG BANK. THE ASSESSEE HAS TAKEN FDRS FROM THE BANK AND INTEREST IS CREDITED AGAINST THE SAME FDRS PACKING CREDIT LIMIT HAS BEEN AVAILED AND OVERDRAFT IS USED FOR PURCHASES FOR EXPORT PURPOSES. THE INTEREST IS PAID TO THE BANK AND ENTIRE 6 MONEY IS USED FOR EXPORT PURPOSES. THE ASSESSEE IS IN BUSINESS AND IS 100% MERCHANT TRADER AND THERE IS NO LOCAL SALE IN INDIA . THE ASSESSEE ALSO SUBMITTED THAT THE NETTING OF INTEREST HAS BEEN ALL OWED FOR THE ASSESSMENT YEAR 2003-04. THE CONSISTENT PRACTICE SHOULD BE FOL LOWED BY THE AO BUT THE AO DID NOT FOLLOW THE CONSISTENT PRACTICE AND DISAL LOWED THE NETTING OF INTEREST IN THE BRANCH OFFICE DURING THE IMPUGNED Y EAR. 5. THE LD. CIT(A) ACCEPTED THE CONTENTIONS OF THE ASSESSEE AND FOLLOWING THE DECISION OF THE HONBLE DELHI HIGH CO URT IN THE CASE OF CIT VS. SHRI RAM HONDA POWER EQUIP (2007) 289 ITR 475 A LLOWED THE NETTING OF INTEREST. 6. THE LD. COUNSEL FOR THE ASSESSEE SH. S.K.BANSAL, ADVOCATE, RELIED UPON THE ORDER OF THE LD. CIT(A). HE FURTHER PLACED RELIANCE ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF M/S. ACG AS SOCIATED CAPSULES PVT. LTD.(FORMERLY M/S. ASSOCIATED CAPSULES PVT. L TD) VS. COMMISSIONER OF INCOME TAX, MUMBAI, REPORTED IN (2012) 343 ITR 8 9 (SC) DATED 8.2.2012. THE LD. COUNSEL FOR THE ASSESSEE ARGUED THAT THE DECISION OF HONBLE SUPREME COURT HAS SETTLED THE CONTROVERSY WHETHER GROSS INTEREST OF THE NETTING OF INTEREST 90% OF WHICH HAS TO BE EXCL UDED UNDER EXPLANATION (BAA) TO SECTION 80HHC OF THE ACT. 7 7. AS REGARDS THE FACTS FOR THE ASSESSMENT YEAR 200 0-01 IN ITA NO.31(ASR)/2013, THE LD. COUNSEL FOR THE ASSESSEE A RGUED THAT THE ASSESSEE HAS MADE INVESTMENT IN FDRS WHICH HAS BEEN PLEDGED WITH THE BANK AS BANK GUARANTEE AND BANK INTEREST OF RS.19,325/- REP RESENTS THE NET AMOUNT AFTER ADJUSTING INTEREST PAID ON OVERDRAFT AND INTE REST CHARGED BY THE BANK ON PURCHASE OF BILL. THE AO IN THE PRESENT CASE ALSO A DOPTED GROSS INTEREST INSTEAD OF NET INTEREST. THE LD. CIT(A) FOLLOWING T HE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF M/S. ACG ASSOC IATED CAPSULES PVT. LTD. VS. COMMISSIONER OF INCOME TAX, (SUPRA) OBSER VED AS UNDER: I AM OF THE CONSIDERED OPINION TO DIRECT THE A.O. TO RECOMPUTED THE DEDUCTION U/S 80HHC BY GRANTING NETT ING OF BANK INTEREST (BANK INTT. PAID VIS--VIS FDR INTT. RECEI VED AS ON THE FACE OF THE GIVEN FACTS AND CIRCUMSTANCES OF THE CASE, I FI ND THAT THE ASSESSEE FIRM HAS BEEN ABLE TO ESTABLISH DIRECT NEXUS BETWEE N THE BANK INTEREST PAID AND FDR INTEREST INCOME ACCRUED/RECEIVED BY IT AS THE ASSESSEE WAS BOUND TO PURCHASE THE SAID FDR IN ORDER TO MEET OUT THE BASIC REQUIREMENTS OF ITS BANKERS SO AS TO SECURE/PROCURE THE O.D. LIMIT BY PLEDGING THE FDRS PURCHASED IN THE NAME OF THE APPE LLANT FIRM ITSELF, OUT OF ITS BUSINESS ACCUMULATIONS, APPEARING ON ITS ASSET SIDE OF ITS BALANCE SHEET. IN THE TOTALITY OF FACTS AND CIRCUMS TANCES, THE APPELLANT IS ENTITLED TO THE NETTING OF INTEREST WHILE WORKI NG OUT THE DEDUCTION U/S 80HHC ELIGIBLE AND ADMISSIBLE TO THE APPELLANT FIRM FOR THE ASSESSMENT YEAR 2000-01. IN CONCLUSION, THIS GROUND OF APPEAL NO.4 IS DISPOSED OFF IN FAVOUR OF THE APPELLANT WITH THE DI RECTION TO THE AO TO ALLOW DEDUCTION U/S 80HHC OF THE ACT BY ALLOWING NE TTING OF INTEREST CLAIMED BY THE APPELLANT, AFTER VERIFICATION FROM R ECORDS 8 8. AS REGARDS THE ASSESSMENT YEAR 2001-02 IN ITA NO .32(ASR)/2013, THE AO IN THE COMPUTATION OF INCOME HAS TAKEN GROSS BAN K INTEREST INSTEAD OF NET INTEREST IN THE COMPUTATION OF DEDUCTION U/S 80HHC. 8.1. THE LD. CIT(A) BY FOLLOWING THE DECISION OF HO NBLE SUPREME COURT IN THE CASE OF M/S. ACG ASSOCIATED CAPSULES PVT. LT D. VS. COMMISSIONER OF INCOME TAX, (SUPRA) HAS OBSERVED VIDE PARA 13 AS UN DER: 13. AS FAR AS THE FIRST LIMIT OF THIS GROUND OF AP PEAL IS CONCERNED, BY RESPECTFULLY FOLLOWING THE BINDING AND OF DIRECT BE ARING RULINGS LAID DOWN VIDE THEIR ORDER DT.8.2.2012 IN CIVIL APPEAL N O.1914 OF 2012 BY THE APEX COURT IN THE CASE OF HONBLE SUPREME COURT IN THE CASE OF M/S. ACG ASSOCIATED CAPSULES PVT. LTD. VS. COMMISSIONER OF I NCOME TAX, MUMBAI (SUPRA), I AM OF THE CONSIDERED OPINIO N TO DIRECT THE A.O. TO RECOMPUTE THE DEDUCTION U/S 80HHC BY GRANT ING NETTING OF BANK INTEREST (BANK INTT. PAID VIS--VIS FDR INTT. RECEIVED AS ON THE FACE OF THE GIVEN FACTS AND CIRCUMSTANCES OF THE CA SE, I FIND THAT THE ASSESSEE FIRM HAS BEEN ABLE TO ESTABLISH DIRECT NEX US BETWEEN THE BANK INTEREST PAID AND FDR INTEREST INCOME ACCRUED/RECEI VED BY IT AS THE ASSESSEE WAS BOUND TO PURCHASE THE SAID FDR IN ORDE R TO MEET OUT THE BASIC REQUIREMENTS OF ITS BANKERS SO AS TO SECURE/P ROCURE THE O.D. LIMIT BY PLEDGING THE FDRS PURCHASED IN THE NAME OF THE APPELLANT FIRM ITSELF, OUT OF ITS BUSINESS ACCUMULATIONS, APP EARING ON ITS ASSET SIDE OF ITS BALANCE SHEET. IN THE TOTALITY OF FACTS AND CIRCUMSTANCES, THE APPELLANT IS ENTITLED TO THE NETTING OF INTEREST WHILE WORKING OUT THE DEDUCTION U/S 80HHC ELIGIBLE AND ADMISSIBLE TO THE APPELLANT FIRM FOR THE ASSESSMENT YEAR 2001-02. 8.2. THE ARGUMENT OF THE LD. COUNSEL FOR THE ASSESS EE, MR. S.K.BANSAL, ADVOCATE WAS MAINLY ON THE DECISION OF HONBLE SUP REME COURT, IN THE CASE OF M/S. ACG ASSOCIATED CAPSULES PVT. LTD. VS. COMMISSIONER OF 9 INCOME TAX, (SUPRA) AND THEREFORE, PRAYED TO DISMIS S ALL THE APPEALS OF THE REVENUE WHERE THE ASSESSEE AS PER HONBLE SUPREME C OURTS DECISION IS ENTITLED TO 90% OF NOT THE GROSS INTEREST BUT ONLY THE NET INTEREST, WHICH HAS BEEN INCLUDED IN THE PROFITS OF THE BUSINESS OF THE ASSESSEE AS COMPUTED UNDER THE HEADS PROFITS AND GAINS OF BUSINESS OR P ROFESSION IS TO BE DEDUCTED UNDER CLAUSE (1) OF EXPLANATION (BAA) TO S ECTION 80HHC FOR DETERMINING THE PROFITS OF THE BUSINESS. 9. THE LD. DR, MR. AMRIK CHAND, ON THE OTHER HAND, RELIED UPON THE ORDERS OF THE ASSESSING OFFICER IN ALL THE THREE YE ARS AND ARGUED THAT THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF M/ S. ACG ASSOCIATED CAPSULES PVT. LTD. VS. COMMISSIONER OF INCOME TAX, (SUPRA) IS NOT APPLICABLE TO THE PRESENT FACTS AND CIRCUMSTANCES OF THE CASE AND IS NOT IN FAVOUR OF THE ASSESSEE, RATHER IT GOES IN FAVOUR O F THE REVENUE SINCE THERE IS NOTHING ON RECORD THAT INTEREST RECEIVED IS CHARGEA BLE UNDER THE HEADS PROFITS AND GAINS OF BUSINESS OR PROFESSION UNDER SECTION 28 OF THE ACT. IT IS THE PRIME CONDITION, WHICH HAS NOT BEEN EXAMINED BY THE LD. CIT(A) WHILE RELYING UPON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF M/S. ACG ASSOCIATED CAPSULES PVT. LTD. VS. COMMISSIONER OF INCOME TAX, (SUPRA). IT IS ONLY WHEN THE SAID INTEREST RECEIPT IS CHARGEABLE UNDER THE HEADS PROFITS AND GAINS OF BUSINESS OR PROFESSION UNDER SECTION 28 OF THE 10 ACT THEN THE ASSESSEE HAS TO PROVE THE NEXUS BETWE EN THE INTEREST EXPENDITURE AND INTEREST INCOME IN VIEW OF THE DEC ISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. SHRI RAM HONDA PO WER EQUIP (2007) 289 ITR 475 (DELHI), WHICH IN FACT, HAS NOT BEEN ESTABL ISHED BY THE AO BEFORE ANY OF THE AUTHORITIES BELOW. THE CERTIFICATE OF B ANK OF INDIA AT PB-36 FOR THE A.Y. 2004-05 AND SIMILAR CERTIFICATE IN OTHER Y EARS DOES NOT ESTABLISH THAT INTEREST RECEIVED IS CHARGEABLE UNDER THE HEAD PR OFITS AND GAINS OF BUSINESS OR PROFESSION U/S 28 OF THE ACT AND THER E IS NEXUS BETWEEN INTEREST EXPENDITURE AND INTEREST INCOME . ACCORDINGLY, LD. DR RELIED UPON THE ORDER OF THE AO AND PRAYED TO RESTORE THE ORDER OF THE AO AND CANCEL THE ORDER OF THE LD. CIT(A). 10. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. THE LD. COUNSEL FOR THE ASSESSEE, MR. S.K. BANSAL, ADVOCATE, AT THE OUTSET ARGUED THAT THE PRESENT THREE APPEALS OF THE REVENU E ARE COVERED BY THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F M/S. ACG ASSOCIATED CAPSULES PVT. LTD. VS. COMMISSIONER OF INCOME TAX, (SUPRA) AND THEREFORE, THE APPEALS OF THE REVENUE IN ALL THE THREE YEARS BE DISMISSED. THE HONBLE SUPREME COURT IN THE CASE OF M/S. ACG ASSOCIATED CA PSULES PVT. LTD. VS. COMMISSIONER OF INCOME TAX, (SUPRA) HAS MENTIONED T HAT ITAT IN THAT CASE RELYING UPON THE DECISION OF HONBLE DELHI HIGH COU RT IN THE CASE OF 11 COMMISSIONER OF INCOME TAX VS. SHRI RAM HONDA POWER EQUIP (2007) 289 ITR 475 (DELHI) AND HELD THAT NETTING OF THE INTEREST COULD BE ALLO WED IF THE ASSESSEE IS ABLE TO PROVE THE NEXUS BETWEEN THE INT EREST EXPENDITURE AND INTEREST INCOME AND REMANDED THE MATTER TO THE FIL E OF THE A.O. WITH THE DIRECTION TO FIND OUT WHETHER THE ASSESSEE HAS PAID THE RENT ON THE SAME FLATS AGAINST WHICH RENT WAS PAID THEN SUCH RENT IS TO BE REDUCED FROM THE RENTAL INCOME FOR THE PURPOSE OF EXCLUSION OF BUSINESS INC OME FOR COMPUTING THE DEDUCTION U/S 80HHC. AGAINST THIS DECISION OF TRIBU NAL, THE REVENUE FILED AN APPEAL BEFORE THE HIGH COURT, WHO HAS DIRECTED T HAT ON REMAND THE AO WILL DECIDE THE ISSUE IN ACCORDANCE WITH THE JUDGME NT OF THE HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX V. ASIAN STA R CO. LTD. (2010) 326 ITR 156 (BOM.) IN WHICH IT HAS BEEN HELD THAT WHILE DETERMINING THE PROFITS OF THE BUSINESS AS DEFINED IN EXPLANATION (BAA) TO SECTION 80HHC, NINETY PERCENT OF THE NET RECEIPTS TOWARDS INTEREST ON FIX ED DEPOSITS IN BANKS RECEIVED BY THE ASSESSEE WOULD BE EXCLUDED FOR THE PURPOSE OF WORKING OUT THE DEDUCTION U/S 80HHC OF THE ACT. THE HONBLE SUP REME COURT IN THE CASE OF M/S. ACG ASSOCIATED CAPSULES PVT. LTD. VS. COMMI SSIONER OF INCOME TAX, (SUPRA) WHILE INTERPRETING THE EXPLANATION (BA A) TO SECTION 80HHC OBSERVED AS UNDER: 12 9. EXPLANATION (BAA) EXTRACTED ABOVE STATES THAT PROFITS OF THE BUSINESS' MEANS THE PROFITS OF THE BUSINESS AS COMPUTED UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' AS REDUCED BY THE RECEIPTS OF THE NATURE MENTIONED IN CLAUSES (1) AND (2) OF THE EXPLANATION (BAA). THUS, PROFITS OF THE BUSI NESS OF AN ASSESSEE WILL HAVE TO BE FIRST COMPUTED UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' IN ACCORDANCE WITH PROVISIONS OF SECTION 28 TO 44D OF THE ACT. IN THE COMPUTATION OF SUCH PROFITS OF BUSINESS , ALL RECEIPTS OF INCOME WHICH ARE CHARGEABLE AS PROFITS AND GAINS OF BUSINESS UNDER SECTION 28 OF THE ACT WILL HAVE TO BE INCLUDED. SIMILARLY, IN COMPUTATION OF SUCH P ROFITS OF BUSINESS, DIFFERENT EXPENSES WHICH ARE ALLOWABLE UNDER SECTIONS 30 TO 44D HAVE TO BE ALLOWED AS EXPENSES. AFTER INCLUDING SUCH RECEIPTS OF INCOME A ND AFTER DEDUCTING SUCH EXPENSES, THE TOTAL OF THE NET RECEIPTS ARE PROFITS OF THE BUSINESS OF THE ASSESSE E COMPUTED UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' FROM WHICH DEDUCTIONS ARE T O MADE UNDER CLAUSES (1) AND (2) OF EXPLANATION (BAA) . 10. UNDER CLAUSE (1) OF EXPLANATION (BAA), NINETY PER CENT OF ANY RECEIPTS BY WAY OF BROKERAGE, COMMISSIO N, INTEREST, RENT, CHARGES OR ANY OTHER RECEIPT OF A S IMILAR NATURE INCLUDED IN ANY SUCH PROFITS ARE TO BE DEDUC TED FROM THE PROFITS OF THE BUSINESS AS COMPUTED UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION'. THE EXPRESSION 'INCLUDED ANY SUCH PROFITS' IN CLAUSE (1 ) OF THE EXPLANATION (BAA) WOULD MEAN ONLY SUCH RECEIPTS BY WAY OF BROKERAGE, COMMISSION, INTEREST, RENT, CHARGES OR ANY OTHER RECEIPT WHICH ARE INCLUDED IN THE PROFITS OF THE BUSINESS AS COMPUTED UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION'. THEREFORE, IF ANY QUANTUM OF THE RECEIPTS BY WAY OF BROKERAGE, COMMISSION, INTEREST, RENT, CHARGES OR A NY OTHER RECEIPT OF A SIMILAR NATURE IS ALLOWED AS EXP ENSES UNDER SECTIONS 30 TO 44D OF THE ACT AND IS NOT INCL UDED 13 IN THE PROFITS OF BUSINESS AS COMPUTED UNDER THE HE AD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION', NINE TY PER CENT OF SUCH QUANTUM OF RECEIPTS CANNOT BE REDUCED UNDER CLAUSE (1) OF EXPLANATION (BAA) FROM THE PROF ITS OF THE BUSINESS. IN OTHER WORDS, ONLY NINETY PER CE NT OF THE NET AMOUNT OF ANY RECEIPT OF THE NATURE MENTION ED IN CLAUSE (1) WHICH IS ACTUALLY INCLUDED IN THE PRO FITS OF THE ASSESSEE IS TO BE DEDUCTED FROM THE PROFITS OF THE ASSESSEE FOR DETERMINING 'PROFITS OF THE BUSINESS' OF THE ASSESSEE UNDER EXPLANATION (BAA) TO SECTION 80HHC. 11. THE HONBLE SUPREME COURT VIDE PARA 11 OF ITS ORDER RELYING ON THE JUDGMENT OF CONSTITUTIONAL BENCH IN THE CASE DISTRI BUTORS (BARODA) P. LTD. V. UNION OF INDIA AND OTHERS (1985) 155 ITR 120 MENTIO NED ITS VIEWS AS SIMILAR VIEWS AS HAS BEEN HELD BY THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT V. SHRI RAM HONDA POWER EQUIP (SUPRA) AND DI STINGUISHED THE DECISION IN THE CASE OF CIT VS. ASIAN STAR CO. (BOM .) AND HAS GIVEN ITS FINDING IN PARA 12 OF THE JUDGMENT IF THE RENT OR INTEREST IS A RECEIPT CHARGEABLE AS PROFITS AND GAINS OF BUSINESS AND CHA RGEABLE TO TAX U/S 28 OF THE ACT, AND IF ANY QUANTUM OF THE RENT OR INTEREST OF THE ASSESSEE IS ALLOWABLE AS AN EXPENSE IN ACCORDANCE WITH SECTIONS 30 TO 34D OF THE ACT AND IS NOT TO BE INCLUDED IN THE PROFITS OF THE BUS INESS OF THE ASSESSEE AS COMPUTED UNDER THE HEAD PROFITS AND GAINS OF BUSIN ESS OR PROFESSION, NINETY PERCENT OF SUCH QUANTUM OF THE RECEIPT OF RE NT OR INTEREST WILL NOT BE 14 DEDUCTED UNDER CLAUSE (1) OF EXPLANATION (BAA) TO S ECTION 80HHC. IN OTHER WORDS, NINETY PER CENT OF NOT THE GROSS RENT OR GRO SS INTEREST BUT ONLY THE NET INTEREST OR NET RENT, WHICH HAS BEEN INCLUDED IN TH E PROFITS OF BUSINESS OF THE ASSESSEE AS COMPUTED UNDER THE HEAD PROFITS & GAIN S OF BUSINESS OR PROFESSION, IS TO BE DEDUCTED UNDER CLAUSE (1) OF EXPLANATION (BAA) TO SECTION 80HHC FOR DETERMINING THE PROFITS OF THE B USINESS. 12. IN THE PRESENT CASE, THERE IS NOTHING BROUGHT O N RECORD BY THE ASSESSEE BEFORE THE LD. CIT(A) THAT INTEREST IS A RECEIPT CH ARGEABLE AS PROFITS AND GAINS OF BUSINESS AND CHARGEABLE TO TAX U/S 28 OF T HE ACT AND WHETHER ANY PART OF SUCH INTEREST INCOME IS LIABLE TO BE COMPUT ED UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION . THEREFORE, T HE DECISION OF HONBLE SUPREME COURT IN THE CASE OF M/S. ACG ASSOCIATED CA PSULES PVT. LTD. VS. COMMISSIONER OF INCOME TAX, (SUPRA), CANNOT BE MADE APPLICABLE IN THE PRESENT FACTS AND CIRCUMSTANCES OF THE CASE. MOREOV ER, NOTHING HAS BEEN BROUGHT ON RECORD BY THE ASSESSEE BEFORE THE LD. CI T(A) OR EVEN BEFORE US TO PROVE THE NEXUS BETWEEN THE INTEREST EXPENDITURE A ND INTEREST INCOME AND THEREFORE, THE DECISION OF HONBLE DEHI HIGH COURT IN THE CASE OF C.I.T. VS. SHRI RAM HONDA POWER EQUIP (SUPRA) CANNOT BE MADE A PPLICABLE IN THE PRESENT FACTS AND CIRCUMSTANCES OF THE CASE. THEREF ORE, THE LD. CIT(A) IS NOT 15 JUSTIFIED IN ALL THE THREE ASSESSMENT YEARS TO ALL OW RELIEF TO THE ASSESSEE. 13. WE ALSO RELY UPON THE DECISION OF HONBLE SUPRE ME COURT IN THE CASE OF CIT VS. DR. V.P. GOPINATHAN DATED 27.02.2001 RE PORTED IN {2001} 248 ITR 449. THE RELEVANT PART OF THE SAID JUDGMENT IS REPRODUCED FOR THE SAKE OF CONVENIENCE AS UNDER: 2. WHETHER, ON THE FACTS AND IN THE CIRCUMST ANCES OF THE CASE, THE TRIBUNAL IS RIGHT IN LAW AND FACT IN HOL DING, (I) THE ACT OF MAKING DEPOSIT AND THE ACT OF BORROWING ON SUCH DEPOSIT CANNOT BE VIEWED AS REPRESENTING TWO DIFFE RENT TRANSACTIONS ? (II) THERE IS THUS A NEXUS BETWEEN THE DEPOSI T AND THE BORROWING ? (III) THE PRINCIPLE OF MUTUAL DEALINGS COULD BE INFERRED ?' IT ANSWERED THE QUESTIONS IN FAVOUR OF THE A SSESSEE. THE REVENUE IS IN APPEAL BY SPECIAL LEAVE. TO TAKE THE FACTS OF ONE OF THE TWO APPEALS BEFORE US AS ILLUSTRATIVE, THE ASSESSEE HAD PUT MONEYS INTO FIXE D DEPOSIT WITH A BANK AND HAD EARNED IN THE ASSESSMENT YEAR IN QUE STION INTEREST IN THE SUM OF RS. 1,17,444 THEREON. ON THE SECURITY OF THE AMOUNT SO DEPOSITED, THE ASSESSEE TOOK A LOAN F ROM THE BANK AND PAID IN RESPECT OF THE LOAN INTEREST TO TH E BANK IN THE SUM OF RS. 90,410. THE ASSESSEE CLAIMED THAT HE COU LD BE TAXED ONLY ON THE DIFFERENTIAL AMOUNT OF RS. 27,034 . HIS CONTENTION WAS REJECTED BY THE INCOME-TAX OFFICER A ND IN FIRST APPEAL. THE TRIBUNAL TOOK THE CONTRARY VIEW AND OUT OF ITS JUDGMENT THE QUESTIONS QUOTED ABOVE WERE REFERRED T O THE HIGH COURT. THE HIGH COURT ANSWERED THE QUESTIONS AS IND ICATED ABOVE ON THE BASIS THAT THE SITUATION WAS ONE OF MU TUALITY. LEARNED COUNSEL APPEARING FOR THE ASSESSEE BEFORE THE TRIBUNAL HAD MADE IT CLEAR THAT THE ASSESSEE'S CASE DID NOT REST UPON THE PROVISIONS OF SECTION 57(III) OF THE ACT. IN OTHER WORDS, IT WAS NOT THE CONTENTION OF THE ASSESSEE, VERY RIG HTLY, THAT HE 16 WAS PAYING INTEREST TO THE BANK TO FACILITATE THE E ARNING OF INTEREST FROM THE BANK. THE ARGUMENT BEFORE US ON BEHALF OF THE ASSE SSEE WAS THAT THE REAL INCOME OF THE ASSESSEE IS ONLY RS. 27,034. IT WAS NOT DISPUTED, AS IT COULD NOT BE, THA T IF THE ASSESSEE HAD TAKEN A LOAN FROM ANOTHER BANK AND PAID INTEREST TH EREON HIS REAL INCOME WOULD NOT DIMINISH TO THE EXTENT THEREOF. TH E ONLY QUESTION THEN IS : DOES IT MAKE ANY DIFFERENCE THAT HE TOOK THE LOAN FROM THE SAME BANK IN WHICH HE HAD PLACED THE FIXED DEPOSIT. THERE IS NO DIFFERENCE IN THE EYE OF THE L AW. THE INTEREST THAT THE ASSESSEE RECEIVED FROM THE BANK WAS INCOME IN HIS HANDS. IT COULD STAND DIMINISHED ONLY IF THERE WAS A PROVISION IN LAW WHICH PERMITS SUCH DIMINUTION. THERE IS NONE, A ND, THEREFORE, THE AMOUNT PAID BY THE ASSESSEE AS INTEREST ON THE LOAN THAT HE TOOK FROM THE BANK DID NOT REDUCE HIS INCOME BY WAY OF INTEREST ON THE FIXED DEPOSIT PLACED BY HIM IN THE BANK. LEARNED COUNSEL FOR THE ASSESSEE DREW OUR ATTENTIO N TO THE JUDGMENT OF THE GUJARAT HIGH COURT IN JASHVIDYABEN C. MEHTA V. CIT [1988] 172 ITR 680. THIS WAS IN RESPECT OF MONE YS DEPOSITED IN THREE DIFFERENT ACCOUNTS OF A FIRM AND IT WAS FOUND, AS A FACT, THAT THE REAL INCOME THAT THE ASSESSEE D REW FROM THE FIRM WAS REDUCED BY HER DUES TO THE FIRM. THE FACTS OF THE CASE ARE TOTALLY DIFFERENT FROM THOSE BEFORE US. IN THE RESULT, THE APPEALS ARE ALLOWED. THE ORDERS UNDER APPEAL ARE SE T ASIDE. THE QUESTIONS ARE ANSWERED IN FAVOUR OF THE REVENUE. NO ORDER AS TO COSTS. 14. ACCORDINGLY, WE RESTORE THE ORDER OF THE A.O. A ND IN ALL THE THREE ASSESSMENT YEARS AND CANCEL THE ORDERS OF THE LD. C IT(A). SINCE THE ISSUE IS IDENTICAL IN ALL OTHER APPEALS OF THE REVENUE BEFOR E US, THEREFORE, OUR DECISION HEREINABOVE IN ITA NO.389(ASR)/2009 SHALL BE IDENTI CALLY APPLICABLE IN OTHER APPEALS OF REVENUE IN ITA NO. 31 & 32(ASR)/20 13. ACCORDINGLY, ALL THE APPEALS OF THE REVENUE ARE ALLOWED. 17 15. THE ASSESSEE HAS FILED CROSS OBJECTIONS AGAINS T ALL THE APPEALS OF THE REVENUE WHICH ARE SUPPORTIVE IN NATURE AND IN VIEW OF OUR DECISION IN REVENUES APPEALS HEREINABOVE, WE DISMISS ALL THE C .OS OF THE ASSESSEE. 16. IN THE RESULT, ALL THE THREE APPEALS FILED BY THE REVENUE IN ITA NO. 389(ASR)/2009, ITA NOS. 31 & 32(ASR)/2013 ARE ALLOW ED AND ALL THE C.OS FILED BY THE ASSESSEE BEARING NOS.27(ASR)/2009, 3 & 4(ASR)/2013 ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 31ST DECEMBER., 2013. SD/- SD/- (H.S. SIDHU) (B.P. JAIN) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 31ST DECEMBER, 2013 /SKR/ COPY OF THE ORDER FORWARDED TO: 1. THE ASSESSEE:M/S. ESS KAY INTERNATIONAL EXPORTS, AM RITSAR. 2. THE ITO WARD 5(1), ASR. 3. THE CIT(A), ASR 4. THE CIT, ASR. 5. THE SR DR, ITAT, AMRITSAR. TRUE COPY BY ORDER (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, AMRITSAR BENCH: AMRITSAR.