M/s. Sintex Industries Ltd., Ahmedabad V. The DY.CIT., (OSD)-Range-8, Ahmedabad

CO 99/AHD/2007

• Counselvise Citation: [2011] 122 COUNSELVISE.COM (IT) 6079 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 1 month(s) 23 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 30-06-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 15-06-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 07-05-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: KARTAR SINGH
• Keywords: Business income
• Section: 43B; 80HHC; 14A; 80IB; 80G

Judgement Text

ITA NO.691/AH D/2007 AND C.O.NO.99/AHD /2007. ASSESSMENT YEAR 2004-05. 1 IN THE INCOME TAX APPELLATE TRIBUNAL - A BENCH, A HMEDABAD. (BEFORE SHRI MUKUL KUMAR SHRAWAT & SHRI A. K. GARODIA) I.T.A.NO. 691/AHD/2007 (ASSESSMENT YEAR: 2004-2005) DEPUTY COMMISSIONER OF INCOME TAX, (OSD) CIRCLE-8, 4 TH FLOOR, AJANTA COMMERCIAL CENTRE, ASHRAM ROAD, AHMEDABAD . (APPELLANT) VS. SINTEX INDUSTRIES LTD., ABHIJIT-I, 7 TH FLOOR, MITHAKHALI SIX ROAD, AHMEDABAD . (RESPONDENT) C.O. NO.99/AH D/2007 (ARISING OUT OF I.T.A. NO. 691/AHD/2007) (ASSESSMENT YEAR: 2004-2005) SINTEX INDUSTRIES LTD., ABHIJIT-I, 7 TH FLOOR, MITHAKHALI SIX ROAD, AHMEDABAD. (APPELLANT) VS. DEPUTY COMMISSIONER OF INCOME TAX, (OSD) CIRCLE-8, 4 TH FLOOR, AJANTA COMMERCIAL CENTRE, ASHRAM ROAD, AHMEDABAD. (RESPONDENT) PAN: AADCS0858E APPELLANT BY : SHRI KARTAR SINGH, CIT (D.R.) RESPONDENT BY : SHRI SANJAY R. SHAH. ( )/ ORDER PER: SHRI A.K. GARODIA, A.M. THIS APPEAL IS FILED BY THE REVENUE AND THE CROSS OBJECTION IS FILED BY THE ASSESSEE. THESE ARE DIRECTED AGAINST THE ORDER OF LD. C.I.T. (A)-XIV, AHMEDABAD DATED 16-11-2006 FOR ASSESSMENT YEAR 2004 -05. ITA NO.691/AH D/2007 AND C.O.NO.99/AHD /2007. ASSESSMENT YEAR 2004-05. 2 2. FIRST WE TAKE UP THE APPEAL FILED BY THE REVENUE . 3. GROUND NO.1 OF THE REVENUES APPEAL IS AS UNDER: - 1. THE LD. CIT (A) HAS ERRED IN LAW AND ON FACTS I N DIRECTING THE ASSESSING OFFICER TO ALLOW DEDUCTION U/S. 80HHC IND EPENDENTLY BEFORE REDUCING DEDUCTION U/S. 80IA AND 80G OF THE ACT. 4. BRIEF FACTS REGARDING THIS ISSUE ARE NOTED BY TH E LD. CIT (A) IN PARAGRAPH 10 OF HIS ORDER WHICH IS REPRODUCED BELOW :- 10. GROUND NO.7.1 IS AGAINST REDUCING THE DEDUCTIO N U/S. 80IA AND 80G FROM PROFIT WHILE COMPUTING DEDUCTION U/S. 80HH C OF THE ACT. THE AO HAS REDUCED THE DEDUCTION U/S. 90IA AND 80G FROM THE PROFIT AND COMPUTED THE DEDUCTION U/S. 80HHC THEREAFTER. T HE APPELLANT HAS SUBMITTED THAT THESE DEDUCTIONS HAVE TO BE GIVEN IN DEPENDENTLY AND BOTH THESE DEDUCTIONS U/S. 80IA AND 80G SHOULD NOT BE REDUCED FROM THE PROFIT WHILE COMPUTING DEDUCTION U/S. 80HHC. I HAVE CONSIDERED THE FACTS OF THE CASE AND THE SUBMISSIONS OF THE AP PELLANT. BY FOLLOWING THE CASE LAW (ITA NO.347/AHD/2005 DATED 2 5-8-06) IN THE CASE OF M/S. ATUL INTERMEDIATES, AHMEDABAD VS. ITO (OSD)-1, AHMEDABAD FOR A.Y. 2001-02, I HOLD THAT BOTH THE DE DUCTIONS HAVE TO BE CALCULATED INDEPENDENTLY. THE APPELLANT GETS REL IEF ON THIS POINT. 5. THE LD. D.R. OF THE REVENUE SUPPORTED THE ASSESS MENT ORDER WHEREAS THE LD. A.R. OF THE ASSESSEE SUPPORTED THE ORDER OF THE CIT (A). RELIANCE WAS PLACED BY HIM ON THE TRIBUNAL DECISION RENDERED IN THE CASE OF ACIT VS. RAJOO ENGINEERS LTD., (100 ITD 555) (RAJKO T). ITA NO.691/AH D/2007 AND C.O.NO.99/AHD /2007. ASSESSMENT YEAR 2004-05. 3 6. HE FURTHER SUBMITTED THAT THE LD. CIT (A) HAS A LSO REFERRED TO THE TRIBUNAL DECISION IN THE CASE OF M/S. ATUL INTERMED IATES VS. ITO (ITA NO.347/AHD/2005 DATED 25-8-2006). THE LD. D.R. OF THE REVENUE COULD NOT POINT OUT ANY DIFFERENCE IN FACTS IN THE PRESENT CA SE AND IN THE CASE OF RAJOO ENGINEERS LTD.,(SUPRA) AND IN THE CASE OF ATUL INTE RMEDIATES (SUPRA). BUT HE PLACED RELIANCE ON THE DECISION OF SPECIAL BENCH O F THE TRIBUNAL RENDERED IN THE CASE OF ACIT V/S HINDUSTAN MINT & AGRO PRODUCT S PVT. LTD., 315 ITR (AT) 401 (DELHI)(SB) AND ON THE JUDGMENT OF HONBLE DELHI HIGH COURT RENDERED IN THE CASE OF GREAT EASTERN EXPORTS VS. C IT (2011) 332 ITR 14 (DEL) AND ALSO ON THE DECISION OF HONBLE KERALA HI GH COURT RENDERED IN THE CASE OF OLAM EXPORTS (INDIA) LTD. VS. CIT (2011) 3 32 ITR 40 (KER.). IN THE REJOINDER, LD. A.R. OF THE ASSESSEE PLACED RELIANCE ON THE RECENT DECISION OF HONBLE BOMBAY HIGH COURT RENDERED IN THE CASE OF A SSOCIATED CAPSULES P. LTD. VS. DCIT REPORTED IN (2011) 332 ITR 42 AND DRA WN OUR ATTENTION TO PARAGRAPH 39 OF THIS JUDGMENT. HE SUBMITTED THAT HO NBLE BOMBAY HIGH COURT HAS NOTED THE DECISIONS OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF ROGINI GARMENTS (2007) 294 ITR (AT)(CHENNAI ) AND HINDUSTAN MINT AND AGRO PRODUCTS P. LTD. (2009) 315 ITR (AT) 401 AND ALSO THE JUDGMENT OF HONBLE DELHI HIGH COURT RENDERED IN TH E CASE OF GREAT EASTERN EXPORTS (SUPRA) AND ALSO JUDGMENT OF HONBLE KERALA HIGH COURT RENDERED IN THE CASE OF OLAM EXPORTS (INDIA) LTD.,(SUPRA). IT IS POINTED OUT THAT AFTER CONSIDERING ALL THESE JUDGMENTS, HONBLE BOMBAY HIG H COURT HAD DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE AND THEY HAVE EXPRESSED THEIR INABILITY TO AGREE WITH THE VIEWS EXPRESSED BY HONBLE DELHI HIG H COURT AND BY HONBLE KERALA HIGH COURT. IT IS SUBMITTED THAT THI S DECISION OF BOMBAY ITA NO.691/AH D/2007 AND C.O.NO.99/AHD /2007. ASSESSMENT YEAR 2004-05. 4 HIGH COURT IS THE LATEST AVAILABLE DECISION, THE SA ME SHOULD BE FOLLOWED. IT IS ALSO SUBMITTED THAT OTHERWISE ALSO, WHEN TWO VIEWS ARE POSSIBLE ON ANY PARTICULAR ISSUE, THE VIEW FAVOURABLE TO THE ASSESS EE SHOULD BE FOLLOWED AND IN SUPPORT OF THIS CONTENTION, RELIANCE WAS PLACED ON THE JUDGMENT OF HONBLE APEX COURT RENDERED IN THE CASE OF C.I.T. V S. VEGETABLE PRODUCTS LTD., REPORTED IN 88 ITR 192 (SC) 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL ON RECORD AND SINCE THE JUDGMENT OF HONBLE BOMBAY HIG H COURT IS IN FAVOUR OF THE ASSESSEE AND THERE IS NO JUDGMENT OF HONBLE JURISDICTIONAL HIGH COURT OR THE APEX COURT, WE ARE OF THE CONSIDERED O PINION THAT THE VIEW FAVOURABLE TO THE ASSESSEE SHOULD BE FOLLOWED AS HA D BEEN HELD BY THE HONBLE APEX COURT IN THE CASE OF CIT VS. VEGETABLE PRODUCT LTD., (SUPRA). ACCORDINGLY, WE DECLINE TO INTERFERE IN THE ORDER O F THE LD. CIT (A). GROUND NO.1 OF THE REVENUE IS REJECTED. 8. GROUND NO.2 OF THE REVENUE IS AS UNDER:- 2. THE LD. CIT(A) HAS FURTHER ERRED IN LAW AND ON FACTS IN DIRECTING THE A.O. TO EXCLUDE SALES TAX AND EXCISE DUTY FROM THE TOTAL TURNOVER FOR THE PURPOSE OF CALCULATING DEDUC TION U/S. 80HHC OF THE ACT. 9. THE LD. D.R. OF THE REVENUE SUPPORTED THE ASSESS MENT ORDER, WHEREAS IT IS SUBMITTED BY THE LD. A.R. OF THE ASSESSEE THA T THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE JUDGMENT OF HONBLE A PEX COURT RENDERED IN THE CASE OF C.I.T. VS. LAKSHMI MACHINE WORKS (2007) (290 ITR 667). ITA NO.691/AH D/2007 AND C.O.NO.99/AHD /2007. ASSESSMENT YEAR 2004-05. 5 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDERS OF THE AUTH ORITIES BELOW. WE FIND THAT THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF TH E ASSESSEE BY THE JUDGMENT OF HONBLE APEX COURT IN THE CASE OF CIT VS. LAKSHM I MACHINE WORKS (SUPRA) WHEREIN IT WAS HELD THAT SALES TAX AND EXCI SE DUTY CAN NOT BE INCLUDED IN THE TOTAL TURNOVER FOR THE PURPOSE OF SECTION 80 HHC OF THE ACT. RESPECTFULLY FOLLOWING THIS JUDGMENT OF THE HONBLE APEX COURT, WE DECLINE TO INTERFERE IN THE ORDER OF THE LD. CIT (A). 11. GROUND NO.2 OF THE REVENUE IS ALSO REJECTED. 12. GROUND NO.3 AND 4 OF THE REVENUE ARE GENERAL IN NATURE AND DO NOT CALL FOR ANY ADJUDICATION. 13. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. 14. NOW, WE TAKE UP THE CROSS OBJECTION FILED BY TH E ASSESSEE. GROUND NO.1 AND 1.1 OF THE CROSS OBJECTION ARE AS UNDER:- 1. THE LD. CIT (A) HAS ERRED IN CONFIRMING DISALLO WANCE OF RS. 20,72,017/- (CLAIMED RS.5,87,32,156 ALLOWED RS. 5 ,66,60,139/-) U/S. 80IA FOR CAPTIVE POWER PLANT. IN THE FACTS AND CIRC UMSTANCES OF THE CASE IT IS SUBMITTED THAT NO DISALLOWANCE IS REQUIR ED TO BE MADE AND CLAIM MADE OUGHT TO HAVE BEEN ALLOWED. IT IS SUBMIT TED THAT IT BE SO HELD NOW. 1.1. THE LD. CIT (A) HAS ERRED IN HOLDING THAT THE EXPENSES IN RESPECT OF DIRECTORS REMUNERATION, DIRECTORS FEES A ND TRAVELING, AUDIT FEES, COMPUTER MAINTENANCE EXPENSES AND SECURITY CH ARGES ARE COMMON EXPENSES AND PART OF IT HAS TO BE APPORTIONE D TO CPP UNIT, ITA NO.691/AH D/2007 AND C.O.NO.99/AHD /2007. ASSESSMENT YEAR 2004-05. 6 WHICH REDUCED THE CLAIM OF SECTION 80IA FOR CPP UNI T. IT IS SUBMITTED THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE, NO SUCH ALLOCATION IS REQUIRED TO BE MADE. IT IS SUBMITTED THAT IT BE SO HELD NOW. 15. IT IS SUBMITTED BY LD. A.R. OF THE ASSESSEE THA T CLAIM OF THE ASSESSEE REGARDING DEDUCTION U/S. 80IA WAS REDUCED BY THE A. O. BY RS. 20,72,017/-, OUT OF WHICH, THE AMOUNT OF RS. 18.51 LAKHS IS REDU CED BY HIM BY CONSIDERING THE HEADQUARTER EXPENSES OF RS.461.79 ALLOCATED AT 4.01% ON THE BASIS OF TURNOVER RATIO. IN THIS REGARD, HE DRE W OUR ATTENTION TO PARAGRAPH 3.2 AND 3.3 OF THE ASSESSMENT ORDER. REGARDING NATU RE OF SUCH HQ. EXPENSES, IT IS POINTED OUT THAT THE SAME INCLUDES DIRECTORS REMUNERATION OF RS.200.81 LAKHS, DIRECTORS FEES AND TRAVELING EXPENSES OF RS. 12.21 LAKHS, REPAIRS TO BUILDING RS.74-85 LAKHS, OTHER REPAIRS RS. 146.17 L ACS, AUDIT FEES RS.4.32 LAKHS, COMPUTER MAINTENANCE EXPENSES RS.10.87 LAKHS AND SECURITY CHARGES RS. 12.56 LAKHS. IT IS SUBMITTED THAT NONE OF THESE EXPENSES HAS DIRECT CONNECTION WITH CAPTIVE POWER PLANT (CPP) AND HENCE NO PART OF IT SHOULD BE ALLOCATED TO CPP UNIT. LD. D.R. OF THE REVENUE SUPP ORTED THE ORDERS OF THE AUTHORITIES BELOW. 16. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDERS OF THE AUTH ORITIES BELOW. AFTER CONSIDERING THE NATURE OF EXPENSES COMPRISED IN COM MON HEAD-QUARTER EXPENSES OF RS.461.79 LAKHS, WE FEEL THAT THE SAME WERE RIGHTLY ALLOCATED BY THE A.O. TO CPP UNIT BECAUSE DIRECTORS AND HEAD-QUA RTER ALSO HAVE IMPORTANT ROLE IN THE WORKING OF CPP UNIT AND HENCE THESE EXPENSES ARE TO BE APPORTIONED TO CPP UNIT ALSO AND HENCE, WE DECLINE TO INTERFERE IN THE ORDER OF THE LD. CIT (A) ON THIS ISSUE AND ACCORDINGLY TH IS PART OF GROUND NO.1 AND ITA NO.691/AH D/2007 AND C.O.NO.99/AHD /2007. ASSESSMENT YEAR 2004-05. 7 1.1 OF C.O. ARE REJECTED. THE REMAINING PART OF THI S ISSUE IS RAISED BY THE ASSESSEE IN GROUND NO.1.2, AS UNDER. 17. GROUND NO.1.2 OF THE C.O. IS AS UNDER:- 1.2. LD. CIT (A) HAS ERRED IN HOLDING THAT DEDUCTI ON U/S.80IA FOR CPP UNIT IS COMPUTED AFTER SETTING OFF LOSS COMPUTE D BY ASSESSING OFFICER FOR DAMAN AND BADDI UNIT. IT IS SUBMITTED T HAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE, DEDUCTION TO BE ALLOWED FOR THE PROFIT EARNED FROM THE INDUSTRIAL UNDERTAKING AND NO SET O FF OF LOSS OF OTHER UNIT IS REQUIRED TO BE MADE. IT IS SUBMITTED THAT I T BE SO HELD NOW. 18. REGARDING THIS ISSUE, IT IS SUBMITTED BY THE LD . A.R. OF THE ASSESSEE THAT LOSSES WERE COMPUTED BY THE A.O. FOR DAMAN AND BADDI UNIT AFTER ALLOCATING CERTAIN INTEREST EXPENSES TO THESE UNITS . ON THIS ASPECT, THE ORDER OF THE CIT (A) IS IN FAVOUR OF THE ASSESSEE AND NO GRO UND HAS BEEN RAISED BY THE REVENUE ON THIS ISSUE IN ITS APPEAL AND HENCE, ON T HIS ISSUE, THE ORDER OF THE LD. CIT (A) HAS BECOME FINAL AND HENCE, AFTER GIVIN G EFFECT TO THE ORDER OF THE LD. CIT (A) REGARDING ALLOCATION OF INTEREST EX PENSES TO DAMAN AND BADDI UNIT, THERE WILL BE NO LOSS IN THESE TWO UNIT S AND THIS GROUND NO.1.2 IS OF ACADEMIC INTEREST ONLY. CONSIDERING THIS ASPECT OF THE MATTER, THIS GROUND OF THE ASSESSEES C.O. I.E. 1.2 IS ALSO REJECTED BE ING OF AN ACADEMIC INTEREST ONLY. 19. GROUND NO.2 AND 2.1 OF THE C.O. ARE INTER-CONNE CTED WHICH ARE AS UNDER:- 2. THE LD. CIT (A) HAS ERRED IN NOT ALLOWING DEDUC TION U/S. 80IB OF THE ACT AS CLAIMED IN THE RETURN OF INCOME. IT I S SUBMITTED THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE DEDUCTION U /S. 80IB IS REQUIRED ITA NO.691/AH D/2007 AND C.O.NO.99/AHD /2007. ASSESSMENT YEAR 2004-05. 8 TO BE ALLOWED FOR RS.1,02,04,322. IT IS SUBMITTED T HAT IT BE SO HELD NOW. 2.1. THE LD. CIT (A) HAS ERRED IN CONFIRMING THE AC TION OF ASSESSING OFFICER IN ALLOCATING SALARY, ADMINISTRAT IVE AND GENERAL EXPENSES AND INTEREST EXPENSES WHILE COMPUTING DEDU CTION U/S. 80IB OF THE ACT. IN THE FACTS AND CIRCUMSTANCES OF THE C ASE IT IS SUBMITTED THAT, THE APPELLANT HAS NOT INCURRED ANY EXPENSES F OR THE DAMAN UNIT AND BADDI UNIT AND, THEREFORE, THE SAME IS NOT REQU IRED TO BE REDUCED WHILE COMPUTING DEDUCTION U/S. 80IB OF THE ACT FOR DAMAN UNIT. 20. BRIEF FACTS ARE THAT WHILE COMPUTING DEDUCTION ALLOWABLE TO THE ASSESSEE U/S. 80IB IN RESPECT OF DAMAN AND BADDI UN ITS OF THE ASSESSEE, THE A.O. HAS NOTED ON PAGE-6 OF THE ASSESSMENT ORDER TH AT EXPENSES OF RS.34.97 LAKHS IS TO BE ALLOCATED TO DAMAN UNIT AND RS.122.9 9 TO BADDI UNIT. THESE EXPENSES CONSIST OF INTEREST EXPENSES, SALARY EXPEN SES AND ADMINISTRATIVE/GENERAL EXPENSES. IT WAS SUBMITTED B Y THE ASSESSEE BEFORE US THAT NOW THE DISPUTE IS NOT WITH REGARD TO INTEREST EXPENSES BECAUSE IT IS HELD BY LD. CIT (A) THAT INTEREST EXPENDITURE HAS TO BE ALLOCATED ON THE BASIS OF INVESTMENTS MADE AND NOT ON THE BASIS OF TURNOVER A ND REVENUE HAD NOT RAISED THIS ISSUE IN ITS APPEAL. REGARDING THE ALLO CATION OUT OF SALARY EXPENSES AND ADMINISTRATIVE AND GENERAL EXPENSES, IT WAS SUB MITTED THAT THESE EXPENSES SHOULD NOT BE ALLOCATED AS ACTUAL EXPENDIT URE ARE ALLOCATED WHILE WORKING OUT PROFIT U/S. 80IB. THE LD. D.R. OF THE R EVENUE SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 21. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE MATERIAL ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITI ES BELOW. WE FIND THAT WE HAVE TO DECIDE ONLY REGARDING ALLOCATION OF SALARY EXPENSES AND ADMINISTRATIVE/GENERAL EXPENSES TO TWO UNITS I.E. D AMAN AND BADDI UNITS FOR ITA NO.691/AH D/2007 AND C.O.NO.99/AHD /2007. ASSESSMENT YEAR 2004-05. 9 THE PURPOSE OF COMPUTATION OF DEDUCTION ALLOWABLE U /S. 80IB. THE SUBMISSION OF THE ASSESSEE IS THIS THAT SINCE DIREC T EXPENSES HAS BEEN DIRECTLY ALLOCATED TO THESE TWO UNITS, NO PART OF COMMON EXP ENSES SHOULD BE FURTHER ALLOCATED. WE DO NOT FIND ANY MERIT IN THIS CONTENT ION BECAUSE ACTUAL DIRECT EXPENSES ARE TO BE ALLOCATED DIRECTLY AND THE COMMO N EXPENSES HAS TO BE APPORTIONED ON A REASONABLE BASIS, WHICH HAS BEEN D ONE BY THE A.O. IN THE PRESENT CASE AND HENCE, NO INTERFERENCE IS CALLED F OR. 22. GROUND NO.2 AND 2.1 OF THE CROSS OBJECTION ARE ALSO REJECTED. 23. GROUND NO.3 OF THE CROSS OBJECTION IS AS UNDER: - 3. THE LD. CIT (A) HAS ERRED IN CONFIRMING THE DIS ALLOWANCE MADE FOR RS. 42,218 U/S. 43B IN RESPECT OF UNPAID SUPERA NNUATION FUND IN THE YEAR OF PAYMENT. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, IT OUGHT TO HAVE BEEN ALLOWED. IT IS SUBMITTED THAT IT BE SO DONE NOW. IN ANY EVENT, CIT (A) OUGHT TO HAVE BEEN GIVEN DIRECTI ON TO ALLOW IN THE YEAR OF PAYMENT. IT BE SO DONE NOW. 24. IT IS SUBMITTED BY THE LD. A.R. OF THE ASSESSEE THAT SUITABLE DIRECTION BE GIVEN THAT DEDUCTION SHOULD BE ALLOWED TO THE AS SESSEE U/S. 43B IN THE YEAR OF PAYMENT. WE ARE OF CONSIDERED OPINION THAT THERE IS NO NEED OF THIS DIRECTION BECAUSE IT IS THERE IN THE SECTION I.E. I N SECTION 43B ITSELF THAT DEDUCTION IS ALLOWABLE IN THE YEAR OF PAYMENT. HENC E, THIS GROUND NO.3 OF THE CROSS OBJECTION IS ALSO REJECTED. 25. GROUND NO.4 OF THE C.O. IS AS UNDER:- ITA NO.691/AH D/2007 AND C.O.NO.99/AHD /2007. ASSESSMENT YEAR 2004-05. 10 4. THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ACTI ON OF ASSESSING OFFICER IN DISALLOWING RS.2,67,319 OF EXPENSES BY I NVOKING PROVISIONS OF SECTION 14A OF THE ACT. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, IT IS SUBMITTED THAT PROVISIONS OF SECTIO N 14A IS NOT APPLICABLE AND NO DISALLOWANCE IS REQUIRED TO BE MA DE. IT IS SUBMITTED THAT IT BE SO HELD NOW. 26. THE LD. A.R. OF THE ASSESSEE PLACED RELIANCE ON THE JUDGMENT OF HONBLE KERALA HIGH COURT RENDERED IN THE CASE OF C IT VS. CATHOLIC SYRIAN BANK LTD. & OTHERS (2011) 237 CTR (KER) 164. AS AG AINST THIS, LD. D.R. OF THE REVENUE PLACED RELIANCE ON THE JUDGMENT OF BOMB AY HIGH COURT RENDERED IN THE CASE OF GODREJ & BOYCE MFG. CO. LT D., VS. DCIT REPORTED IN (2010) 328 ITR-81 (BOM.). 27. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDERS OF THE AUTH ORITIES BELOW. BOTH THE DECISIONS CITED BY BOTH THE SIDES ARE OF NON JURISD ICTIONAL HIGH COURTS AND NO DECISION OF HONBLE JURISDICTIONAL HIGH COURT OR OF HONBLE APEX COURT HAS BEEN BROUGHT TO OUR NOTICE. UNDER THIS FACTUAL POSI TION, WE REMIT THE MATTER BACK TO THE FILE OF THE A.O. FOR FRESH DECISION AFT ER CONSIDERING BOTH THESE JUDGMENTS I.E. OF HONBLE BOMBAY HIGH COURT AND OF HONBLE KERALA HIGH COURT (SUPRA). THE A.O. SHOULD PASS NECESSARY ORDE R AS PER LAW AND AS PER THE ABOVE DISCUSSION AFTER PROVIDING ADEQUATE OPPOR TUNITY OF BEING HEARD TO THE ASSESSEE. 28. THIS GROUND NO.4 OF CROSS OBJECTION IS ALLOWED FOR STATISTICAL PURPOSES. ITA NO.691/AH D/2007 AND C.O.NO.99/AHD /2007. ASSESSMENT YEAR 2004-05. 11 29. GROUND NO.5 AND 5.1 OF THE CROSS OBJECTION ARE INTER CONNECTED, WHICH ARE AS UNDER:- 5. THE LD. CIT (A) HAS ERRED IN NOT ACCEPTING THE DEDUCTION CLAIMED U/S.80HHC FOR RS.16,77,480/-.IN THE FACTS A ND CIRCUMSTANCES OF THE CASE IT IS SUBMITTED THE DEDUCTION U/S. 80HH C OUGHT TO HAVE BEEN ACCEPTED. IT IS SUBMITTED THAT IT BE SO HELD N OW. 5.1. THE LD. CIT (A) HAS ERRED IN NOT ALLOWING DED UCTION U/S. 80HHC ON THE SALE OF DEPB LICENSES FOR RS.1,42,63,6 49. IT IS SUBMITTED THAT IN THE FACTS AND CIRCUMSTANCES OF TH E CASE DEDUCTION U/S. 80HHC IS REQUIRED TO BE ALLOWED ON THE SALE OF DEPB LICENSES. IT IS SUBMITTED THAT IT BE SO HELD NOW. 30. IT IS SUBMITTED BY THE LD. A.R. OF THE ASSESSEE THAT THIS ISSUE SHOULD GO BACK TO THE FILE OF A.O. FOR A FRESH DECISION IN T HE LIGHT OF RECENT DECISION OF HONBLE BOMBAY HIGH COURT RENDERED IN THE CASE OF C.I.T. VS. KALPATARU COLOURS & CHEMICALS AS REPORTED IN (2010) 328 ITR 451 (BOM.). THE LD. D.R. OF THE REVENUE SUPPORTED THE ORDERS OF THE AUT HORITIES BELOW. 31. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUS ED THE MATERIAL ON RECORD. WE FIND THAT THIS ISSUE SHOULD GO BACK TO T HE FILE OF THE A.O. FOR A FRESH DECISION IN THE LINE OF THE DECISION OF HONB LE BOMBAY HIGH COURT RENDERED IN THE CASE OF KALPATRU (SUPRA). ACCORDING LY, WE SET ASIDE THE ORDER OF LD. CIT (A) ON THIS ISSUE. THE A.O. SHOULD PASS FRESH ORDER AFTER CONSIDERING THIS JUDGMENT OF HONBLE BOMBAY HIGH CO URT (SUPRA). 32. GROUND NO. 5 AND 5.1 OF THE CROSS OBJECTION ARE ALLOWED FOR STATISTICAL PURPOSES. 33. GROUND NOS. 5.2, 5.3 AND 5.4 ARE INTER-CONNECTE D WHICH ARE AS UNDER:- ITA NO.691/AH D/2007 AND C.O.NO.99/AHD /2007. ASSESSMENT YEAR 2004-05. 12 5.2. THE LD. CIT (A) HAS ERRED IN NOT ALLOWING DED UCTION U/S. 80HHC IS NOT ALLOWABLE ON SERVICE CHARGES OF RS. 7, 72,177, MISC. INCOME OF RS. 86,84,368 AND MISC. BALANCE WRITTEN O FF OF RS. 8,09,944.IN THE FACTS AND CIRCUMSTANCES OF THE CASE IT IS SUBMITTED THAT DEDUCTION U/S. 80HHC IS AVAILABLE ON SERVICE CHARGE S, MISCELLANEOUS INCOME AND MISCELLANEOUS BALANCE WRITTEN OFF. IT I S SUBMITTED THAT IT BE SO HELD NOW. 5.3. THE LD. CIT (A) HAS ERRED IN HOLDING THAT INTE REST SUBSIDY RECEIVED OF RS. 5,08,17,996 IS IN NATURE OF INTERES T INCOME AND ON THIS DEDUCTION U/S. 80HHC IS NOT ALLOWABLE. IN THE FACTS AND CIRCUMSTANCES OF THE CASE IT IS SUBMITTED THAT DEDUCTION U/S. 80H HC IS AVAILABLE ON INTEREST SUBSIDY. IT IS SUBMITTED THAT IT BE SO HEL D NOW. 5.4. IN ANY EVENT IT IS SUBMITTED THAT DIRECTION BE GIVEN TO ASSESSING OFFICER TO REDUCE THE NET INCOME AFTER SETTING OFF THE EXPENSES INCURRED FOR THE SAME, AND NOT THE GROSS INCOME. 34. IT IS SUBMITTED BY THE LD. A.R. OF THE ASSESSEE THAT WHILE WORKING OUT THE BUSINESS PROFIT OF THE ASSESSEE, THE A.O. HAS E XCLUDED 90% OF SERVICE CHARGES OF RS. 7,72,177, MISC. BUSINESS INCOME OF R S. 86,84,368 AND MISC. BALANCE WRITTEN OFF RS. 8,09,944/-. IT IS SUBMITTED THAT MISC. BUSINESS INCOME AND SERVICE CHARGES ETC., ARE RELATED TO BUSINESS I NCOME AND ARE NOT TO BE EXCLUDED FROM BUSINESS INCOME. AT THIS JUNCTURE, I T WAS POINTED OUT BY THE BENCH THAT THE JUDGMENT OF HONBLE APEX COURT RENDE RED IN THE CASE OF CIT VS. K. RAVINDRANATHAN NAIR AS REPORTED IN (2007) 29 5 ITR 228 IS RELEVANT FOR THIS PURPOSE AND IT WAS HELD BY HONBLE APEX COURT IN THIS CASE THAT OUT OF PROCESSING CHARGES, 90% OF THAT SHOULD BE EXCLUDED FROM BUSINESS PROFIT AND THE SAME SHOULD ALSO BE ADDED TO THE TOTAL TURNOVER . IN REPLY, THE LD. A.R. OF THE ASSESSEE HAD NOTHING TO SAY. ONE MORE CONTENTIO N WAS RAISED THAT INTEREST SUBSITY OF RS.508.17 LAKHS INCLUDED IN TOTAL FIGURE OF RS.703.56 LAKHS WAS ALSO CONSIDERED FOR 90% EXCLUSION FROM BUSINESS PRO FIT BUT INTEREST SUBSIDY ITA NO.691/AH D/2007 AND C.O.NO.99/AHD /2007. ASSESSMENT YEAR 2004-05. 13 IS TO MEET THE COST OF INTEREST EXPENSES AND HENCE IT SHOULD BE REDUCED FROM INTEREST COST AND ONLY NET AMOUNT OF INTEREST COST SHOULD BE CONSIDERED FOR 80HHC PURPOSES. A QUERY WAS RAISED BY THE BENCH REG ARDING THE DETAILS OF INTEREST SUBSIDY, IT WAS SUBMITTED THAT THE FULL DE TAILS IS NOT READILY AVAILABLE. HE SUBMITTED THAT A PART OF INTEREST SUBSIDY IS FOR THE PRESENT YEAR AND THE BALANCE IS FOR EARLIER YEARS BUT THE ENTIRE AMOUNT OF SUCH INTEREST SUBSIDY SHOULD BE REDUCED FROM INTEREST COST ONLY. 35. THE LD. D.R. OF THE REVENUE SUPPORTED THE ORDER S OF THE AUTHORITIES BELOW. 36. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITI ES BLOW. REGARDING THE FIRST PART I.E. EXCLUSION OF 90% FROM BUSINESS PROF IT OUT OF SERVICE CHARGES RS.7.77 LAKHS, MISCELLANEOUS INCOME OF RS.86.84 LAK HS AND MISC. BALANCE WRITTEN OFF OF RS.8.09 LAKHS, WE FIND THAT AS PER T HE DECISION OF HONBLE APEX COURT RENDERED IN THE CASE OF RAVINDRANATHAN NAYAR (SUPRA), SUCH EXCLUSION IS JUSTIFIED BECAUSE IT IS IN THE NATURE OF INDEPEN DENT SOURCE OF INCOME LIKE SALARY, COMMISSION, BROKERAGE ETC., AND IT WAS HELD BY HONBLE APEX COURT THAT THOSE INCOMES WHICH ARE IN THE NATURE OF INDEP ENDENT INCOME SHOULD BE EXCLUDED FROM BUSINESS PROFIT TO THE EXTENT OF 90%. THE LD. A.R. OF THE ASSESSEE COULD NOT SATISFY US THAT THIS DECISION OF HONBLE APEX COURT IS NOT APPLICABLE IN THE PRESENT CASE. THE ONLY ARGUMENT I S THIS THAT THE INCOME HAS BEEN ASSESSED AS BUSINESS INCOME AND THE SAME SHOUL D NOT BE EXCLUDED FROM BUSINESS PROFIT BUT IN THE CASE OF RAVINDRANATHAN N AYAR (SUPRA) ALSO, INCOME ON ACCOUNT OF PROCESSING CHARGES WAS ALSO ASSESSED AS BUSINESS INCOME AND HENCE, RESPECTFULLY FOLLOWING THIS JUDGMENT OF HON BLE APEX COURT, THIS ITA NO.691/AH D/2007 AND C.O.NO.99/AHD /2007. ASSESSMENT YEAR 2004-05. 14 ASPECT REGARDING 90% EXCLUSION FROM BUSINESS PROFIT ON ACCOUNT OF SERVICE CHARGES ETC. IS DECIDED AGAINST THE ASSESSEE. REGA RDING THE REMAINING ASPECT I.E. EXCLUSION OF 90% OF INTEREST SUBSIDY, WE ARE O F THE CONSIDERED OPINION THAT TO THE EXTENT OF INTEREST SUBSIDY IN RELATION TO THE PRESENT YEAR, SAME SHOULD BE REDUCED FROM INTEREST EXPENSES OF THE PRE SENT YEAR AND HENCE, NO PART OF INTEREST SUBSIDY RELATING TO PRESENT YEAR S HOULD BE REDUCED FROM BUSINESS PROFIT. REGARDING INTEREST SUBSIDY RELATI NG TO EARLIER YEARS, WE FEEL THAT THE SAME IS NOT A BUSINESS PROFIT FOR THE PRES ENT YEAR AND IT IS NOT RELATABLE TO INTEREST COST OF THE PRESENT YEAR AND INTEREST EXPENSES OF EARLIER YEARS IS NOT LYING DEBITED TO THE PROFIT AND LOSS A CCOUNT OF THE PRESENT YEAR. HENCE, ENTIRE AMOUNT OF SUCH INTEREST SUBSIDY SHOUL D HAVE BEEN REDUCED FROM BUSINESS PROFIT OF THE PRESENT YEAR WHEREAS ON LY 90% WAS EXCLUDED AND THEREFORE, WE CONFIRM THE SAME. THE A.O. SHOUL D RESTRICT THE EXCLUSION FROM BUSINESS PROFIT TO THE EXTENT OF 90% OF INTERE ST SUBSIDY, WHICH IS NOT RELATED TO THE PRESENT YEAR. GROUND NO.5.2 IS REJEC TED, WHEREAS GROUND NO.5.3 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES A ND GROUND NO.5.4 IS REJECTED BECAUSE NO ARGUMENT WAS ADVANCED WITH REGA RD TO THIS GROUND. 37. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED AND THE CROSS OBJECTIONS OF THE ASSESSEE IS PARTLY ALLOWED IN THE TERMS INDICATED ABOVE. ORDER PRONOUNCED IN OPEN COURT ON 30 06- 2011. SD/- SD/- (MUKUL KUMAR SHRAWAT) (A. K. GARODIA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD. DATED: 30- 6 - 2011. ITA NO.691/AH D/2007 AND C.O.NO.99/AHD /2007. ASSESSMENT YEAR 2004-05. 15 S.A.PATKI. COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS)-XIV, AHMEDABAD. 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHMEDABAD. 1.DATE OF DICTATION 22 - 06 -2011 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING 24 /06 / 2011 MEMBER.OTHER MEMBER. 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S 29 - 6 -2011. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT 30 - 06 -2011 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S 30 -6 -2011 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 3 0 - 6 -2011. 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER..