ACIT, Hyderabad V. M/s Navayuga Exports Ltd., Hyderabad

ITA 1049/HYD/2009

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 5551 (ITAT-HYDERABAD)
• Duration Of Justice: 4 year(s) 5 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-03-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 28-04-2011
• Assessment Year: 2002-2003
• Appeal Filed On: 19-10-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: V RAGHAVENDRA RAO
• Keywords: Proportionate interest
• Section: 143(3); 80HHC

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B', HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO.1049/HYD/09 : ASSESSMENT YEAR 2002 - 03 ITA NO.1173/HYD/10 : ASSESSMENT YEAR 2002 - 03 ASST. COMMISSIONER OF INCOME - TAX CENTRAL CIRCLE 1, HYDERABAD V/S. M/S. NAVAYUGA EXPORTS LTD., HYDERABAD (PAN AAA CN 7342 M) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SOLGY JOSE T.KOTTARAM DR RESPONDENT BY : SHRI V.RAGHAVENDRA RAO DATE OF HEARING 27.2.2014 DATE OF PRONOUNCEMENT O R D E R PER SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER: TH ESE TWO APPEALS ARE DIRECTED AGAINST T WO ORDERS OF THE COMMISSIONER OF INCOME - TAX(APPEALS) I, HYDERABAD BOTH DATED 13.8.2009 FOR THE ASSESSMENT YEAR 2002 - 03. WHILE THE FIRST ONE OF THESE ORDERS WAS PASSED IN THE CONTEXT OF ASSESSMENT MADE UNDER S.143(3) READ WITH S.147 OF THE ACT, THE LATER ONE IS PASSED IN THE CONTEXT OF A SSESSMENT MADE UNDER S.143(3) READ WITH S.153A OF THE ACT. SINCE COMMON ISSUES ARE INVOLVED, THESE APPEALS ARE BEING DISPOSED OF WITH THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. ITA NO.1 049 /HYD/0 9 : ASSESSMENT YEAR 2002 - 03 2. LET US F IRST TAKE UP FOR CONSIDERATION THE APPEAL, ITA NO.1049/HYD2009, WHICH ARISES OUT OF THE ASSESSMENT MADE UNDER S.143(3) READ WITH S.153A OF THE ACT. ITA NO. 1 049 / HYD/20 09 & ANR M/S. NAVAYUGA EXPORTS LTD. HYDERABAD 2 3. FIRST EFFECTIVE GRIEVANCE OF THE REVENUE IN THIS APPEAL RELATES TO DISALLOWANCE OF INTEREST ATTRIBUTABLE TO INVESTMENTS. 4. FACTS IN BRIEF RELATING TO THIS ISSUE ARE THAT THE ASSESSEE HAD INVESTED RS.9,00,000 IN M/S. ROHINI POWERTECH LTD., RS.8,50,00 0 IN M/S. WENSOR PROJECT LTD. AND RS.11,00,000 IN NAVAYUGA INFOTECH LTD. WHEN THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY PROPORTIONATE INTEREST ON THESE INVESTMENTS, COMPUTED AT 15% SHALL NOT BE DISALLOWED, SINCE SUCH INVESTMENTS WERE MADE WITH A VIEW TO EARN DIVIDEND INCOME WHICH IS EXEMPT FROM TAX, ASSESSEE SUBMITTED THAT INVESTMENTS WERE NOT MADE OUT OF BORROWED FUNDS, BUT FORM IT ACCUMULATED PROFIT. IT WAS ALSO STATED THAT THE GENERAL RESERVE OF THE ASSESSEE COMPANY AS ON 31.3.2002 STOOD AT RS.11.81 CRORES. THE ASSESSING OFFICER HOWEVER, WAS NOT CONVINCED WITH THE EXPLANATION OF THE ASSESSEE. HE OBSERVED THAT ON 1.4.2001 THE ASSESSEE HAD AN OPENING RESERVE OF RS.6.02 CRORES AND HAD ACCRUED LOAN OF RS.12.47 CORES, MEANING THEREBY THAT THERE WAS A NET DEBIT BALANCE TO THE TUNE OF RS.6.45 CRORES. IF THE ASSESSEE IS HAVING FUNDS AVAILABLE IN RESERVE, THERE WOULD NOT HAVE BEEN ANY NEED TO BORROW MONEY FROM BANKS; AND IF THE MONEY WAS EARNED DURING THE YEAR, THE SAME SHOULD HAVE BEEN USED FOR REPAYMENT OF LOAN, INSTEAD OF INVESTING IN SHARES TO EARN DIVIDEND INCOME WHICH IS EXEMPT FROM TAXATION. SINCE THE INVESTMENT WAS NOT FOR PURPOSE OF BUSINESS, THE ASSESSING OFFICER DISALLOWED INTEREST ATTRIBUTABLE TO SUCH INVESTMENT, WORKING OUT THE SAME APPLYING A RA TE OF 15%, WHICH RESULTED IN THE IMPUGNED ADDITION OF RS.2,64,000. 5. ON APPEAL, THE CIT(A) DELETED THE SAID ADDITION MADE BY THE ASSESSING OFFICER, FOLLOWING THE ORDER OF EVEN DATE PASSED BY HIM ON THIS VERY ISSUE, IN THE APPEAL ARISING OUT OF THE AS SESSMENT MADE UNDER S.143(3) READ WITH S.147 OF THE ACT. IN THAT ORDER, WHICH WAS FOLLOWED, THE CIT(A), INTER - ALIA, OBSERVING THAT THERE IS NOTHING ON RECORD TO PIN POINT THE NEXUS BETWEEN THE INVESTMENT MADE AND THE BORROWED FUND AND THE OBSERVATION OF THE ITA NO. 1 049 / HYD/20 09 & ANR M/S. NAVAYUGA EXPORTS LTD. HYDERABAD 3 ASSESSING OFFICER THAT IF THE ASSESSEE WAS HAVING RESERVE THERE WAS NO NEED FOR BORROWAL, WAS BASELESS AND NOT LOGICAL, DELETED THE ADDITION MADE. HE ALSO RELIED ON THE DECISION OF THE APEX COURT IN THE CASE OF SA BUILDERS (288 ITR 1) IN SUPPORT OF HIS CONCLUSION. 6. HENCE, REVENUE IS IN SECOND APPEAL BEFORE US ON THIS ISSUE. 7. WE HEARD BOTH SIDES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES. WE HAVE ALSO GONE THROUGH THE WRITTEN SUBMISSIONS FILED BY THE LEARNED COUNSEL FOR THE ASSESS EE, IN THE LIGHT OF A NUMBER OF DECISIONS RELIED UPON BY HIM, DULY FURNISHING A LIST, WITH REGARD TO THE FIRST ISSUE RELATING TO DISALLOWANCE OF INTEREST. IT IS EVIDENT FROM THE IMPUGNED ORDERS OF THE REVENUE AUTHORITIES THAT THE ASSESSEE HAS ENOUGH SOURCE S OF FUNDS OF ITS OWN TO COVER THE INVESTMENTS MADE DURING THE YEAR. MERELY BECAUSE IT HAS BORROWED FUNDS ALSO EXCEEDING SUCH OWN FUNDS, IT CANNOT BE SAID THAT THE INTEREST ON THE INVESTMENTS IN PROPORTION TO THE INVESTMENTS MADE SHOULD BE DISALLOWED. T HE REVENUE HAS NOT MADE OUT ANY CASE TO SUGGEST NEXUS BETWEEN THE BORROWED FUNDS AND THE INVESTMENTS MADE. WE ARE IN COMPLETE AGREEMENT WITH THE REASONING GIVEN BY THE CIT(A) FOR DELETING THIS ADDITION MADE BY THE ASSESSING OFFICER. THE DECISIONS OF THE APEX COURT IN THE CASE OF SA BUILDERS (SUPRA), RELIED UPON BY THE CIT(A), SQUARELY COVERS THE ISSUE IN FAVOUR OF THE ASSESSEE. WE ACCORDINGLY UPHOLD THE IMPUGNED ORDER OF THE CIT(A) AND REJECT THE CONTENTIONS OF THE REVENUE ON THIS ISSUE. 8. THE NEXT E FFECTIVE GRIEVANCE OF THE REVENUE IN THIS APPEAL RELATES TO RELIEF UNDER S.80HHC. 9. FACTS IN BRIEF RELATING TO THIS ISSUE ARE THAT IN THE COMPUTATION OF INCOME FILED WITH TH E RETURN, ASSESSEE HAD CLAIMED A DEDUCTION OF R S .90,71,559 UN D ER S.80HHC, AND THE SAID CLAIM HAS BEEN SUBSEQUENTLY REVISED TO R S .51,39,937. HOWEVER, IN THE ASSESSMENT ORDER, THE ASSESSING ITA NO. 1 049 / HYD/20 09 & ANR M/S. NAVAYUGA EXPORTS LTD. HYDERABAD 4 OFFICER DENIED THE CLAIM MADE UNDER S.80HHC ON TH E GROUND THAT THE RELIEF UNDER S.80HHC ARISING OUT O F TH E EXPORT INCEN T IVES IS CON F INED TO THOS E WITH EXPORT TURNOVER NOT EXCEEDING R S .10CRORES. EXPORTERS WITH A TURNOVER OF ABOVE RS.10 CORE, ACCOR D ING TO THE ASSESSING OFFICER, WOULD BE ELIGIBLE FOR RELIEF, IF THEY PRODUCE NECESSARY AND SUFFICIENT EVID E NCE THAT THEY HAVE TO CHOSE THE DUTY DRAW BAC K OR D EPB SCHEME OR DUTY FREE REPLENISHMENT CERTIFICATES AND THAT DU T Y DRAWBACK CRE D I T ATTRIBUTABLE TO THE CUSTOMS DUTY WAS HIGHER THAN THE RATE OF CREDIT ALLO W ABL E FOR DE P B SCHEME OR DUTY FREE REPLENISHMENT CERTIFICATES. THE ASSESSING OFFICER ALSO OBSERVED THAT AS PER THE CALCULATION SHEET FILED BY THE ASSESSEE, THE LOSS RESULTED IN THE ADJUSTABLE PROFIT OF THE BUSINESS WAS SET O F F AGAINST THE ADJUSTED PROFIT FROM DEPB SCHEME AND 80HHC WAS CLAIMED ON THE RESULTANT AMOUNT. HE CITED FIFTH PROVISO UND ER S.80HHC(3) AND NOTED T HAT THE LOSS AS PE R CLAUSE ( A) OR ( B )OR (C) OF SECTION 80HHC(3) CAN BE SET OFF IF THE CON D IT I ONS IN PROVISO 2 OR 3 OR 4 ARE APPLICABLE TO THE ASSESSEE. THE ASSESSING OFFICER HELD T H A T IN ASSESSEES CASE PROVISO 3 IS APPLICABLE SINC E THE ASSESSEE IS HAVING AN EXPORT TURNOVER EXCEEDIN G R S .10 CRORES, AND SINCE THE ASSESSEE HAS NO T PROVIDED WITH NECESSARY EVI D ENCE THAT IT HAS OPTION TO CHOOSE EITH E R THE DUTY DRAWBACK OR D EPB SCHEME, AND SIN C E THE ASSESSEE IS NO T IMPORTING ANY ARTICLE SO AS TO GET DUTY DRAW - BACK, T HE QUESTION OF CHOOSING ANY OPTION DOES NO T ARISE AND H E NCE , TH E DEDUCTION CLAIMED IS NO T ALLOWABLE. 10. ON APPEAL, THE CIT(A) DELETED THE ABOVE DISALLOWANCE MADE BY THE ASSESSING OFFICER, FOLLOWING THE ORDER OF EVEN DATE PA SSED BY HIM ON THIS VERY ISSUE, IN THE APPEAL ARISING OUT OF THE ASSESSMENT MADE UNDER S.143(3) READ WITH S.147 OF THE ACT. IN THAT ORDER, WHICH WAS FOLLOWED, THE CIT(A), RELYING ON THE ORDER OF THE FIRST APPELLATE AUTHORITY ON THIS VERY ISSUE FOR THE ASS ESSMENT YEAR 2001 - 02, UNDER IDENTICAL FACTS AND CIRCUMSTANCES OF THE CASE, ACCEPTED THE CLAIM OF THE ASSESSEE, AND DIRECTED THE ASSESSING OFFICER ACCORDINGLY. HENCE, ASSESSEE IS IN SECOND APPEAL BEFORE US ON THIS ISSUE. ITA NO. 1 049 / HYD/20 09 & ANR M/S. NAVAYUGA EXPORTS LTD. HYDERABAD 5 11. WE HEARD BOTH SIDES AND PERUS ED THE MATERIAL AVAILABLE ON RECORD, INCL UD IN G THE WRITTEN SUBMISSIONS OF THE ASSESSEE. AS NOTED ABOVE, THE IMPUGNED ORDER OF THE CIT( A) FOR THE ASSESSMENT YEAR 2002 - 03 IS BASED ON THE CORRESPONDING ORDER OF THE FIRST APPELLATE AUTHORITY ON THE VERY SAME ISSUE, VIZ. ADMISSIBILITY OF DEDUCTION UNDER S.80HHC FOR THE ASSESSMENT YEAR 2001 - 02. IT IS THE CLAIM OF THE ASSESSEE, AND EVIDENT FROM THE IMPUGNED ORDER OF THE CIT(A) AS WELL, THAT THE SAID ORDER O F THE CIT(A) FOR TH E ASSESSMENT YEAR 2001 - 02 HAS BECOME FINAL, AND FACTS AND CIRCUMSTANCES OF THE CA S E FOR THE YEAR UNDER APPEAL ARE IDENTICAL TO THOSE CONSIDERED BY THE CIT(A) FOR THE ASSESSM ENT YEAR 2001 - 02. THE LEARNED DEPARTMENTAL REPRESENTATIVE TOO HAS NOT CONTROVERTED THIS POSITION. IT HAS BEEN FURTHER BROUGHT TO OUR NOTICE BY THE LEARNED COUNSEL FOR THE ASSESSEE, THAT THE DECISION OF THE GUJARAT HIGH COURT IN THE CA S E OF AVANTI EXPORT S LIMITED AND OTHERS (348 ITR 391), WHEREIN IT HAS BEEN HELD INTERPRETING THE RETROSPECTIVE NATURE OF THE AMENDMENT TO PROVISIONS OF S.80HHC WITH EFFECT FROM 1.4.1998, BY THE TAXATION LAW (AMENDMENT) ACT, 2005, THAT THE SAID AMENDMENTS CANNOT HAVE RETROSPE CTIVE EFFECT, IS IN FAVOUR OF THE ASSESSEE AND THE SAID DECISION HAS ALSO BEEN FOLLOWED IN SIMILAR MATTERS BY SEVERAL OTHER HIGH COURTS . IN THIS VIEW OF THE MATTER, AND IN VIEW OF ANYTHING TO THE CONTRARY BROUGHT TO OUR NOTICE BY THE LEARNED DEPARTMENTAL REPRESENTATIVE, WE FIND NO INFIRMITY IN THE IMPUGN E D ORDER O F TH E CIT(A) , WHICH IS ACCORDINGLY UPHELD AND THE CON T ENTION S OF THE R E VENUE ON THIS ISSUE ARE REJ E CTED. 12. IN THE RESULT, THIS APPEAL OF THE REVENUE, BEING ITA N O.1049/HYD/2009 IS DISMISSE D. ITA NO.1 173 /HYD/ 1 0 : ASSESSMENT YEAR 2002 - 03 13 . NOW TURNING TO THIS OTHER APPEAL, W E MAY NOTE AT TH E OUTSET, THAT THIS APPEAL OF THE REVENUE IS TIME BARRED BY 322 DAYS. THE APPELLANT HAS FILED A PETITION, ACCOMPANIED BY AFFIDAVIT DATED 18.7.2012 SEEKING CONDONATION OF ITA NO. 1 049 / HYD/20 09 & ANR M/S. NAVAYUGA EXPORTS LTD. HYDERABAD 6 DELAY. IT HAS BEEN STATED THEREIN NARRATING THE FACTUAL BACKGROUND THAT THERE WERE TWO ORDERS OF AS SESSMENT, BEING ONE UNDER S.143(3) READ WITH S.147 AND ANOTHER UNDER S.153A RWS 143(3), MAKING CERTAIN DISALLOWANCES. WHILE THE ASSESSEE HAS PREFERRED SEPARATE APPEALS AGAINST BOTH THE ASSESSMENT ORDERS, THE CIT(A) DISPOSED BOTH THE APPEALS, WHICH WERE IDE NTICAL AND FOR THE SAME ASSESSMENT YEAR, WITH ORDERS OF THE SAME DATE, VIZ. 13.8.2009. AS SUCH, WHILE ONE APPEAL WAS PREFERRED AGAINST ONE OF THE ORDERS OF THE CIT(A) DATED 13.8.2009 PASSED UNDER S.153A RWS 143(3) WITHIN TIME, THE OTHER APPEAL TO BE PREF ERRED AGAINST THE ORDER OF THE CIT(A) DATED 13.8.2009 PASSED UNDER S.143(3) READ WITH S.147 WAS LEFT OUT, DUE TO INADVERTENCE. IT IS THEREFORE, PRAYED THAT THE DELAY IN THE FILING OF THE PRESENT APPEAL, ITA NO.1173/HYD/2010, MAY BE CONDONED. 1 4. AS AGAINST THE ABOVE PLEA OF THE APPELLANT, THE LEARNED COUNSEL FOR THE ASSESSEE OPPOSED THE SAID REQUEST OF THE LEARNED DEPARTMENTAL REPRESENTATIVE SEEKING CONDONATION. 15 . ON CAREFUL CONSIDERATION OF THE MATTER, IN THE LIGHT OF THE ARGUMENTS OF THE PARTIE S ON THE ISSUE OF DELAY, WE ARE CONVINCED WITH THE REASONABLENESS OF THE CASE THAT LED TO THE DELAYED FILING OF THE PRESENT APPEAL. WE ACCORDINGLY CONDONE THE SAME AND PROCEED TO DISPOSE OF THIS APPEAL ON MERITS. 16 . EFFECTIVE GROUNDS OF THE REVENUE I N THIS APPEAL READ AS FOLLOWS - 1. THE LEARNED CIT(A) ERRED IN DELETING THE ADDITION MADE FOR DISALLOWANCE OF INTEREST ATTRIBUTABLE TO INVESTMENTS. 2. THE CIT(A) OUGHT TO HAVE APPRECIATED THE FACT THAT INVESTMENT WAS MADE TO EARN DIVIDEND INCOME WHICH WA S EXEMPT FROM TAXATION AND FURTHER THE ASSESSEE HAD A NET DEBIT BALANCE OF R S .6.45 CRORES IN GENERAL R E SERVES AND IF ANY MONEY WAS EARNED SHOULD HAVE GON E TOW A RDS REPAYMENT OF LOANS. ITA NO. 1 049 / HYD/20 09 & ANR M/S. NAVAYUGA EXPORTS LTD. HYDERABAD 7 3. THE LEARNED CIT(A) ERRED IN ALLO W IN G TH E CLAIM OF 80HHC. THE CIT( A) OUGHT TO HAVE APPRECIATED THE FACT THAT THE ASSESSEE IS NOT IMPORTING ANY ARTICLES SO AS TO GET DUTY DRAW BACK AND THEREFORE IT HAD NO OPTION TO CHOOSE THE DUTY DRAW BACK OR THE DUTY ENTITLEMENT. 4. . 17. WE HEARD BOTH SIDES AND PERUSED THE ORDE RS OF THE REVENUE AUTHORITIES. AS IS EVIDENT FROM THE ABOVE GROUNDS, THE ISSUES INVOLVED IN THIS APPEAL ARE IDENTICAL TO THE ONE ALREADY CONSIDERED BY US WHILE DEALING WITH THE APPEAL OF THE ASSESSEE IN THE CONTEXT OF ASSESSMENT MADE UNDER S.143(3) READ WITH S.153A OF THE ACT, VIZ. ITA NOS.1049/HYD/2009, HEREINABOVE. HENCE, FOR THE DETAILED REASONS DISCUSSED IN THAT CONTEXT, THE ABOVE GROUNDS OF THE REVENUE ARE LIABLE TO BE REJECTED. IN ANY EVENT, IN VIEW OF THE SUBSEQUENT ASSESSMENT MADE UNDER S.143(3 ) READ WITH S.153A WITH IDENTICAL ADDITIONS, THE IMPUGNED ASSESSMENT MADE UNDER S.143(3) READ WITH S.147 OF THE ACT, GIVING RISE TO THE PRESENT APPEAL, HAS BECOME INFRUCTUOUS. EVEN ON THAT GROUND, THE ABOVE GROUNDS OF THE REVENUE ARE LIABLE TO BE REJECTE D. WE ACCORDINGLY REJECT THE ABOVE GROUNDS OF THE REVENUE. 18. IN THE RESULT, THIS APPEAL OF THE REVENUE, BEING ITA NO.1173/HYD/2009, IS ALSO DISMISSED. 19. TO SUM UP, BOTH THE APPEALS OF THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE COURT ON SD/ - SD/ - (CHANDRA POOJARI ) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER DT/ - 28 TH MARCH, 2014 ITA NO. 1 049 / HYD/20 09 & ANR M/S. NAVAYUGA EXPORTS LTD. HYDERABAD 8 COPY FORWARDED TO: 1. M/S. NAVAYUGA EXPORTS LTD., VI/I DHRUVATARA APTS, SOMAJIGUDA HYDERABAD 2 . ASST COMMISSIONER OF INCOME - TAX CENTRAL CIRCLE 1 , HYDERABAD 3. COMMISSIONER OF INCOME - TAX(APPEALS) I HYDERABAD 4. COMMISSIONER OF INCOME - TAX HYDERABAD 5 DEPARTMENTAL REPRESENTATIVE, ITAT, HYDERABAD. B.V.S