Medieval Glass India Pvt. Ltd, Distt. Jalandhar V. The Additional Commissioner of Income-tax, Phagwara

ITA 109/ASR/2013

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 4431 (ITAT-AMRITSAR)
• Duration Of Justice: 6 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-09-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 27-08-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 19-02-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: Y K SAXENA
• Assessee Lawyers: S R CHHABRA
• Keywords: Business income
• Section: 80HHC; 10B

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.109(ASR)/2013 ASSESSMENT YEAR:2007-08 PAN :AABC1403F M/S. MEDIEVAL GLASS INDIA PVT. LTD. VS. ADDL. COMMR . OF INCOME TAX, 335 KM MILESTONE, NH NO.1, PHAGWARA RANGE, VILL. DISTT. JALANDHAR. PHAGWARA. (APPELLANT) (RESPONDENT) APPELLANT BY:SH.S.R.CHHABRA, ADVOCATE RESPONDENT BY:SH.Y.K.SAXENA, DR DATE OF HEARING:27/08/2013 DATE OF PRONOUNCEMENT:11/09/2013 ORDER PER BENCH ; THIS APPEAL OF THE ASSESSEE ARISES FROM THE ORDER OF THE CIT(A), JALANDHAR DATED 13.12.2012 FOR THE ASSESSMENT YEAR 2007-08. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: 1. THE LD. CIT(A), JALANDHAR, HAS ERRED IN LAW AN D ON THE FACTS OF THE CASE:- A) BY ARBITRARILY AND WRONGLY SUSTAINED THE DISAL LOWANCE OF DEDUCTION U/S 10B OF THE INCOME TAX ACT, 1961 W. R.T. THE FOLLOWING RECEIPTS: ITA NO.109(ASR)/2013 2 I) INTEREST ON FDRS RS.170664/- II) SCRAP SALES RS.201643/- 2. THE ABOVE SAID ORDER IS BAD IN LAW AND CONTRARY TO THE FACTS OF THE CASE. 3. IT IS THEREFORE PRAYED THAT APPEAL MA PLEASE BE ACC EPTED AND SUCH RELIEF MAY KINDLY BE ALLOWED WHICH MAY BE DEEM ED FIT AND PROPER UNDER THE CIRCUMSTANCES OF THE CASE. 4. THE ASSESSEE CRAVES PERMISSION TO FILE/RAISE/AMEND ANY OTHER GROUND OF APPEAL BEFORE AT THE TIME OF HEARING. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E HAS DECLARED A TOTAL INCOME AT NIL AFTER CLAIMING UNDER SECTION 10B OF T HE INCOME TAX ACT, 1961 (IN SHORT, THE ACT) AMOUNTING TO RS.29,41,330/- I NCLUDING INTEREST ON FDRS AMOUNTING TO RS.170644/-, SCRAP SALES AMOUNTING TO RS.2,01,643/- ALONGWITH OTHER DEDUCTIONS. IT WAS HELD BY THE AO THAT DEDUCT ION WAS TO BE ALLOWED ON PROFITS DERIVED FROM THE EXPORT OF THE ARTICLES AN D SINCE THE TERM DERIVED FROM HAS A NARROWER MEANING THAN THE TERM ATTRIBUT ABLE TO THE IMPUGNED ITEMS DID NOT QUALIFY FOR DEDUCTION U/S 10B OF THE ACT SINCE THEY DO NOT HAVE A DIRECT NEXUS TO PROFITS FROM EXPORT. HE RELIED U PON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF M/S. STERLING FOODS 237 ITR 579 (SC) AND M/S. COMBAY ELECTRIC SUPPLY CO. 113 ITR 84 (SC) . 3. BEFORE THE LD. CIT(A), THE AUTHORISED REPRESENTA TIVE OF THE ASSESSEE MADE THE SUBMISSIONS AND RELIED UPON THE DECISIONS OF VARIOUS COURTS OF LAW. ITA NO.109(ASR)/2013 3 THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE CONFIRMED THE ACTION OF THE A.O. WHICH IS AVAILABLE IN PARA 7 TO 13 OF HIS ORDER. 4. THE LD. COUNSEL FOR THE ASSESSE, MR. S.R.CHHABRA , ADVOCATE RELYING UPON THE SUBMISSIONS MADE BEFORE THE LD. CIT(A) ALS O RELIED UPON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE I N THE CASE OF VIKAS KALRA VS. CIT REPORTED IN (2012) 345 ITR 557(SC) AND VARI OUS OTHER DECISIONS RELIED UPON BEFORE THE LD. CIT(A) AND OTHER DECISIO NS IN THE PAPER BOOK CONTAINING PAGES 1 TO 80 AND PRAYED TO DELETE THE A DDITION CONFIRMED BY THE LD. CIT(A). 5. THE LD. DR, ON THE OTHER HAND, RELIED UPON THE O RDERS OF BOTH THE AUTHORITIES BELOW. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. AS REGARDS INTEREST ON FDRS, THE BRIEF FACTS AS STA TED ARE THAT DURING THE YEAR FDR AMOUNTING TO RS. 3086712/- WERE MADE OUT OF CAS H CREDIT OVERDRAFT ACCOUNT WITH THE BANK AND THE ASSESSEE HAD EARNED INTEREST OF RS.1,70,644/- ON THE SAID FDRS AND HAS PAID INTEREST TO THE BANK OF RS.3,47,454/- ON THE CREDIT LIMITS. IT WAS CLAIMED BY THE ASSESSEE THAT BOTH INTEREST PAID AND INTEREST EARNED WERE OUT OF BUSINESS CONSIDERATIONS OF AN INDUSTRIAL UNDERTAKING, THE PROFITS OF WHICH WERE ELIGIBLE FOR DEDUCTION U/S 10B OF THE ACT. MAINLY, THE LD. COUNSEL FOR THE ASSESSEE RELI ED UPON THE DECISION IN THE ITA NO.109(ASR)/2013 4 CASE OF VIKAS KALRA VS. CIT (SUPRA) DATED FEBRUARY 8, 2012. ON PERUSAL OF THE SAID DECISION OF HONBLE SUPREME COURT, WE FIND THAT THE SAID DECISION IS ON DIFFERENT ASPECTS AND FOR THE SAKE OF CONVENIENC E THE FULL TEXT OF THE JUDGMENT IS REPRODUCED AS UNDER: THE JUDGMENT OF THE COURT WAS DELIVERED BY A. K. PATNAIK, J. -LEAVE GRANTED. 2. THESE ARE THE APPEALS AGAINST THE ORDER DATED 1 8.02.2011 AS MODIFIED BY THE ORDER DATED 22.03.2011 OF THE DELHI HIGH COURT IN ITA NO.185 OF 2011 AND THE ORDER DATED 21.02.2011 AS MODIFIED BY THE ORDER D ATED 22.03.2011 OF THE DELHI HIGH COURT IN ITA NO.308 OF 2011. 3. THE FACTS VERY BRIEFLY ARE THAT THE APPELLANT I S ENGAGED IN MANUFACTURING AND EXPORTING LEATHER GARMENTS. FOR THE ASSESSMENT YEA RS 2001-2002 AND 2004-2005, THE APPELLANT FILED RETURNS OF INCOME CLAIMING DED UCTIONS IN RESPECT OF PROFITS RETAINED FOR EXPORT BUSINESS UNDER SECTION 80HHC O F THE INCOME TAX ACT, 1961 (FOR SHORT `THE ACT'). THE ASSESSING OFFICER HELD IN THE ASSESSMENT ORDERS THAT THE ENTIRE SALE VALUE OF DUTY ENTITLEMENT PASS BOOK (F OR SHORT `DEPB') REPRESENTS PROFIT ON TRANSFER OF DEPB UNDER SECTION 28(IIID) OF THE ACT AND DID NOT ALLOW THE AMOUNT OF DEDUCTION CLAIMED BY THE APPELLANT UNDER SECTION 80HHC. THE APPELLANT FILED APPEALS BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS) BUT THE COMMISSIONER OF INCOME TAX (APPEALS) SUSTAINED THE ORDERS OF THE ASSESSING OFFICER. THE APPELLANT FILED APPEALS BEFORE THE IN COME TAX APPELLATE TRIBUNAL (FOR SHORT `THE TRIBUNAL') AND THE TRIBUNAL FOLLOW ING THE ORDER DATED 11.08.2009 OF THE SPECIAL BENCH OF THE TRIBUNAL AT MUMBAI IN TH E CASE OF M/S TOPMAN EXPORTS ALLOWED THE APPEALS AND HELD THAT THE FACE VALUE O F THE DEPB WILL BE `CASH ASSISTANCE' AGAINST EXPORT AND WILL FALL UNDER SEC TION 28(IIIB) OF THE ACT AND THE SALE VALUE LESS THE FACE VALUE OF THE DEPB WILL BE PROFIT ON TRANSFER OF DPB AND WILL FALL UNDER SECTION 28(IIID) OF THE ACT. 4. AGGRIEVED, THE REVENUE PREFERRED THE APPEALS IT A NO.185 OF 2011 IN RESPECT OF ASSESSMENT YEAR 2001-2002 AND ITA NO.308 OF 2011 I N RESPECT OF ASSESSMENT YEAR 2004-2005 BEFORE THE DELHI HIGH COURT AGAINST THE ORDERS OF THE TRIBUNAL. IN BOTH THE APPEALS, THE HIGH COURT HELD IN THE IMPUG NED ORDERS THAT THE TRIBUNAL SIMPLY FOLLOWED THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL AT MUMBAI IN M/S TOPMAN EXPORTS AND THE DECISION OF THE SPECIAL BENCH IN M/S TOPMAN EXPORTS HAS BEEN REVERSED BY THE BOMBAY HIGH COURT IN COMMISSIONER OF THE INCOME TAX V. KALPATARU COLOURS AND CHEMICALS (ITA (L) 2887 OF 2009). THE HIGH COURT ACCORDINGLY SET ASIDE THE ORDERS OF THE TRIBUNAL AND REMITTED THE CASE TO THE TRIBUNAL TO DECIDE THE APPEALS OF THE APPEL LANT ON MERITS AFTER TAKING INTO ITA NO.109(ASR)/2013 5 ACCOUNT THE FACTS OF THE CASES. IN ITA NO.308 OF 2011, AN ADDITIONAL ISSUE RAISED BEFORE THE HIGH COURT WAS WHETHER THE TRIBUNAL WAS CORRECT IN LAW IN IGNORING EXPLANATION (BAA) UNDER SECTION 80HHC OF THE ACT W HICH SPECIALLY EXCLUDES PROFITS OF DEPB FROM TOTAL TURNOVER AND THE HIGH C OURT HELD THAT THIS ISSUE WAS COVERED BY ITS JUDGMENT IN THE CASE OF COMMISSIONE R OF INCOME-TAX V. SHRI RAM HONDA POWER EQUIP [(2007) 289 ITR 475 (DELHI)]. 5. WE HAVE TODAY DELIVERED JUDGMENT IN CIVIL APPEA L ARISING OUT SLP (C) NO.26558 OF 2010 (M/S TOPMAN EXPORTS V. COMMISSION ER OF INCOME TAX, MUMBAI) AND OTHER CONNECTED APPEALS SETTING ASIDE THE JUDGMENT OF THE BOMBAY HIGH COURT IN COMMISSIONER OF THE INCOME TAX V. KA LPATARU COLOURS AND CHEMICALS. WE HAVE ALSO DELIVERED A SEPARATE JUDGM ENT IN CIVIL APPEAL ARISING OUT OF S.L.P. (C) NO.32450 OF 2010 (M/S ACG ASSOCIATED CAPSULES PRIVATE LIMITED V. COMMISSIONER OF INCOME TAX, CENTRAL-IV, MUMBAI) AND OTHER CONNECTED APPEAL AFFIRMING THE JUDGMENT OF THE DEL HI HIGH COURT IN COMMISSIONER OF INCOME TAX V. SHRI RAM HONDA POWER EQUIP (SUPRA). THESE TWO APPEALS ARE DISPOSED OF IN TERMS OF OUR AFORE SAID TWO JUDGMENTS. THERE SHALL BE NO ORDER AS TO COSTS. THEREFORE, SAID JUDGMENT RELIED UPON BY THE LD. C OUNSEL FOR THE ASSESSEE OF THE HONBLE SUPREME COURT IN THE CASE OF VIKAS KALR A VS. CIT (SUPRA) IS NOT APPLICABLE IN THE FACTS AND CIRCUMSTANCES OF THE PR ESENT CASE WHICH ARE DIFFERENT ON THE SUBJECT. 6.1. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E LD. CIT(A) HAS RIGHTLY RELIED UPON THE DECISION OF THE HONBLE SUPREME COU RT IN THE CASE OF M/S. PANDIAN CHEMICALS 262 ITR 278 WHEREIN IT HAS BEEN H ELD THAT INTEREST DERIVED BY THE INDUSTRIAL UNDERTAKING OF THE ASSES SEE ON DEPOSITS MADE WITH THE ELECTRICITY BOARD FOR THE SUPPLY OF ELECTRICITY FOR RUNNING THE INDUSTRIAL UNDERTAKING COULD NOT BE SAID TO FLOW DIRECTLY FROM THE INDUSTRIAL UNDERTAKING ITSELF AND WAS NOT PROFITS OR GAINS DE RIVED BY THE UNDERTAKING FOR THE PURPOSE OF THE SPECIAL DEDUCTION UNDER SECT ION 80HH. ITA NO.109(ASR)/2013 6 6.2. WE ALSO RELY UPON THE DECISION OF THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF RANI PALIWAL VS. CIT REP ORTED IN (2004) 268 ITR 220 WHERE IT HAS BEEN HELD THAT THE TRIBUNAL WAS R IGHT IN HOLDING THAT 90% OF THE INTEREST THAT WAS DEDUCTIBLE FOR THE CLAIM U/S 80HHC OF THE ACT WAS FROM THE GROSS INTEREST RECEIVED BY THE ASSESSEE AN D THAT THE AMOUNT OF INTEREST PAID BY THE ASSESSEE COULD NOT BE DEDUCTED THEREFROM. THE RELEVANT TEXT OF THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IS REPRODUCED FOR THE SAKE OF CONVENIENCE AS UNDER: THIS ISSUE RELATES TO THE INCLUSION OF INTEREST AS PART OF THE ASSESSEE'S BUSINESS INCOME FOR WORKING OUT THE DEDUCTION CL AIMED UNDER SECTION 80HHC OF THE ACT. THE TOTAL INTEREST RECEI VED BY THE ASSESSEE DURING THE RELEVANT ASSESSMENT YEAR WAS RS. 6,33,4 54 AND THE TOTAL INTEREST PAID BY THE ASSESSEE WAS RS. 4,12,982. TH E ASSESSING OFFICER WAS OF THE VIEW THAT 90 PER CENT OF THE GROSS AMOU NT OF INTEREST OF RS. 6,33,454 WAS LIABLE TO BE DEDUCTED FROM THE PROFIT S OF THE BUSINESS FOR THE PURPOSE OF DEDUCTION. HE, THEREFORE, REDUCED T HE QUANTUM OF DEDUCTION UNDER SECTION 80HHC OF THE ACT ACCORDING LY. THE COMMISSIONER OF INCOME-TAX (APPEALS), HOWEVER, TOO K A DIFFERENT VIEW IN APPEAL AND ALLOWED 90 PER CENT. OF THE AMOUNT O F INTEREST TO BE DEDUCTED AFTER DEDUCTING A SUM OF RS. 4,12,982 WHI CH HAD BEEN PAID BY THE ASSESSEE AS INTEREST DURING THE ASSESSMENT YEAR. THE TRIBUNAL AGAIN AFFIRMED THE VIEW OF THE ASSESSING OFFICER H OLDING THAT 90 PER CENT. OF THE INTEREST THAT WAS DEDUCTIBLE FOR THE CLAIM UNDER SECTION 80HHC OF THE ACT WAS FROM THE GROSS INTEREST RECEI VED BY THE ASSESSEE AND THAT THE AMOUNT OF INTEREST PAID BY THE ASSESS EE COULD NOT BE DEDUCTED THEREFROM. A PLAIN READING OF CLAUSE (BAA ) OF EXPLANATION TO SECTION 80HHC OF THE ACT MAKES THIS ASPECT QUITE C LEAR AND WE ARE OF THE VIEW THAT THE TRIBUNAL WAS RIGHT IN DISALLOWIN G THE CLAIM OF THE ASSESSEE IN THIS REGARD. 6.3. ACCORDINGLY IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE ITA NO.109(ASR)/2013 7 DECISIONS RELIED UPON HEREINABOVE, WE FIND NO INFIR MITY IN THE ORDER OF THE LD. CIT(A) WHO HAS RIGHTLY UPHELD THE ACTION OF THE A.O. THUS, GROUND NO.1(A)(I) OF THE ASSESSEE IS DISMISSED. 7. AS REGARDS GROUND NO.1(A)(II) WITH REGARD TO SC RAP SALES AMOUNTING TO RS.2,01,643/-, THE ASSESSEE HAS CLAIMED THE SCRAP S ALE IS ONLY THE PART RECOVERY OF THE COST OF MATERIAL WITHOUT ANY PROFIT ELEMENT. THE COST OF SCRAP IS MORE THAN ITS SALES VALUES. ACCORDINGLY, HE RELI ED UPON THE DECISIONS OF VARIOUS COURTS OF LAW BEFORE THE LD. CIT(A) AND BEF ORE US. 7.1. THE FACTS OF THE PRESENT CASE AND THE DECISION S RELIED UPON HAVE BEEN CONSIDERED AND WE ARE OF THE VIEW THAT THE LD. CIT( A) HAS RIGHTLY RELIED UPON THE DECISION OF THE HONBLE JURISDICTIONAL HIG H COURT OF PUNJAB & HARYANA IN THE CASE OF M/S. BICYCLE WHEELS (INDIA) 335 ITR 384 WHERE IT HAS BEEN HELD SALE OF SCRAP CANNOT BE EXCLUDED FRO M THE TOTAL TURNOVER WHILE COMPUTING DEDUCTION UNDER SECTION 80HHC OF THE ACT AS UNDER: DEDUCTION U/S 80HHC COMPUTATION OF TOTAL TURNOVER SALE OF SCRAP OF INDIA SALE OF SCRAP CANNOT BE EXCLUDED FROM T OTAL TURNOVER WHICH SHALL INCREASE THE DENOMINATOR OF THE FORMUL A FOR DETERMINING THE EXTENT OF BENEFIT ADMISSIBLE TO AN ASSESSEE U/ S 80HHC SCRAP WHICH HAD RESULTED FROM THE MANUFACTURING OF THE I TEM EXPORTED WAS SOLD IN THE LOCAL MARKET IN INDIA ONCE THAT WAS SO, THE ASSESSEE WAS NOT JUSTIFIED IN EXCLUDING THE SAME FROM CALCULATI NG THE TOTAL TURNOVER. ITA NO.109(ASR)/2013 8 7.2. ACCORDINGLY, WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A) WHO HAS RIGHTLY DISMISSED THE SAME. HENCE, GROUND 1(A)( II) OF THE ASSESSEE IS DISMISSED. 8. GROUNDS NO. 2, 3 & 4 ARE GENERAL IN NATURE AND D O NOT REQUIRE ANY ADJUDICATION. 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IN ITA NO.109(ASR)/2011 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 11TH SEPT., 2013. SD/- SD/- (H.S. SIDHU) (B.P. JAIN) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 11TH SEPT., 2013 /SKR/ COPY OF THE ORDER FORWARDED TO: 1. THE ASSESSEE:M/S. MEDIEVAL GLASS INDIA PVT. LTD. PHILLAUR, DISTT. ALANDHAR 2. THE ADDL. CIT, PHAGWARA., 3. THE CIT(A), JLR. 4. THE CIT, JLR. 5. THE SR DR, ITAT, AMRITSAR. TRUE COPY BY ORDER (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, AMRITSAR BENCH: AMRITSAR. ITA NO.109(ASR)/2013 9