M/s Samay Electronics Pvt. Ltd., RAJKOT-GUJARAT V. The Assistant Commissioner of Income Tax, Central Circle-1, RAJKOT-GUJARAT

ITA 128/RJT/2009

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 2979 (ITAT-RAJKOT)
• Duration Of Justice: 1 year(s) 8 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-12-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2004-2005
• Appeal Filed On: 19-03-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AVINASH KUMAR
• Assessee Lawyers: RK DOSHI
• Keywords: Business income
• Section: 80HHC; 115JB; 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT BEFORE SHRI A.L. GEHLOT (AM) AND SHRI D.T. GARASIA (JM) I.T.A. NO.128/RJT/2009 (ASSESSMENT YEAR 2004-05) M/S SAMAY ELECTRONICS PVT LTD VS ACIT, CENT.CIR.1 MR INDUSTRIAL ESTATE RAJKOT MORBI, DIST : RAJKOT PAN : AADCS0287R (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI RK DOSHI RESPONDENT BY : SHRI AVINASH KUMAR O R D E R GARASIA : THIS APPEAL BY THE ASSESSEE IS DIRECTED A GAINST THE ORDER OF CIT(A)-IV, AHMEDABAD FOR THE ASSESSMENT YEAR 2004-05. 2. THE APPEAL IS BELATED BY 328 DAYS. THE LEARNED AR OF THE ASSESSEE SUBMITTED THAT ASSESSEE HAS RECEIVED THE ORDER ON 2 5-02-2008. THE INCOME-TAX MATTERS OF THE ASSESSEE WAS BEING LOOKED AFTER BY T EJAS DESAI & ASSOCIATES, CA, WHO HAD THE RETAINERSHIP OF THE COMPANY. THEY WERE LOOKING AFTER COMPLIANCE AND PROCEDURAL WORK FOR INCOME-TAX AND T HAT THE ORDER OF CIT(A) WAS LYING PENDING WITH THEM FOR FURTHER ACTION. TEJAS DESAI & ASSOCIATES HAVE RESIGNED FROM THE RETAINERSHIP OF THE COMPANY FROM 29-02-2008. AT THE SAME TIME, THE COMPANY HAD SEVERE FINANCIAL CRISIS AND T HE ASSESSEE COMPANY WAS DECLARED AS DEFAULTER OF BANK. THE COMPANYS PRODU CTION WAS TOTALLY SUSPENDED. NO SALES TOOK PLACE DURING THE PERIOD. THEREFORE, THE FACTORY OF THE ASSESSEE WAS CLOSED AND NOBODY WAS ATTENDING THE WORK. LATE R ON, IN THE MONTH OF MARCH, 2009, THEY HAVE REVIVED THE TERMS OF BANK BY RESTRU CTURING THE DEBT AND STARTED THEIR BUSINESS. THEREAFTER IT HAS COME TO THEIR KN OWLEDGE AND THEY HAVE IMMEDIATELY FILED THIS APPEAL. THE DIRECTOR OF THE COMPANY HAS FILED THE AFFIDAVIT. ITA NO.128/RJT/2009 2 THEREFORE, THE DELAY MUST BE CONDONED. ON THE OTHE R HAND, THE LEARNED DEPARTMENTAL REPRESENTATIVE OPPOSED TO IT. 3. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES. LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE WE FIND THAT TH E ASSESSEE HAS PRODUCED AMPLE EVIDENCE BEFORE US TO DEMONSTRATE THAT TEJAS DESAI & ASSOCIATES, CA HAVE RESIGNED WEF 29-02-2008 AND THIS ORDER WAS PEN DING WITH THEM. THE ASSESSEE ALSO HAD FINANCIAL CRISIS AND AFTER DUE SE TTLEMENT WITH THE BANK THE FACTORY WAS AGAIN STARTED AND AS SOON AS THIS HAS C OME TO THEIR KNOWLEDGE THEY HAVE FILED THIS APPEAL. THEREFORE, WE ARE OF THE V IEW THAT THE ASSESSEE WAS PREVENTED BY SUFFICIENT CAUSE FROM FILING THE APPEA L IN TIME AND THEREFORE, WE CONDONE THE DELAY AND THE MATTER HEARD ON MERIT. 4. THE ONLY EFFECTIVE GROUND IN THE APPEAL IS GROUN D NO.4, WHICH READS AS BELOW: (4) THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE ORDER OF THE A.O., EXCLUDING THE FOLLOWING OTHER INCOMES FROM TH E WORKING OF DEDUCTION U/S 80HHC:- (A) INTEREST ON FIXED DEPOSITS RS. 15,24,883/- (B) INTEREST ON OTHER DEPOSITS RS. 15,902/- (C) IOC SUBSIDY RS. 75,339/- (D) VATAV KASAR RS. 7,146/- -------------------- RS. 16,53,270/- 5. AT THE TIME OF HEARING THE LEARNED COUNSEL FOR T HE ASSESSEE CONCEDED THAT THE ISSUES AT (D) ABOVE. ACCORDINGLY THE SAME IS I GNORED FROM OUR CONSIDERATION. 6. WITH REGARD TO THE OTHER ISSUES, I.E. (A) INTERE ST ON FIXED DEPOSITS AMOUNTING TO RS.15,24,883/- AND (B) INTEREST ON OTH ER DEPOSITS RS.15,902, THE BRIEF FACTS ARE THAT THE ASSESSEE HAS CLAIMED DEDUC TION U/S 80HHC ON VERIFICATION OF ANNEXURE A TO FORM NO.10CCAC, THE A SSESSING OFFICER NOTICED THAT THE ABOVE OTHER INCOMES WERE REDUCED FROM THE COM PUTATION OF DEDUCTION U/S ITA NO.128/RJT/2009 3 80HHC BY THE ASSESSING OFFICER WHILE WORKING OUT TH E BOOK PROFIT U/S 115JB OF THE ACT. ACCORDING TO THE ASSESSING OFFICER, 90% O F SUCH INCOMES WERE TO BE REDUCED FROM THE PROFITS OF THE BUSINESS IRRESPECTI VE OF THE FACT AS TO WHETHER THE FIXED DEPOSITS AND OTHER DEPOSITS WERE MADE FOR THE PURPOSE OF BUSINESS OR NOT. THE ASSESSEE CARRIED THE MATTER BEFORE THE LEARNED CIT(A), WHO UPHELD THE VIEW ADOPTED BY THE ASSESSING OFFICER. FURTHER AGGRIEVE D, THE ASSESSEE IS BEFORE THE TRIBUNAL. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL AVAILABLE ON RECORD. THE LD.COUNSEL FOR THE ASSESS EE PLACED BEFORE US A COPY OF ORDER PASSED BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2002- 03 IN ITA NO.181/RJT/2006 ORDER DATED 30 TH APRIL, 2008 TO CONTEND THAT THE ISSUE STANDS COVERED IN FAVOUR OF THE ASSESSEE AND AGAINS T THE REVENUE. IN THIS DECISION THE TRIBUNAL BY FOLLOWING THE DECISION IN THE CASE OF SHRIRAM HONDA POWER EQUIPMENT 298 ITR 475 (DEL) WHEREIN IT IS HEL D THAT NETTING OF INTEREST HAS TO BE ALLOWED IF THERE IS A NEXUS BETWEEN OTHER IN COMES AND THE EXPENDITURE INCURRED FOR EARNING THOSE SUCH OTHER INCOMES. S INCE THE TRIBUNAL DID NOT HAVE THE FACTS AND FIGURES WITH THEM, THE MATTER WAS RES TORED TO THE FILE OF THE A.O. TO ALLOW THE BENEFIT OF NETTING AS PER THE DECISION IN THE CASE OF SHRIRAM HONDA POWER EQUIPMENT (SUPRA). CONSISTENT WITH THE PRECE DENT, WE RESTORE THE MATTER TO THE FILE OF THE ASSESSING OFFICER TO ALLOW NETTI NG IN RESPECT OF INTEREST ON FIXED DEPOSITS AT RS.15,24,883 AND INTEREST ON OTHER DEPO SITS RS.15,902 IN VIEW OF JUDGMENT OF THE DELHI HIGH COURT CITED SUPRA. 7. WITH REGARD TO IOC SUBSIDY, THE LEARNED COUNSEL FOR THE ASSESSEE INVITED OUR ATTENTION TO THE KOLKATA A BENCH DECISION IN THE CASE OF ACIT VS MAITHAN SEMLTERS LTD REPORTED IN 118 ITD 226(KOL) AND SUBM ITTED THAT SIMILAR ISSUE HAS ALREADY BEEN HELD TO BE BUSINESS INCOME BY THE CO-O RDINATE BENCH OF THE TRIBUNAL. THE LD.DR RELIED ON THE ORDERS OF AUTHOR ITIES BELOW. ITA NO.128/RJT/2009 4 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE ORDER OF THE KOLKATA BENCH A. IN THIS CASE TRANSPORT AND OTHE R SUBSIDIES RECEIVED BY ASSESSEE FROM THE GOVERNMENT AFTER EXAMINING THE PA YMENT VOUCHERS OF TRANSPORT CHARGES AND SUBMISSION OF PARTICULARS LIK E NAME AND ADDRESS OF TRANSPORTERS AND PAYMENT OF TRANSPORT BILL THROUGH ACCOUNT PAYEE CHEQUES BEING RELATABLE TO SALES AND PURCHASES BY ASSESSEE HAVING ITS FACTORY IN THE STATE OF MEGHALAYA, THE ASSESSEE CLAIMED SUCH RECEIPTS TO B E BUSINESS INCOME SO AS TO QUALIFY THE SAME FOR DEDUCTION U/S 80IB OF THE ACT. THE ASSESSING OFFICER REJECTED THE CONTENTION OF THE ASSESSEE THAT THE SUBSIDY REC EIVED FROM THE GOVERNMENT OF MEGHALAYA HAD ANY DIRECT NEXUS WITH THE BUSINESS OF THE ASSESSEE BEING INTEGRAL PART OF COST OF PRODUCTION HENCE DEDUCTION CLAIMED U./S 80IB ON THE SUBSIDY AMOUNT WAS DENIED. ON APPEAL, THE CIT(A) REVERSED THE FINDING OF THE ASSESSING OFFICER WHICH WAS UPHELD BY THE TRIBUNAL BY FINDING THAT THE SUBSIDY WAS RECEIVED UNDER THE SCHEME OF INDUSTRIAL POLICY ANNO UNCED FOR NORTH EASTERN STATES AND THE GRANT OF SUBSIDY FOR TRANSPORT AND O THERS WERE NOTHING BUT WERE REIMBURSEMENT OF EXPENSES INCURRED FOR TRANSPORTATI ON OF GOODS, FIRE INSURANCE, POWER, INTEREST ON WORKING CAPITAL AND LONG-TERM LO AN INTEREST, WHICH WERE DIRECTLY RELATED TO THE BUSINESS ACTIVITY OF THE AS SESSEE AND, THEREFORE, WERE QUALIFYING FOR DEDUCTION UNDER S.80-IB. IN THE INS TANT CASE, THE ASSESSEE RECEIVED SUBSIDY OF RS.75,339 FROM DISTRICT INDUSTR IES CENTRE, GOVERNMENT OF GUJARAT. THE SUBSIDY IS RECEIVED UNDER QUALITY UPG RADATION SCHEME OF INDUSTRIES DEPARTMENT. THIS SUBSIDY IS RECEIVED BY THE ASSESS EE IN RESPECT OF EXPENDITURE INCURRED FOR MAINTENANCE AND UP-GRADATION OF QUALIT Y OF GOODS MANUFACTURED, WHICH, IN OUR HUMBLE OPINION, TOO, HAS A DIRECT NEX US WITH THE MANUFACTURING ACTIVITY OF THE ASSESSEE AND THEREFORE, BY APPLYING THE RATIO OF DECISION IN THE CASE OF ACIT VS MAITHAN SMELTERS LTD (SUPRA), WE DO NOT HAVE ANY HESITATION TO HOLD THAT THE SUBSIDY RECEIVED BY THE ASSESSEE IS L INKED TO THE MANUFACTURING ACTIVITY OF THE ASSESSEE AND THEREFORE, IS TO BE TR EATED AS INCOME FROM BUSINESS ACTIVITY FOR THE PURPOSE OF COMPUTING DEDUCTION U/S 80HHC OF THE ACT. THIS PART OF THE GROUND OF ASSESSEE IS ALLOWED. ITA NO.128/RJT/2009 5 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS TREATED AS PARTLY ALLOWED, FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 10-12-2010 SD/- SD/- (A.L. GEHLOT) (D.T. GARASIA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DT : 10 TH DECEMBER, 2010 PK/- COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A)-IV, AHMEDABAD 4. THE CIT, CENTRAL-II, AHMEDABAD 5. THE DR (TRUE COPY) BY ORDER ASSTT.REGISTRAR, ITAT, RAJKOT