DCIT LTU, MUMBAI V. RELIANCE INDUSTRIES LTD, MUMBAI

ITA 1347/MUM/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 92449 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 2 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-04-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 17-03-2015
• Assessment Year: 2001-2002
• Appeal Filed On: 15-02-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ARVIND SONDE
• Keywords: Reopening of assessment; Business income; Opportunity of being heard; Source of fund; Reason to believe; Reassessment proceedings
• Section: 143(3); 80HHC; 115JB; 147; 148

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE S/SHRI B.R.BASKARAN (AM) AND AMIT SHUKLA, (JM) . . , , ./ I.T.A . NO. 1347 /MUM/201 1 ( / ASSESSMENT YEAR : 200 1 - 02 ) DY. COMMISSIONER OF INCOME TAX LTU, 28 TH FLOOR, CENTRE - 1, WORLD TRADE CENTRE, CUFFE PARADE, MUMBAI - 400 005 / VS. M/S RELIANCE INDUSTRIES LTD., 3 RD FLOOR, MAKER CHAMBERS - IV, NARIMAN POINT, MUMBAI - 400021 ( / APPELLANT ) .. ( / RESPONDENT ) ./ I.T.A. NO. 1426/MUM/2011 ( / ASSESSMENT YEAR : 2001 - 02 ) M/S RELIANCE INDUSTRIES LTD., 3 RD FLOOR, MAKER CHAMBERS - IV, 222,NARIMAN POINT, MUMBAI - 4000 21 / VS. DY. COMMISSIONER OF INCOME TAX LTU, 29 TH FLOOR, CENTRE - 1, WORLD TRADE CENTRE, CUFFE PARADE, MUMBAI - 400 005 ( / APPELLANT ) .. ( / RESPONDENT ) ./ ./PAN/GIR NO. : AAACR5055K / REVENUE BY SHRI ARVIND SONDE / ASSESSEE BY SHRI SANTOSH KUMAR / DATE OF HEARING : 17 .3.2015 / DATE OF PRONOUNCEMENT : 24. 4.2015 / O R D E R PER BENCH: - THESE CROSS - APPEALS ARE DIRECTED AGAINST THE ORDER PASSED BY THE LD. CIT(A) AND THEY RELATE TO THE ASSESSMENT YEARS 2001 - 02 AND 2006 - 07. ALL I.T.A. NO.1347/MUM/2011, & ITA NO.1426/MUM/2011 2 THESE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OFF BY THIS COMMON ORDER, FOR THE SA KE OF CONVENIENCE. 2. THE ASSESSEE COMPANY WAS EARLIER KNOWN AS M/S RELIANCE PETROLEUM LIMITED AND IT HAS SINCE BEEN MERGED WITH M/S RELIANCE INDUSTRIES LTD. WE SHALL TAKE UP THE APPEAL FILED BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2001 - 02. FOLLOWING IS SUES ARE URGED BEFORE US BY THE ASSESSEE: A) VALIDITY OF REOPENING OF THE ASSESSMENT; B) COMPUTATION OF DEDUCTION UNDER SECTION 80HHC OF THE ACT; AND C) INTEREST CHARGEABLE U/S 234D OF THE ACT. 3. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF REFINI NG OF CRUDE OIL. THE ORIGINAL ASSESSMENT U/S 143(3) OF THE ACT WAS COMPLETED IN THE HANDS OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2001 - 02 ON 30.1.2004 DETERMINING LOSS OF RS.996.74 CRORES UNDER THE NORMAL PROVISIONS OF ACT AND BOOK PROFIT OF RS.1580.09 C RORES UNDER THE PROVISIONS OF SECTION 115JB OF THE ACT. CONSEQUENT TO THE ORDER PASSED BY THE LD.CIT(A) ON 24.3.2004, THE ASSESSMENT ORDER WAS REVISED TO GIVE EFFECT TO THE ORDER OF LD.CIT(A) WHICH RESULTED INTO TOTAL INCOME AT NIL UNDER THE NORMAL PROV ISIONS OF ACT AND BOOK PROFIT OF RS.1214 CRORES U/S 115JB OF THE ACT. 4. SUBSEQUENTLY, THE AO NOTICED THAT THE INCOME RELATING TO THE YEAR UNDER CONSIDERATION HAS ESCAPED ASSESSMENT. A CCORDINGLY, HE REOPENED THE ASSESSMENT BY ISSUING NOTICE U/S 148 OF TH E ACT ON 4.8.2006. THE REASONS FO R REOPENING OF THE ASSESSMENT ARE RECORDED AS UNDER: ASSESSEE COMPANY FILED ITS RETURN OF INCOME ON 31.10 . 01 DECLARING A TOTAL OF RS.NIL UNDER THE NORMAL PROVISIONS AN D RS.12 , 13 , 78 , 86 , 516 UNDER THE PROVISIONS OF SECTION 115JB OF THE INCOME TAX ACT, 1961. THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) OF THE I NCOME T AX ACT , 1961 ON 30.1.2004 AT A TOTAL LOSS OF RS.996,74,68,008 UNDER THE NORMAL PROVIS IONS AND RS.15,80,09,05,914 UNDER THE PROVISIONS OF SECTION 115JB OF THE INCOME TAX ACT , 1961 . THE TOTAL INCOME WAS REVISED TO RS.NIL UNDER THE NORMAL PROVISIONS AND RS.1214,00,19,591 UNDER THE PRO V IS I ONS OF 115JB OF THE INCOME TAX ACT, 1961, VIDE ORDER DATED 6.7.2004. I.T.A. NO.1347/MUM/2011, & ITA NO.1426/MUM/2011 3 2. THE ASSESSEE COMPANY VIDE THEIR LETTERS DATED 1 1.5.2006 AND 12.5.2006 HAS STA TE D THAT WHILE PASSING THE ORDER U/S 143(3) DA T ED 26.3.2004 FOR AY - 2001 - 02, AN AMOUNT OF RS.16,59,79,229/ - HAD BEEN ADDED BACK BEING PRIOR PERIOD INCOME ACCOUNTED IN AY 2002 - 03, CONSEQUENT TO CLAIM OF REDUCTION OF PRIOR PERI OD INCOME OF RS.16,62,80,901/ - . THIS AMOUNT OF PRIOR PERIOD INCOME IS SAID TO BE CONSISTING OF RS.10,29,25,483/ - IN RESPECT OF RELIAN C E PETROLEUM LTD FOR THE AY 2001 - 02 PRIOR TO THE MERGER WITH M/S RELIANCE INDUSTRIES LTD. 3. AS THERE IS A FAILURE ON TH E PART OF THE ASSESS E E TO DISCLOSE FULLY AND TRULY ALL MATERIAL FA CTS NE C ESS A RY FOR ITS ASSESSMENT, I HAVE REASON TO BELIEVE THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSE S SMENT FOR THIS ASSESSMENT YEAR, COMING WITHIN THE MEANING OF SECTION 147 OF T HE INCO ME TAX ACT , 1961 . RELIANCE IN THIS REGARD IS PLACED ON THE JUDGMENTS OF HONBLE BOMBAY HIGH COURT IN THE CASE OF DR.AMINS PATHOLOGY LABORATORY 252 ITR 673, HONBLE GUJART HIGH COURT IN THE CA SE OF PRAFUL CHUNILAL PATEL /VASANT CHUNILAL PATEL 236 ITR 832 , HONBLE DELHI HIGH COURT IN THE CASE OF RAKESH AGGARWAL 225 ITR 496. 4. IN VIEW OF THE ABOVE, NOTICE U/S 148 IS ISSUED. 5. IN THE REOPENED ASSESSMENT PROCEEDINGS, THE AO DETERMINED TAXABLE INCOME AT NIL UNDER THE NORMAL PROV ISIONS OF ACT AND BOOK PROFIT AT RS.1321.27 CRORES UNDER THE PROVISIONS OF SECTION 115JB OF THE ACT. 6. THE APPEAL FILED BY THE ASSESSEE BEFORE THE LD.CIT(A) AGAINST THE REASSESSMENT ORDER WAS PARTLY ALLOWED AND HENCE BOTH THE PARTIES ARE IN APPEAL BEFORE US. 7. THE FIRST ISS UE CONTESTED BY THE ASSESSEE RELATES TO VALIDITY OF REOPENING OF THE ASSESSMENT. THE LD. AR SUBMITTED THAT THE AO HAS COMPUTED THE INCOME AT NIL IN THE IMPUGNED REASSESSMENT PROCEEDINGS ALSO. IN THE ORDER PASSED TO GIVE EFFECT TO THE ORDER OF LD.CIT(A) IN THE FIRST ROUND OF PROCEEDINGS, TAXABLE INCOME WAS DETERMINED AT NIL. ACCORDINGLY, HE SUBMITTED THAT THERE IS NO CHANGE IN THE TOTAL INCOME CONSEQUENT TO PASSING OF THE REASSESSMENT ORDER AND HENCE THERE WAS NO DEMAND OF ANY ADDITIONAL TAX. ACCORDINGLY T HE LD. AR , BY PLACING RELIANCE ON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF I.T.A. NO.1347/MUM/2011, & ITA NO.1426/MUM/2011 4 ESSEX FORMS (P) LTD VS. CIT ( 1986) 157 ITR 241 DELHI , SUBMITTED THAT THE ESCAPEMENT OF INCOME SHOULD RESULT IN ESCAPEMENT OF TAX IN ORDER TO HOLD THE REASSESSMENT PR OCEEDINGS TO BE VALID . ACCORDINGLY, HE SUBMITTED THAT THE IMPUGNED REASSESSMENT PROCEEDING IS NOT VALID SINCE THE SAME HAS NOT RESULTED IN ESCAPEMENT OF TAX. THE LD. AR FURTHER SUBMITTED THAT THE AO HAS STATED THAT HE HAS SOUGHT NECESSARY APPROVAL FROM TH E COMMISSIONER OF INCOME TAX BEFORE ISSUING THE NOTICE U/S 148 OF THE ACT. THE LD. AR , BY PLACING RELIANCE ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CHHUGAMAL RAJPAL V/S S. P. CHALIHA AND OTHERS 79 ITR 603 (SC) AND THE DECISION OF ALLAHABAD H IGH COURT IN THE CASE OF RAJK ISHORE PRASAD V. ITO ( 1992 ) 195 ITR 438 ( ALL ) , SUBMITTED THAT THE LD.CIT(A) SHOULD HAVE GIVEN AN OPPORTUNITY OF BEING HEARD TO THE ASSESSEE BEFORE GRANTING HIS APPROVAL TO THE REOPENING OF ASSESSMENT . ACCORDINGLY, THE LD.AR SU BMITTED THAT THE APPROVAL GIVEN BY THE COMMISSIONER OF INCOME TAX WITHOUT HEARING THE ASSESSEE IS NOT VALID AND ON THAT COUNT ALSO, THE REASSESSMENT PROCEEDING GETS VITIATED. THE LD. AR FURTHER SUBMITTED THAT THE AO HAS NOT FURNISHED THE COPY OF SATISFACT ION RECORDED BY THE LD.CIT TO THE ASSESSEE. THE LD . AR SUBMITTED THAT , IN THE ABSENCE OF SATISFACTION NOTE OF LD CIT , IT IS POSSIBLE TO PRESUME THAT THE LD.CIT HAS GIVEN THE APPROVAL IN A MECHANICAL MANNER , IN WHICH CASE ALSO THE IMPUGNED NOTICE ISSUED U/ S 148 OF THE ACT IS LIABLE TO BE QUASHED. 8. THE LD. D . R, HOWEVER, SUBMITTED THAT THE ASSESSEE HAS INCURRED LOSS AN D HENCE THE TAX PAYABLE WAS NIL UNDER BOTH THE PROCEEDINGS. HE SUBMITTED THAT THE REDUCTION OF TOTAL LOSS DETERMINED IN THE REASSESSMENT PR OCEEDINGS WOULD ALSO GIVE RISE TO ESCAPEMENT OF INCOME. HE SUBMITTED THAT IN THE IMPUGNED REASSESSMENT H AS RESULTED IN REDUCTION OF LOSS AND HENCE, REASSESSMENT IS VALID. WITH REGARD TO THE CONTENTION OF THE ASSESSEE ABOUT THE SATISFACTION OF LD. CIT AND PRESUMPTION ABOUT MECHANICAL SANCTION OF THE APPROVAL, THE LD. DR SUBMITTED THAT THE ASSESSEE IS MAKING ALL THESE CONTENTIONS WITHOUT BRINGING ANY MATERIAL ON RECORD. I.T.A. NO.1347/MUM/2011, & ITA NO.1426/MUM/2011 5 9. WE HEARD THE PARTIES ON THESE BOTH ISSUES AND PERUSED THE RECORD. WE HAVE NOTICE D EA RLIER THAT THE ASSESSEE HAS RETURNED NIL INCOME UNDER THE NORMAL PROVISIONS OF ACT AND BOOK PROFIT OF RS.1213.78 CRORES UNDER THE PROVISIONS OF SECTION 115JB OF THE ACT. IN T HE ASSESSMENT ORDER DATED 06.07.2004 PASSED TO GIVE EFFECT TO THE ORDER OF LD CIT (A) , THE TOTAL INCOME WAS DETERMINED AT NIL UNDER NORMAL PROVISIONS OF THE ACT AND AT RS.1214 CRORES U/S 115JB OF THE ACT. CONSEQUENT TO THE PASSING OF ASSESSMENT ORDER RELATING TO THE ASSESSMENT YEAR 2002 - 03, THE ASSESSING OFFICER GOT DEFINITE INFORMATIO N ABOUT THE ESCAPEMENT OF INCOME OF THE YEAR UNDER CONSIDERATION TO THE TUNE OF RS.10.29 CRORES. HENCE, THE ASSESSING OFFICER HAS ISSUED NOTICE U/S 148 OF THE ACT AFTER OBTAINING APPROVAL OF THE LD CIT AS PER THE PROVISIONS OF THE ACT. IN RESPONSE TO THE SAME, THE ASSESSEE FURNISHED A RETURN OF INCOME, WHEREIN THE ASSESSEE OFFERED A SUM OF RS.5.60 CRORES AS ADDITIONAL INCOME, I.E., THE ASSESSEE ITSELF HAS ACCEPTED THAT ITS INCOME FOR AY 2001 - 02 HAS ESCAPED THE ASSESSMENT TO THE TUNE OF RS.5.60 CRORES. IT IS A WELL SETTLED PROPOSITION THAT THE ASSESSING OFFICER, AT THE TIME OF ISSUING NOTICE U/S 148 OF THE ACT, SHOULD HAVE REASON TO BELIEVE ABOUT THE ESCAPEMENT OF INCOME. IN THE INSTANT CASE, THE BELIEF FORMED BY THE ASSESSING OFFICER GOT VINDICATED BY TH E FACT THAT THE ASSESSEE ITSELF HAS OFFERED ADDITIONAL INCOME IN THE RETURN OF INCOME FILED IN RESPONSE TO THE NOTICE ISSUED U/S 148 OF THE ACT. 10. WE HAVE GONE THROUGH THE ORDER PASSED BY HONBLE DELHI HIGH COURT IN THE CASE OF ESSEX FARMS (P) LTD (SUPRA) AND WE NOTICE THAT THE HONBLE HIGH COURT WAS MAINLY CONCERNED WITH THE QUESTION AS TO WHETHER THERE WAS FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE MATERIAL FACTS NECESSARY FOR ASSESSMENT IN TERMS OF SEC. 147(A) OF THE ACT , WHICH EXISTED AT T HE RELEVANT POINT OF TIME . THE COURT WAS EXAMINING ABOUT THE VALIDITY OF ARRANGEMENT MADE BETWEEN THE ASSESSEE THEREIN AND ITS SISTER CONCERNS ABOUT TRADING TRANSACTIONS. ACCORDING TO THE DEPARTMENT, THE SAID ARRANGEMENT RESULTED IN ESCAPEMENT OF INCOME I N VIEW OF THE FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE MATERIAL FACTS. THE I.T.A. NO.1347/MUM/2011, & ITA NO.1426/MUM/2011 6 HONBLE HIGH COURT NOTICED THAT THE REVENUE COULD NOT SHOW THAT THE SAID ARRANGEMENT RESULTED IN REDUCTION OF AGGREGATE TAX PAYABLE BY THE ASSESSEE THEREIN AND ITS SISTER CO NCERN. FURTHER, THE HIGH COURT HELD THAT THERE WAS NO FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE MATERIAL FACTS. UNDER THESE SET OF FACTS, THE HONBLE HIGH COURT HELD THAT THE REASSESSMENT PROCEEDING WAS NOT VALID. HOWEVER, THE FACTS PREVAILING IN THE INSTANT CASE IS TOTALLY DIFFERENT, AS DISCUSSED IN THE PRECEDING PARAGRAPHS AND ACCORDINGLY, WE ARE OF THE VIEW THAT THE ABOVE SAID CASE LAW IS NOT APPLICABLE TO THE CASE OF THE ASSESSEE. FURTHER, IT IS NOW WELL SETTLED PROPOSITION OF LAW THAT ONCE TH E REASSESSMENT PROCEEDINGS IS INITIATED VALIDLY ON COMPLIANCE WITH VARIOUS CONDITIONS PRESCRIBED IN THE ACT, THE SAME CANNOT BE HELD TO BE INVALID MERELY BECAUSE THE ASSESSMENT ORDER ULTIMATELY DID NOT DISCLOSE ABOUT ANY ESCAPED INCOME. FURTHER, UNDER THE PRESENT PROVISIONS OF SECTION 147, RE - COMPUTATION OF LOSS IS ALSO BROUGHT WITHIN THE SCOPE OF INCOME ESCAPING ASSESSMENT. 11. THE OTHER CONTENTIONS OF THE ASSESSEE THAT THE SATISFACTION NOTE OF LD CIT WAS NOT SUPPLIED TO IT; THE LD CIT MIGHT HAVE GIVEN APPROVAL IN A MECHANICAL MANNER; THE LD CIT SHOULD HAVE GIVEN OPPORTUNITY TO THE ASSESSEE BEFORE GRANTING APPROVAL ETC. ARE ALSO LIABLE TO BE DISMISSED FOR THE REASON (A) THAT THERE WAS DEFINITE INFORMATION WITH THE AO ABOUT THE ESCAPEMENT OF INCOME AND THE ASSESSEE HAS ALSO ACCEPTED THE SAME BY OFFERING ADDITIONAL INCOME. (B) THAT THESE CONTENTIONS ARE URGED BEFORE US WITHOUT BRINGING ANY MATERIAL ON RECORD. (C) THAT THE ASSESSEE HAS NOT APPROACHED EITHER THE ASSESSING OFFICER OR THE LD CIT SEEKIN G COPIES OF SATISFACTION NOTE/OPPORTUNITY. (D) THAT THE ASSESSEE IS RAISING TH E SE CONTENTIONS MERELY ON PRESUMPTIONS. 12. IN VIEW OF THE FOREGOING DISCUSSIONS, WE ARE OF THE VIEW THAT THE LD CIT HAS RIGHTLY UPHELD THE VALIDITY OF INITIATION OF REASSE SSMENT PROCEEDINGS. I.T.A. NO.1347/MUM/2011, & ITA NO.1426/MUM/2011 7 13. THE NEXT ISSUE RELATES TO THE COMPUTATION OF DEDUCTION U/S 80HHC OF THE ACT FOR THE PURPOSE OF EXCLUDING THE SAME FROM THE NET PROFIT FOR THE PURPOSE OF COMPUTATION OF BOOK PROFIT U/S 115JB OF THE ACT. THE ASSESSING OFFICER, WHILE COMPUTING THE PROFITS OF BUSINESS FOR THE PURPOSE OF DETERMINING THE DEDUCTION U/S 80HHC OF THE ACT REDUCED 90% OF FOLLOWING ITEMS OF INCOME INCLUDED IN THE PROFIT AND LOSS ACCOUNT: - INTEREST RECEIVED RS.180,12,94,672/ - PROFIT ON SALE OF ASSETS RS. 8,35,934/ - MISCELLANEOUS INCOME RS. 29,20,15,599/ - THE CONTENTION OF THE ASSESSEE IS THAT THE EXPLANATION (BAA) TO SECTION 80HHC OF THE ACT WHICH REQUIRES THE PROFIT OF THE BUSINESS COMPUTED UNDER THE HEAD PROFITS AND GAINS OF BUSINESS IS NOT APPLICABLE FOR THE PURPOSE OF COMPUTING BOOK PROFIT ELIGIBLE FOR DEDUCTION U/S 80HHC FOR COMPUTING INCOME UNDER SECTION 115JB OF THE ACT. THE LD CIT(A) REJECTED THE SAID CONTENTIONS, SINCE HE HELD THAT THE EXPLANATION (BAA) TO SECTION 80HHC IS EQUALL Y APPLICABLE WHILE COMPUTING INCOME UNDER SECTION 115JB . 14. BEFORE US THE ASSESSEE REITERATED THE SAME CONTENTIONS. HOWEVER, IN THE ABSENCE OF ANY CASE LAW TO SUPPORT THE VIEW TAKEN BY THE ASSESSEE, WE ARE OF THE VIEW THAT THE LD CIT(A) IS JUSTIFIED IN APPLYING THE PROVISIONS OF EXPLANATION (BAA) WHILE COMPUTING DEDUCTION U/S 80HHC FOR DETERMINING THE BOOK PROFIT U/S 115JB OF THE ACT . ACCORDINGLY, WE DO NOT FIND ANY REASON TO HOLD THAT THE PROVISIONS OF EXPLANATION (BAA) TO SECTION 80HHC IS NOT APPL ICABLE WHILE COMPUTING THE DEDUCTION FOR THE PURPOSE OF SEC. 115JB OF THE ACT. 15. THE ASSESSEE HAS TAKEN ALTERNATIVE GROUND THA T THE TAX AUTHORITIES ARE NOT JUSTIFIED IN EXCLUDING 90% OF THE GROSS INTEREST FOR THE PURPOSE OF COMPUTING PROFITS OF BUSINE SS. IN THIS REGARD, THE LD A.R PLACED RELIANCE ON THE DECISION OF THE HONBLE SUPREME COURT RENDERED IN THE CASE OF ACG ASSOCIATED CAPSULES P LTD VS. CIT (343 ITR 89). WE NOTICE THAT THE LD CIT(A) HAS FOLLOWED THE DECISION OF JURISDICTIONAL BOMBAY HIGH COURT RENDERED IN THE CASE OF CIT VS. I.T.A. NO.1347/MUM/2011, & ITA NO.1426/MUM/2011 8 ASIAN STAR CO. LTD ( 326 ITR 56). HOWEVER, THE HONBLE SUPREME COURT HAS ALSO CONSIDERED THE DECISION RENDERED BY THE HONBLE BOMBAY HIGH COURT REFERRED SUPRA IN THE CASE OF ACG ASSOCIATED CAPSULES P LTD AND EXPRESSED ITS VIEW AS UNDER: - IN OTHER WORDS, NINETY PERCENT OF NOT THE GROSS RENT OR GROSS INTEREST BUT ONLY THE NET INTEREST OR NET RENT, WHICH HAS BEEN INCLUDED IN THE PROFITS OF BUSINESS OF THE ASSESSEE AS COMPUTED UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION IS TO BE DEDUCTION UNDER CLAUSE (1) OF EXPLANATION (BAA) TO SECTION 80HHC FOR DETERMINING THE PROFITS OF BUSINESS. IN VIEW OF THE SUBSEQUENT DECISION OF THE HONBLE SUPREME COURT, WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND RE STORE THE SAME TO THE FILE OF THE ASSESSING OFFICER WITH THE DIRECTION TO DETERMINE THE INTEREST INCOME IN TERMS OF THE DECISION RENDERED BY THE HONBLE SUPREME COURT IN THE CASE OF ACG ASSOCIATED CAPSULES P LTD (SUPRA). 16. THE NEXT ISSUE RELATES TO THE EXCLUSION OF 90% OF THE FOLLOWING MISCELLANEOUS INCOME WHILE COMPUTING PROFITS OF BUSINESS FOR THE PURPOSE OF COMPUTING DEDUCTION U/S 80HHC OF THE ACT. S. NO. PARTICULARS AMOUNT 1 INCOME - DEPLOYMENT OF P&M - HIRE CHARGES 3,79,21,888 2 INCOME FROM TI ME CHARTER 2,24,18,334 3 INCOME - COMMISSION 6,02,32,985 4 SALE OF SCRAP 5,28,91,236 5 EXCISE DUTY RECOVERED (SCRAP SALES) 30,34,885 6 SALES TAX RECOVERED (SCRAP SALES) 28,41,252 7 RENT RECEIVED 2,17,62,000 8 PENALTY RECOVERED FROM CONTRACTORS 40,02 ,378 9 INSURANCE CLAIMS RECEIVED 6,52,333 10 CASH DISCOUNT RECEIVED 18,77,219 11 MISCELLANEOUS RECOVERIES 2,87,87,786 12 MISCELLANEOUS INCOME - OTHERS 5,55,93,304 TOTAL 29,20,15,599 I.T.A. NO.1347/MUM/2011, & ITA NO.1426/MUM/2011 9 IN THE GROUNDS OF APPEAL, THE ASSESSEE ITSELF ADMITTED THAT T HE COMMISSION INCOME (ITEM NO.3) AND RENT (ITEM NO.7) ARE NOT IN THE NATURE OF BUSINESS INCOME, MEANING THEREBY THE ASSESSEE DOES NOT OBJECT TO EXCLUSION OF 90% OF THE SAME. 17. WE HEARD THE PARTIES ON THIS ISSUE. WE ARE OF THE VIEW THAT THE LD CIT(A) WAS JUSTIFIED IN HOLDING THAT THE FOLLOWING INCOME ALSO REPRESENTS INDEPENDENT SOURCE OF INCOME UNCONNECTED WITH THE BUSINESS ACTIVITY OF THE ASSESSEE AND HENCE 90% OF THE SAME IS REQUIRED TO BE EXCLUDED FOR ARRIVING AT THE PROFITS OF BUSINESS: - A. INC OME DEPLOYMENT OF P&M HIRE CHARGES - 3,79,21,888 B. INCOME FROM TIME CHARTER - 2,24,18,334 C. INCOME COMMISSION - 6,02,32,985 D. RENT RECEIVED - 2,17,62,000 18. IN RESPECT OF REMAINING ITEMS OF RECEIPTS, WE NOTICE THAT THE FOLLOWING RECEIPTS ARISE OUT OF BUSINESS ACTIVITIES CARRIED ON BY THE ASSESSEE, I.E., THEY ARE NOT INDEPENDENT SOURCE OF INCOME AND HENCE 90% THEREOF ARE NOT REQUIRED TO BE EXCLUDED FROM THE NET PROFIT IN ORDER TO COMPUTE PROFITS OF BUSINESS IN TERMS OF EXPLANATION (BAA) TO SEC. 80HHC OF THE ACT. (A) SALE OF SCRAP, EXCISE DUTY RECOVERED (SCRAP SALES), SALES TAX RECOVERED (SCRAP SALES). T HE SCRAP SALES IS HELD TO BE PART OF BUSINESS ACTIVITIES CARRIED ON BY THE ASSESSEE BY HONBLE KERALA HIGH COURT IN T HE CASE OF CIT VS. KAR MOBILES LTD (LAWS (KER) 2010 - 1 - 134). (B) THE PENALTY RECOVERED FROM CONTRACTORS, INSURANCE CLAIM RECEIVED, CASH DISCOUNT RECEIVED, IN OUR VIEW, CANNOT BE CONSIDERED AS INDEPENDENT SOURCES OF INCOME, SINCE THEY ARISE OUT OF BUSINE SS OPERATIONS CARRIED ON BY THE ASSESSEE. IN RESPECT OF INSURANCE CLAIMS, WE DERIVE SUPPORT FROM THE DECISION OF JURISDICTIONAL HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. PFIZER LTD (330 ITR 62)(BOM). I.T.A. NO.1347/MUM/2011, & ITA NO.1426/MUM/2011 10 19. THE REMAINING TWO ITEMS ARE MISCELLANEOU S RECOVERIES AND MISCELLANEOUS INCOME. WE DO NOT FIND THE DETAILS RELATING TO THESE TWO RECEIPTS. IN THE ABSENCE OF THE SAME, WE ARE UNABLE TO EXPRESS ANY OPINION ON THE SAME. HOWEVER, IF THE RECEIPTS ARE ARISING OUT OF CARRYING ON OF BUSINESS OPERATIONS , I.E., IF IT IS INTRICATELY CONNECTED WITH THE BUSINESS ACTIVITIES, THEN THEY CANNOT BE CONSIDERED TO BE AN INDEPENDENT SOURCE OF INCOME WARRANTING EX CLUSION OF 90% THEREOF. HENCE , THESE TWO RECEIPTS REQUIRE FRESH EXAMINATION IN THE LIGHT OF ABOVE SAID D ISCUSSION. ACCORDINGLY WE RESTORE EXAMINATION OF THESE TWO ITEMS TO THE FILE OF THE ASSESSING OFFICER. 20. THE ORDER OF LD CIT(A) ON THE ABOVE SAID ISSUE STANDS MODIFIED ACCORDINGLY. 21. THE NEXT ISSUE URGED BY THE ASSESSEE RELATES TO CHARGING OF INT EREST U/S 234D OF THE ACT. THE LD A.R ADMITTED THAT THIS ISSUE IS CONSEQUENTIAL IN NATURE AND HENCE WE DECLINE TO ADDRESS THIS ISSUE. 22. WE SHALL NOW TAKE UP THE APPEAL FILE D BY THE REVENUE FOR AY 2001 - 02, WHEREIN THE REVENUE IS CONTESTING THE DECISION OF LD CIT(A) IN DELETING THE ADDITION RELATING TO ALLEGED COMMISSION/SURCHARGE PAID TO STATE OIL MARKETING ORGANISATION (SOMO) OF IRAQI GOVERNMENT AGENCY. 23. THE FACTS RELATING TO THE ABOVE SAID ISSUE ARE SET OUT IN BRIEF. CONSEQUENT TO THE INVASION OF IRAQ INTO KUWAIT, UN SECURITY COUNCIL IMPOSED ECONOMIC SANCTIONS ON IRAQ GOVERNMENT. HOWEVER, ON HUMANITARIAN GROUNDS, A SCHEME CALLED OIL FOR FOOD PROGRAMME (OFFP) WAS INTRODUCED, WHEREBY THE IRAQ WAS PERMITTED TO EXPORT OIL AND USE THE PROCEEDS THE REOF TO BUY BASIC GOODS FROM OTHER COUNTRIES. THE IRAQ GOVERNMENT ORDERED ITS MINISTRY TO COLLECT SURCHARGE ON THE SALE PRICE OF THE OIL. THE IRAQI STATE OIL MARKETING ORGANISATION (SOMO) RAN A HIGHLY ORGANIZED SYSTEM TO COLLECT OIL SURCHARGES AND MAIN TAINED AN EXTENSIVE DATA BASE TO KEEP TRACK OF THE PAYMENTS. THIS COLLECTION APPEARS TO HAVE BEEN VIEWED BY UN AS IRREGULAR. HENCE THE UN I.T.A. NO.1347/MUM/2011, & ITA NO.1426/MUM/2011 11 SECURITY GENERAL APPOINTED AN INDEPENDENT ENQUIRY COMMITTEE (CALLED VOLCKER COMMITTEE) TO INVESTIGATE THE ADMINISTRA TION AND MANAGEMENT OF OIL FOR FOOD PROGRAMME. THE VOLCKAR COMMITTEE REPORT OBSERVED THAT THE IRAQI OFFICIAL AWARDED THE CONTRACT TO VARIOUS COMPANIES TO FAVOUR THEM BY MAKING ILLICIT PAYMENT OF SURCHARGE. ACCORDING TO THE AO, THE NAME OF THE ASSESSEE HEREIN, VIZ., M/ S RELIANCE PETROLEUM LTD FIGURED AS ONE OF THE BENEFICIARIES IN VOLCKER COMMITTEE REPORT. IT WAS STATED THAT 19 MILLION BARRELS OF OIL WAS ALLOTTED, OF WHICH 15.7 MILLION BARRELS WERE LIFTED BY ALCON PETROLEUM LTD, A LIECHTENSTEIN BASED EN ERGY TRADING COMPANY. ACCORDINGLY, THE AO TOOK THE VIEW THAT THE ASSESSEE WOULD HAVE PAID COMMISSION /SURCHARGE DURING THE YEAR UNDER CONSIDERATION AND ESTIMATED THE SAME AT RS.8,89,36,380/ - . A CCORDINGLY HE ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESS EE. 24. THE LD CIT(A), HOWEVER, DELETED THE SAME WITH THE FOLLOWING OBSERVATIONS: - 3 . 6 . I H AVE CONS I DERED THE FACTS OF THE CASE , ORDER OF THE A O AND THE SUBM I SS I O N S MADE BY THE APPE LL ANT AND I DO NOT F I ND ENOUGH REASONS OR JUSTIF I CATION FO R THE ADD I T I O N MADE BY THE A O . WHEREAS THE MENT I ON AS A NON - CONTRACTUAL BENEFICIARY IN THE VO L CKER COMMITTEE REPO R T IS THE ONLY REASON FOR THE ADDITION , FOLLOWING IMPORTANT ASPECTS RELATED TO THE ISSUE IN QUESTION SUPPORTS APPE L LANT'S CASE : - ( I) . THE OBSE R VATION IN VOLCKER COMM I TTEE REPORT IS THE ONLY MATER I AL OR EVIDENCE FOR MAK I NG THE ADD I TION I N THE ASSESSMENT ORDER TO THE EFFECT THAT ASSESSEE I S A NON - CONTRACTUAL BENEFICIARY AND PA I D PART OF THE PURCHASE CONS I DERATION AS SURCHARGE TO IRAQ I GOVERNMENT IN V I OLATIO N OF UN RESOLUTION . THERE IS NO OTHER MATERIAL / EVIDENCE / REASON MENTIO N ED BY THE AO FOR ADD I TION . SUCH GENERAL OBSERVATION BY AN OUTS I DE AGENCY , HOW MUCH RESPEC T ABLE I T MAY BE , CANNOT IN ITSELF BE SO L E REASO N FOR DISAL L OWANCE / ADD I TION TO THE INCOME UNDER I ND I AN LAW . (II) . THE VOLCKER COMM I TTEE REPORT ALSO DOES NOT REFER TO ANY SPECIFIC EVIDENCE AGA I NST T H E APPELLAN T AND STATES THAT THE COMM I SS I ON / SURCHARGE HAS BEEN PA I D BY A L CON TO THE CRED I T OF IRAQ I GOVERNMENT AND REFERRED THE APPELLANT AS NON - CONTR ACTUA L BENEFIC I ARY AS IT HAD RECEIVED THE SUPPLY OF GOODS FROM ALCON. THERE IS NO EV I DENCE ON ' RECORD WHICH IS REFERRED IN VO L CKER COMMITTEE REPORT TO SUGGEST I.T.A. NO.1347/MUM/2011, & ITA NO.1426/MUM/2011 12 THAT THE APPELLANT HAS PA I D THE PURCHASE PRICE I NC L USIVE OF A PART OF IT AS ONWA R DS PAYMENT OF I L LICIT COMM I SSION / SURCHA R GE TO IRAQI GOVERNMENT . THE AO HAS ALSO NOT BROUGHT ON RECO R D ANY EVIDENCE OR MATER I AL IN SUPPORT OF THE ALLEGED PAYME NT O F ILLI C I T COMM I SS I O N FORMIN G P A R T O F THE PURCHASE PR I CE . EVEN TH E VO L CKE R COMM I TTEE HAS NO T R EFERRED THE APPEL LANT AS PAYER OF ILLICIT COMMISSION . III ) . ASSESSE E PUR CHASED . LRAQ I CRUDE O I L FROM ALCON PETROLEUM LTD. (A L CON), LE IC H T E NSTEIN COMPA NY BASED I N EUROPE , A UN APPROVED COMPANY FOR DEALING IN C R UDE IN 'OIL AND FOOD - PROGRAMME . THE CONTRACT WAS SIGNED WITH ALCON (AND NOT WITH IRAQ I GOVERNMENT) FOR SUPPLY OF CRUDE AT AN AGREED PRICE PER BARREL AT THE PREVAI LI NG INTERNATIONAL MARKET RATE. THERE WAS NO PURCHASE FROM IRAQI GOVERNMENT OR ANY IRAQ GOVERNMENT AGENCY AND THE CONTRACT SIGNED BETWEEN ALCON AND ASSESS EE CATEGORICALLY STATES THAT ALCON HAS NOT PAID ANY SURCHARGE TO GOVERNMENT OR THEIR AGENCY FOR PROCURING THE CRUDE . (IV) THE P R I CE PAID BY ASSESSEE TO ALCON IS THE CONSOLIDATED PR I CE FOR THE GOODS PURCH ASED AND CANNOT BE SPLIT FOR PART OF IT AS REPRESEN TING SURCHARGED ALLEGED TO HAVE BEEN PAID BY ALCON TO IRAQ I GOVERNMEN T . FOR ASSESSEE , I T IS THE COST OF GOODS FOR COMPUT I NG TAXABLE INCOME . (V) THERE IS NO PRIVACY OF CONTRACT BETWEEN ASSESSEE AND IRAQI GOVER N M ENT OR ANY EVIDENCE D I RECT OR INDIRECT CON FIRMING PAYMENT OF SURCHARGE BY ASSESS E E TO IRAQI GOVERNMENT . EVEN I F I T I S ACCEPTED THAT ALCON PAID ANY SURCHARGE GOVERNME N T , IT CANNOT IN ANY V I EW OF THE MATTER BE SAID THAT A PART OF PAYMENT MADE BY ASSESSEE TO ALCON CONST I TUTES SURCHARGE PA I D BY ASSESS EE TO GOVERNMENT 3 .7. IN V I EW OF THE ABOVE , I HOLD THAT THE ADD I T I ON MADE BY THE AO . I S NO T IN ACCORDANCE W I TH THE PROV I SIONS OF LAW AND I T I S CANCE LL ED . THE GROUND OF APPE AL IS ALLOWED . 25. THE LD A.R SUBMITTED THAT IDENTICAL DISALLOWANCES MADE I N THE FOLLOWING CASES HAVE BEEN DELETED BY THE TRIBUNAL: - (A) AIR PAC EXPORTS VS. ACIT (ITA NO.2981 - 2983/M/12 DATED 11.6.14) (B) TIL LTD VS. ACIT (16 SOT 33)(KOL) (C) DCIT VS. RAJRANI EXPORTS (P) LTD (22 TAXMANN.COM)(KOL). I.T.A. NO.1347/MUM/2011, & ITA NO.1426/MUM/2011 13 26. THE FACTS PREVAILING IN THE INSTANT CASE SHOW THAT THE ASSESSEE HAS NOT MADE ANY PAYMENT DIRECTLY TO IRAQI GOVERNMENT. IT HAS PAID PURCHASE PRICE TO ITS SUPPLIER M/S ALCON PETROLEUM LTD. THE LD CIT(A) HAS GIVEN A CATEGORICAL FINDING THAT THERE IS NO EVIDENCE OR MATERIAL TO SUP PORT THE ALLEGED PAYMENT OF ILLICIT COMMISSION /SURCHARGE OVER AND ABOVE THE PURCHASE PRICE BY THE ASSESSEE TO THE IRAQ GOVERNMENT . FURTHER, AS PER THE CONTRACT SIGNED BETWEEN THE ASSESSEE AND M/S ALCON PETROLEUM LTD, M/S ALCON HAS ALSO NOT PAID ANY SURCHA RGE TO IRAQI GOVERNMENT OR THEIR AGENCY FOR PROCURING THE CRUDE OIL. HENCE, WE ARE OF THE VIEW THAT THE LD CIT(A) WAS JUSTIFIED IN DELETING THIS ADDITION BY HOLDING THAT THERE IS NO MATERIAL TO SUPPORT THIS ADDITION. 2 7. IN THE RESULT, THE APPEAL FILED B Y THE ASSESSEE IS PARTLY ALLOWED AND THE APPEAL OF THE REVENUE IS DISMISSED. THE AB OVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 24TH APRIL 2015 . 24TH APRIL , 2015 S D SD ( / AMIT SHUKLA ) ( . . / B.R. BASKARAN) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI: 24TH AP RIL ,2015 . . . ./ SRL , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - CONCERNED 4. / CIT CONCERNED 5. , , / DR, ITAT, MUMBAI CONCERNED 6. / GUARD FILE. / BY ORDER, (ASSTT. REGISTRAR) I.T.A. NO.1347/MUM/2011, & ITA NO.1426/MUM/2011 14 , /ITAT, MUMBAI