K.L.K. International, V. ACIT Range-I,

ITA 1379/DEL/2008

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 9867 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 4 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-08-2009
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 12-08-2009
• Assessment Year: 2001-2002
• Appeal Filed On: 11-04-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: BK GUPTA
• Assessee Lawyers: G N MEHROTRA
• Keywords: Proportionate interest; Cost of acquisition; Set aside
• Section: 80HHC; 80IB; 80IA; 80HH

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : D : NEW DELHI BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND SHRI K.D. RANJAN, ACCOUNTANT MEMBER ITA NO. 1379/DEL/2008 ASSESSMENT YEAR : 2004-05 M/S K.L.K. INTERNATIONAL, PEETAL BASTI, RAMPUR ROAD, MORADABAD UP. PAN: AADFK6604M VS. THE ASSTT. COMMISSIONER OF INCOME- TAX, I, INCOME TAX OFFICE, CIVIL LINES, MORADABAD UP. ITA NO.1380/DEL/2008 ASSESSMENT YEAR : 2004-05 THE ASSTT. COMMISSIONER OF INCOME-TAX, I, INCOME TAX OFFICE, CIVIL LINES, MORADABAD UP. M/S K.L.K. INTERNATIONAL, PEETAL BASTI, RAMPUR ROAD, MORADABAD UP. PAN: AADFK6604M (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI G.N. MEHROTRA, CA REVENUE BY : SHRI B.K. GUPTA, SR. DR O R D E R PER I.P. BANSAL, JUDICIAL MEMBER: THESE ARE CROSS APPEALS AND THESE ARE DIRECTED AGA INST THE ORDER OF THE CIT (A) DATED 17 TH JANUARY, 2008 FOR ASSESSMENT YEAR 2004-05. GROUNDS OF APPEAL READ AS UNDER:- ASSESSEES APPEAL 1. THAT THE LD. CIT (A) HAS ERRED IN LAW AND FACTS IN CONFIRMING THE ACTION OF THE LEARNED ASSESSING OFFI CER TO ALLOW ITA NO.1379/DEL/2008 ITA NO.1380/DEL/2008 2 THE DEDUCTION U/S 80 IB ON BUSINESS PROFIT AFTER RE DUCING THE AMOUNT OF DUTY DRAW BACK AND DEPB. 2. THAT THE LEARNED CIT (A) HAS ERRED IN LAW AND F ACTS IN ARRIVING AT THE CONCLUSION THAT DUTY DRAWBACK AND D EPB IS NOT PROFIT DERIVED FROM INDUSTRIAL UNDERTAKING. 3. THAT THE LD. CIT (A) HAS ERRED IN LAW AND FACTS IN NOT APPRECIATING THE FACT THAT REFUND OF DUTY DRAW BACK AND DEPB IS PART OF COST OF PRODUCTION ELIGIBLE FOR ADJUSTME NT TOWARDS PURCHASE COST OF RAW MATERIAL OR FINISHED GOODS AND AS SUCH IT CONSTITUTE ELIGIBLE AMOUNT OF PROFIT OF INDUSTRIAL UNDERTAKING. 4. THAT THE LD. CIT (A) HAS ERRED IN LAW AND FACTS IN NOT FOLLOWING THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN CASE OF CIT VS. INDIA GALETINE & CHEMICALS LTD.; 19 4 CTR 492 WHICH HAS CLEARLY HELD THAT THE DUTY DRAWBACK IS IN TENDED TO REDUCE THE COST OF PRODUCTION SAME BEING INTEGRAL PART OF PRICING OF GOODS, IS PART OF COST OF PRODUCTION OF INDUSTRIAL UNDERTAKING, HENCE DERIVED FROM INDUSTRIAL UNDERTAK ING AND ELIGIBLE FOR DEDUCTION U/S 80 J. 5. THAT THE LD. CIT (A) HAS ERRED IN LAW AND FACTS IN CONFIRMING THE FOLLOWING ADHOC DISALLOWANCES MADE B Y THE ASSESSING OFFICER. (A) DISALLOWANCE OF RS.37,373/- OUT OF VEHICLE EXPENSES AMOUNTING TO RS.3,73,736/- (B) DISALLOWANCE OF RS.1,17,945/- OUT OF AGGREGATE FOREIGN EXCHANGE RS.11,79,456/- UNDER FOREIGN TOUR EXPENSES. (C) DISALLOWANCE OF RS.31,955/- OUT OF TELEPHONE EXPENSES AMOUNTING TO RS.3,19,558/-. THAT THE ORDER OF THE LD. CIT (A) IS WRONG AND UNJU STIFIED BOTH ON FACTS AND LAW AND THE ASSESSEE RESERVES THE RIGH T OF TAKING ANY OTHER POINT NOT TAKEN SPECIFICALLY ABOVE . DEPARTMENTS APPEAL 1. THAT THE LD. CIT (A) HAS ERRED IN ALLOWING DEDU CTION U/S 80IB AND 80HH, COMPUTED SEPARATELY ON GTI WHEREAS I N THE LIGHT OF SECTION 80IB (13) READ WITH SECTION 80IA ( 9) THE AMOUNT ALLOWED U/S 80IB AS DEDUCTION, SHOULD HAVE B EEN EXCLUDED, WHILE COMPUTING DEDUCTION U/S 80HHC, FROM THE ITA NO.1379/DEL/2008 ITA NO.1380/DEL/2008 3 GROSS TOTAL INCOME. 2. THAT THE LD. CIT (A) HAS ERRED IN APPRECIATING THE FACT THAT THE DISALLOWANCE OF INTEREST PAYABLE WAS MADE IN CONSIDERATION OF THE FACT THAT THE WITHDRAWALS MADE BY THE PARTNERS WAS TANTAMOUNTING TO CORRESPONDING INCREAS E IN THE LIABILITY OF THE FIRM, AND THE WITHDRAWALS MADE BY THE PARTNERS WERE FOR PERSONAL PURPOSES. ACCORDINGLY, IT WAS A CASE OF INDIRECTLY SHIFTING THE LIABILITY OF INTEREST ON TH E FIRM. ASSESSEES APPEAL 2. IT WAS SUBMITTED BY THE LD. AR THAT GROUND NO.1 TO 4 FILED BY THE ASSESSEE IS COVERED IN FAVOUR OF THE ASSESSEE BY TH E ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR EARLIER YEARS. ONE OF THE LATEST ORDERS OF THE TRIBUNAL WAS REFERRED TO BE THE ORDER DATED 20 TH MAY, 2009 FOR ASSESSMENT YEAR 2005-06 WHEREIN THIS TRIBUNAL HAS DEALT WITH THIS ISSUE AND IT HAS BEEN HELD THAT ASSESSEE IS ENTITLED TO CLAIM DEDUCTION UNDER SECTI ON 80IB OF THE ACT IN RESPECT OF DUTY DRAWBACK AND DEPB RECEIPTS. FOR THE SAKE OF C LARITY THE RELEVANT PORTION OF THE ORDER OF THE TRIBUNAL IS REPRODUCED BELOW:- 2. THE FIRST ISSUE FOR CONSIDERATION RELATES TO CO NFIRMING THE ACTION OF THE ASSESSING OFFICER IN DISALLOWING THE DEDUCTION UNDER SECTION 10-B OF THE I. T. ACT ON BUSINESS PROFIT AF TER REDUCING THE AMOUNT OF DUTY DRAW-BACK AND DEPB. THE ASSESSING O FFICER WHILE COMPUTING DEDUCTION UNDER SECTION 80-IB OF THE ACT WAS OF THE VIEW THAT THE DUTY DRAW-BACK AND DEPB RECEIPTS WERE NOT DERIVED FROM THE BUSINESS OF INDUSTRIAL UNDERTAKING. THEY WERE ATTRIBUTABLE TO EXPORT ACTIVITIES OF THE ASSESSEE. ACCORDINGLY, TH E DUTY DRAW-BACK AND DEPB AMOUNT WAS REDUCED FROM THE BUSINESS INCOM E OF THE ASSESSEE, WHICH RESULTED IN NEGATIVE BUSINESS PROFI T. ACCORDINGLY, THE ASSESSING OFFICER DISALLOWED THE CLAIM OF THE A SSESSEE UNDER SECTION 80-IB OF THE ACT. 3. BEFORE THE LD. CIT (APPEALS) THE ASSESSEE PLACED RELIANCE ON THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE C ASE OF CIT VS. INDIA GELATINE AND CHEMICALS LTD. 194 CTR (GUJ.) 49 2 AND SUBMITTED THAT PROFITS AND GAINS DERIVED FROM INDUS TRIAL UNDERTAKING, THE DUTY DRAW-BACK WAS INTENDED TO REDUCE THE COST OF PRODUCTION, THE SAME BEING INTEGRAL PART OF PRICING OF GOODS WA S PART OF COST OF PRODUCTION OF THE INDUSTRIAL UNDERTAKING. THEREFOR E, THE DUTY DRAW- ITA NO.1379/DEL/2008 ITA NO.1380/DEL/2008 4 BACK HAS DIRECT NEXUS WITH THE BUSINESS OF INDUSTRI AL UNDERTAKING. HOWEVER, THE LD. CIT (APPEALS) RELYING ON THE DECIS ION OF HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. LAKHVINDER SINGH 165 TAXMAN 587 (P & H) HELD THAT DUTY DRAW-BA CK RECEIVED BY THE ASSESSEE COULD NOT BE TERMED AS INCOME DERIV ED FROM INDUSTRIAL UNDERTAKING. 4. BEFORE US THE LD. AR OF THE ASSESSEE RELYING ON THE DECISION OF THE ITAT, DELHI BENCH G IN THE CASE OF ASCIT V S. SMT. SANDHYA KATIYAR, PROP. M/S. VORKA INSPIRATION, PEE TAL BASTI, RAMPUR ROAD, MORADABAD IN ITA. NOS. 59 AND 900 (DEL ) OF 2008 FOR ASSESSMENT YEARS 2003-04 AND 2004-05 SUBMITTED THAT DUTY DRAW-BACK IS DERIVED FROM THE BUSINESS OF THE ASSES SEE. ON THE OTHER HAND, THE LD. SR. DR RELYING ON THE DECISION OF HONBLE MADRAS HIGH COURT IN THE CASE OF SHAKTI FOOTWEAR VS. ACIT 219 CTR 612 (MAD.) AND THE DECISION OF HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. LAKHVINDER SINGH 165 TAXMAN 587 SUBMITTED THAT DUTY DRAW-BACK IS NOT ENTITLED TO DEDUCTION UN DER SECTION 80-IB OF THE ACT. 5. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT ITAT, DELHI BENCH G, NEW DELHI, IN THE CASE OF SHRI ANIL KUMAR RASTOGI V S ACIT, RANGE-II, MORADABAD IN ITA. NO. 2465 (DEL) OF 2007 [ORDER DATED 20 TH JUNE, 2008] HAS HELD THAT ASSESSEE IS ENTITLED FOR DEDUCTION UNDER SECTION 80-IB IN RESPECT OF DUTY DRAWBACK AND DEPB RECEIPTS. ITAT, DELHI BENCH G IN THE CASE OF SH RI ANIL KUMAR RASTOGI DISTINGUISHED THE CASE OF HONBLE ALLAHABAD HIGH COURT IN THE CASE OF MENTHA AND ALLIED PRODUCTS PVT. LTD. (S UPRA) BY OBSERVING AS UNDER :- 6. COMING NOW TO THE JUDGEMENT OF THE HONBLE ALL AHABAD HIGH COURT IN THE CASE OF MENTHA AND ALLIED PRODUCT S (P) LTD. (SUPRA, IT IS SEEN THAT IT WAS CONCERNED WITH THE D EDUCTION UNDER SECTION 80-HHA, WHICH USES LANGUAGE THAT IS I DENTICAL WITH SECTIONS 80-HH, 80-I ETC., VIZ., PROFITS AND GAINS DERIVED FROM A SMALL SCALE INDUSTRIAL UNDERTAKING TO WHICH THIS SECTION APPLIES. THUS, FOR THE PURPOSE OF SECTION 80-HHA, AS IN THE CASES OF SECTIONS 80-HH, 80-I ETC. IT IS NECESSARY THAT THE INDUSTRIAL UNDERTAKING ITSELF SHOULD BE THE DIRECT SOURCE FOR THE INCOME IN QUESTION AND NOT ONE OR MORE STEPS REMOVE D. AS ALREADY NOTICED, THE LANGUAGE EMPLOYED IN SECTION 8 0-IB IS WIDER, THOUGH NOT AS WIDE AS ATTRIBUTABLE TO. TH E STATUTORY PROVISION CONSIDERED BY THE HONBLE JURISDICTIONAL HIGH COURT IS DIFFERENT HAVING DIFFERENT LANGUAGE. ITA NO.1379/DEL/2008 ITA NO.1380/DEL/2008 5 AFTER CONSIDERING THE DECISION OF JURISDICTIONAL HI GH COURT, THE BENCH FURTHER HELD AS UNDER:- 7. IN THE LIGHT OF THE ABOVE DISCUSSION, IT IS NO T NECESSARY TO CONSIDER THE JUDGEMENTS OF THE MADRAS HIGH COURT IN CIT VS. JAMEEL LEATHERS (246 ITR 97) AND CIT VS. VISWAN ATHAN & CO. (261 ITR 737), ALL CITED BY THE LEARNED SENIO R DR. IN ANY CASE, A PERUSAL OF THESE JUDGEMENTS SHOWS THAT THEY WERE CONCERNED WITH SECTIONS 80-J, 80-HH AND 80-I A ND NOT SECTION 80-IB WHERE THE LANGUAGE USED IS MUCH WIDER . THE JUDGEMENT OF THE DELHI HIGH COURT IN CIT VS. J. B. EXPORTS (286 ITR 603) CITED BY HIM WAS ALSO CONCERNED WITH SECTION 80-HH AND NOT SECTION 80-IB. THE ORDER OF THE DELH I BENCH OF THE TRIBUNAL IN ACIT VS. K. S. INTERNATIONAL (29 3 ITR 39) (AT), IN WHICH SECTION 80-IB WAS CONSIDERED AND IT WAS HELD THAT THE DDB RECEIPT CANNOT BE TREATED AS PROFITS D ERIVED FROM THE BUSINESS OF THE INDUSTRIAL UNDERTAKING W AS RENDERED ON 17 TH NOVEMBER, 2006, BEFORE THE JUDGEMENT OF THE DELHI HIGH COURT IN CIT VS. ELTEK SGS (P) LTD. (SUPRA); THE ORDER CAN NO LONGER BE GIVEN EFFECT TO AFTER TH E JUDGEMENT OF THE DELHI HIGH COURT. THE TRIBUNAL IN THIS ORDER HAD HELD THAT THE TWO TERMS DERIVED FROM THE INDUSTRIAL UNDERTAKING AND DERIVED FROM THE BUSINESS OF THE INDUSTRIAL UNDERTAKING HAVE THE SAME MEANING, A VIEW WHICH DI D NOT FIND APPROVAL BY THE DELHI HIGH COURT IN ELTEK SGS (SUPRA). THEREFORE, THE ARGUMENT OF THE DEPARTMENT BASED ON THIS ORDER OF THE TRIBUNAL CANNOT BE GIVEN EFFECT TO. 8. IN THE RESULT, WE HOLD THAT THE ASSESSEE IS ENTITLED TO THE DEDUCTION UNDER SECTION 80-IB IN RESPECT OF THE DDB AND DEPB RECEIPTS. THE GROUNDS ARE ALLOWED. 6. WE FURTHER FIND THAT THE HONBLE DELHI HIGH COUR T IN THE CASE OF CIT VS. ELTEK SGS PVT. LTD. (SUPRA) HAS HELD THA T THE SOURCE OF DUTY DRAWBACK IS THE BUSINESS OF INDUSTRIAL UNDERTA KING WHICH WAS TO MANUFACTURE AND EXPORT GOODS OUT OF RAW MATERIAL THAT IS IMPORTED AND ON WHICH CUSTOM DUTY WAS PAID. THE EN TITLEMENT FOR DUTY DRAWBACK ARISES FROM SECTION 75(1) OF THE CUST OMS ACT, 1962 READ WITH THE RELEVANT NOTIFICATION ISSUED BY THE C ENTRAL GOVERNMENT IN THIS REGARD. HONBLE DELHI HIGH COUR T FINALLY HELD THAT:- WE ARE OF THE OPINION THAT IT IS NOT NECES SARY FOR US TO GO AS FAR AS THE GUJARAT HIGH COURT HAS DONE IN COMING TO THE CONCLUSION THAT DUTY DRAWBACK IS PROF IT OR GAIN DERIVED FROM AN INDUSTRIAL UNDERTAKING. IT IS SUFFICIENT IF WE STICK TO THE LANGUAGE USED IN SECT ION 80-IB ITA NO.1379/DEL/2008 ITA NO.1380/DEL/2008 6 OF THE ACT AND COME TO THE CONCLUSION THAT DUTY DRA WBACK IS PROFIT OR GAIN DERIVED FROM THE BUSINESS OF AN I NDUSTRIAL UNDERTAKING. THE LANGUAGE USED IN SECTION 80-IB OF THE ACT IS NOT AS BROAD AS THE EXPRESSION ATTRIBUTABLE TO REFERRED TO BY THE SUPREME COURT IN STERLING FOODS (1999) 237 ITR 579 AND CAMBAY ELECTRIC (1978) 113 I TR 84 (SC) NOR IS IT AS NARROW AS THE EXPRESSION DERI VED FROM. THE EXPRESSION DERIVED FROM THE BUSINESS O F AN INDUSTRIAL UNDERTAKING IS SOMEWHERE IN BETWEEN. CONSEQUENTLY, WE ARE OF THE VIEW THAT THE SO URCE OF THE DUTY DRAWBACK IS THE BUSINESS OF THE INDUSTRIAL UNDERTAKING WHICH IS TO MANUFACTURE AND EXPORT GOOD S OUT OF RAW MATERIAL THAT IS IMPORTED AND ON WHICH CUSTOMS DUTY IS PAID. THE ENTITLEMENT FOR DUTY DRA WBACK ARISES FROM SECTION 75(1) OF THE CUSTOMS ACT, 1962 READ WITH THE RELEVANT NOTIFICATION ISSUED BY THE CENTRA L GOVERNMENT IN THAT REGARD. 7. SIMILARLY IN THE CASE OF BHARAT RASAYAN LTD. VS. ACIT IN ITA. NOS. 570 AND 1228 (DEL) OF 2002 FOR ASSESSMENT YEAR 1998-99 DATED 17/02/2006 ITAT, DELHI BENCH B ALLOWED THE CLAIM OF THE ASSESSEE FOR DEDUCTION UNDER SECTION 80-IA OF THE A CT IN RESPECT OF DEPB RECEIPTS, BY OBSERVING AS UNDER:- 3.4.2 WE HAVE PERUSED THE RECORDS AND CONSIDER ED THE MATTER CAREFULLY. THE AUTHORITIES BELOW HAD REDUCE D THE ELIGIBLE PROFIT OF THE ASSESSEE FOR DEDUCTION UNDER SECTION 80- IA BY THE AMOUNTS MENTIONED IN PARA 3.4.1 HOLDING T HAT THESE RECEIPTS HAD NOT BEEN DERIVED FROM THE INDUST RIAL UNDERTAKING AND FOR THIS PURPOSE RELIANCE HAD BEEN PLACED ON THE JUDGEMENT OF HONBLE SUPREME COURT IN THE CA SE OF STERLING FOODS (237 ITR 579) AND IN CASE OF ASHOK L AYLAND (224 ITR 122). ITAT IN ASSESSEES OWN CASE IN ASSE SSMENT YEARS 1996-97 AND 1997-98 (SUPRA) HAD CONSIDERED TH E ISSUE RELATING TO DEPB AND QBAL LICENCES AND NOTED THE CHANGES IN SECTION 80-IA IN THE RELEVANT YEARS WHEN THE ELIGIBLE PROFIT WAS DEFINED AS PROFIT DERIVED FROM THE BUSINESS OF INDUSTRIAL UNDERTAKING. THE JUDGEMENT S OF HONBLE SUPREME COURT IN THE CASE OF STERLING FOODS (SUPRA) AND ASHOK LEYLAND (SUPRA) HAD BEEN DELIVERED IN THE CONTEXT OF OLD PROVISIONS OF SECTION 80-HH AND 80-I IN WHIC H WORDS USED WERE PROFITS DERIVED FROM INDUSTRIAL UNDERTAK ING) AND, THEREFORE, SUCH RECEIPTS WERE NOT HELD AS DIRECTLY DERIVED FROM INDUSTRIAL UNDERTAKING AND THUS NOT HELD ELIGI BLE FOR 80-I AND 80-HH. THE ITAT HAD ACCORDINGLY HELD THAT THE ASSESSEE WAS ENTITLED TO DEDUCTION UNDER SECTION 80 -IA. IN ITA NO.1379/DEL/2008 ITA NO.1380/DEL/2008 7 VIEW OF PHRASEOLOGY IN SECTION 80-IA AS IT STOOD AT THE RELEVANT TIME. THE OTHER RECEIPTS UNDER CONSIDERAT ION IN THIS APPEAL ARE SIMILAR IN NATURE AND THE INTERPRETATION OF THE TRIBUNAL GIVEN IN THE CONTEXT OF DEPB AND QBAL WILL BE EQUALLY APPLICABLE. OTHER BENCHES OF ITAT AS MENTI ONED IN PARA 3.4.1 HAVE ALSO TAKEN A SIMILAR VIEW. THE JUD GEMENT OF HONBLE HIGH COURT OF DELHI IN THE CASE OF RITESH I NDUSTRIES LTD. (SUPRA) RELIED UPON BY THE LD. AUTHORIZED REPR ESENTATIVE WAS IN RELATION TO THE OLD PROVISIONS OF SECTION 80 -I IN WHICH THE WORDS USED WERE PROFITS AND GAINS DERIVED FROM AN INDUSTRIAL UNDERTAKING. WE, THEREFORE, DECIDE THE SE GROUNDS IN FAVOUR OF THE ASSESSEE, RESPECTFULLY FOLLOWING T HE DECISION OF ITAT IN ASSESSEES OWN CASE IN ASSESSMENT YEARS 1996- 97 AND 1997-98 AND THE OTHER DECISION OF THE TRIBUN AL RELIED UPON BY THE LD. AUTHORIZED REPRESENTATIVE. 8. ON GOING THROUGH THIS CASE LAW (SUPRA), WE FIND THAT IDENTICAL ISSUE ON IDENTICAL FACTS AS INVOLVED IN THE INSTANT APPEALS OF THE REVENUE HAS COME UP FOR CONSIDERATION BEFORE THESE AUTHORITIES AND THESE AUTHORITIES HAVE DECIDED THIS ISSUE IN F AVOUR OF ASSESSEE AND AGAINST THE REVENUE AND EVEN IN THE CASE OF SHR I ANIL KUMAR RASTOGI (SUPRA), THE ITAT DELHI BENCH G WHILE HOL DING THAT THE ASSESSEE WAS ENTITLED FOR DEDUCTION UNDER SECTION 8 0IB OF THE ACT IN RESPECT OF DUTY DRAW BACK AND DEPB RECEIPTS ALSO CLEARLY DISTINGUISHED THE CASE OF ALLAHABAD HIGH COURT IN T HE CASE OF MENTHA AND ALLIED PRODUCTS PVT. LTD. (SUPRA) WHICH MEANS THAT ALL THE ARGUMENTS OF THE DEPARTMENT BY REFERRING TO THE JURISDICTIONAL HIGH COURT OF ALLAHABAD HIGH COURT IN THE CASE OF M ENTHA AND ALLIED PRODUCTS PVT. LTD. (SUPRA) WERE ALSO TAKEN I NTO CONSIDERATION BY THE TRIBUNAL. 9. IN THESE FACTS AND CIRCUMSTANCES, WE ARE OF THE OPINION THAT THE RATIO OF THESE DECISIONS (SUPRA) FULLY APPLIES TO THE FACTS AND ISSUES INVOLVED IN THE INSTANT GROUND OF APPEAL OF THE ASSESSEE AND, HENCE, RESPECTIVELY FOLLOWING THE PRECEDENTS D ISCUSSED AS ABOVE IT IS HELD THAT THE ASSESSEE IS ENTITLED TO C LAIM DEDUCTION UNDER SECTION 80IB OF THE ACT IN RESPECT OF DUTY DR AW BACK AND DEPB RECEIPTS. ACCORDINGLY, THIS GROUND OF APPEAL TAKEN BY THE ASSESSEE IS ALLOWED. 3. HOWEVER, LD. DR RELIED ON THE ORDER OF THE ASSES SING OFFICER. 4. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIO NS IN THE LIGHT OF THE MATERIAL PLACED BEFORE US. IN THE ABOVE DECISION, ONE OF US (ACCOUNTANT ITA NO.1379/DEL/2008 ITA NO.1380/DEL/2008 8 MEMBER) IS A PARTY. RESPECTFULLY FOLLOWING THE SAM E, WE HOLD THAT THE ASSESSEE IS ENTITLED TO CLAIM DEDUCTION UNDER SECTION 80IB I N RESPECT OF DUTY DRAWBACK AND DEPB RECEIPT. ACCORDINGLY, GROUND NOS.1 TO 4 ARE A LLOWED. 5. SO FAR AS IT RELATES TO GROUND NO.5, THE SAID GR OUND WAS NOT PRESSED BY LD. AR, HENCE, THE SAME IS DISMISSED BEING NOT PRE SSED. 6. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY A LLOWED. DEPARTMENTAL APPEAL 7. SO FAR AS IT RELATES TO GROUND NO.1, IT HAS BEEN HELD BY LD. CIT (A) THAT DEDUCTION UNDER SECTION 80HHC AND 80-IB, BOTH ARE I NDEPENDENT SECTIONS AND BOTH THESE DEDUCTIONS ARE ALLOWABLE ON GROSS TOTAL INCOME SUBJECT TO THE CONDITION THAT THE DEDUCTION WOULD NOT EXCEED 100% OF THE PROFITS. HE, THEREFORE, HAS DIRECTED THE ASSESSING OFFICER TO ALLOW THE DED UCTION ACCORDINGLY. THE DEPARTMENT IS AGGRIEVED, HENCE, IN APPEAL. 8. IT WAS SUBMITTED BEFORE US BY LD. DR THAT RECENT LY IN THE CASE OF ASSTT. COMMISSIONER OF INCOME-TAX VS. HINDUSTAN MINT & AGR O PRODUCTS PVT. LTD. 119 ITD 107 (DEL) (SB) IT HAS BEEN HELD BY THE FIVE-MEM BER SPECIAL BENCH THAT WHILE GRANTING DEDUCTION U/S 80HHC DEDUCTION GRANTED U/S 80-IB SHOULD BE REDUCED. HE, THEREFORE, CONTENDED THAT THE COMPUTATION DONE BY THE ASSESSING OFFICER SHOULD BE UPHELD AND THE ORDER OF THE LD. CIT (A) O N THIS ISSUE SHOULD BE SET ASIDE. 9. ON THE OTHER HAND, LD. AR RELIED ON THE ORDER OF THE LD. CIT (A). 10. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTI ONS IN THE LIGHT OF THE MATERIAL PLACED BEFORE US. THE ISSUE RAISED BY THE DEPARTMENT IN ITS APPEAL WAS CONSIDERED IN THE AFOREMENTIONED DECISION OF SPECIA L BENCH AND IT WAS HELD THAT ITA NO.1379/DEL/2008 ITA NO.1380/DEL/2008 9 WHILE ALLOWING DEDUCTION UNDER ANY PROVISION OF CHA PTER VI-A WITH HEADING C (COVERING SECTION 80H, 80HHC, ETC.) IS TO BE REDUCE D BY AN AMOUNT OF DEDUCTION ALLOWED U/S 80IA/80IB. THE RELEVANT OBSERVATIONS F ROM THE SAID DECISION ARE REPRODUCED BELOW::- 32. WE HAVE CONSIDERED AND DISCUSSED ABOVE SUBMI SSIONS OF SHRI VOHRA, BUT HAVE NOT FOUND ANY FORCE IN THEM. I N OUR CONSIDERED OPINION, THE LANGUAGE USED IN SECTION 80 -IA(9)/80- IB(9A) IS CLEAR AND UNAMBIGUOUS AND IS REQUIRED TO BE GIVEN EFFECT TO. DEDUCTION OF PROFITS AND GAINS ALLOWED U NDER SECTION 80-IA/80-IB IS NOT TO BE ALLOWED AGAIN UNDER ANY OT HER PROVISION. THERE IS THEN FURTHER RESTRICTION ON TOTAL DEDUCTIO N NOT EXCEEDING ELIGIBLE PROFIT OF THE UNDERTAKING. NO USEFUL PURPO SE WOULD BE SERVED IN REPEATING WHAT WE HAVE OBSERVED ABOVE. 33. SHRI VOHRA THEN CONTENDED THAT SECTIONS 80HH C AND 80-IA OR 80-IB OPERATE IN DIFFERENT FIELDS INASMUCH AS SE CTION 80HHC IS APPLICABLE ONLY TO ALL ELIGIBLE UNITS EXPORTING GOO DS OR MERCHANDISE WHEREAS SECTION 80-IA OR 80-IB IS APPLI CABLE ONLY TO ALL ELIGIBLE UNITS EVEN IF GOODS MANUFACTURED IN TH OSE UNITS ARE NOT EXPORTED, AND IN THAT EVENT, THE QUESTION OF RE DUCING DEDUCTION ALLOWED UNDER SECTION 80-IA OR 80-IB WOUL D NOT ARISE. SHRI VOHRA HAD PLACED RELIANCE ON DECISION OF HONB LE BOMBAY HIGH COURT IN THE CASE OF GODREJ AGROVET LTD. V. AS STT. CIT [2007] 290 ITR 252 . AS FAR AS THIS LIMITED ISSUE IS CONCERNED, WE ARE INCLINED TO AGREE WITH THE SUBMISSION ADVANCED BY S HRI VOHRA. RESTRICTION CONTAINED IN SECTION 80-IA OR 80-IB NOT TO ALLOW REPEATED DEDUCTIONS ARE APPLICABLE TO SAME PROFIT. THIS IS MORE THAN CLEAR FROM USE OF WORD SUCH PROFIT IN SECTIO N 80-IA/80-IB. IN OTHER WORDS, THERE HAS TO BE IDENTITY OF PROFITS ON WHICH DEDUCTION UNDER MORE THAN ONE PROVISION UNDER CHAPT ER VI-A IS CLAIMED BY THE ASSESSEE. THE PROVISIONS ARE APPLICA BLE WHERE ON THE PROFIT OF THE UNDERTAKING OR ENTERPRISE, DEDUCT ION IS CLAIMED UNDER SECTION 80-IA OR 80-IB AND THEN ON THE SAME P ROFIT OF THE UNDERTAKING, DEDUCTION UNDER OTHER PROVISIONS LIKE 80HHC IS CLAIMED. IN SUCH CASES, RESTRICTION CONTAINED IN AB OVE PROVISIONS WOULD APPLY. IF PROFITS ARE DERIVED FROM SEPARATE U NDERTAKING, RESTRICTION CONTAINED IN ABOVE PROVISION WOULD NOT BE APPLICABLE. 34. SHRI VOHRA ALSO RELIED UPON DECISION OF SUPR EME COURT IN THE CASE OF BRITANNIA INDUSTRIES LTD. (SUPRA) TO CO NTEND THAT SECTION 80-IA(9) CANNOT CONTROL THE MECHANISM OF CO MPUTING THE DEDUCTION UNDER SECTION 80HHC(3) OF INCOME-TAX ACT. HE FURTHER SUBMITTED THAT WHERE ASSESSEE WAS FOUND THAT PROVIS ION ALLOWING DEDUCTION OF ASSUMPTION IS APPLICABLE, THEN THOSE P ROVISIONS ARE ITA NO.1379/DEL/2008 ITA NO.1380/DEL/2008 10 TO BE INTERPRETED LIBERALLY. RELIANCE WAS PLACED ON DECISION OF SUPREME COURT IN THE CASE OF P.R. PRABHAKAR (SUPRA) . 35. WE HAVE ALREADY DEALT WITH ABOVE CONTENTION. IN OUR CONSIDERED OPINION, ALL STATUTORY PROVISIONS ARE IN TER-RELATED AND ARE PART OF ONE SCHEME. THIS CANNOT BE READ DE HORS ONE AND OTHER. RESTRICTION IMPOSED IN SECTION 80-IA(9)/80-I B(9A) ARE TO BE READ IN ALL SECTIONS AND GIVEN EFFECT TO. THIS WOUL D ONLY GIVE HARMONIOUS READING. THE DECISION OF SUPREME COURT R ELIED UPON BY SHRI VOHRA ALSO SUPPORT ABOVE PROPOSITION ALTHOU GH THEY DO NOT DEAL WITH SECTION 80-IA/80-IB OF THE ACT. WE AR E UNABLE TO FIND ANY SUBSTANCE IN ABOVE ARGUMENT OF THE LEARNED COUNSEL. 36. SHRI VOHRA, ON THE APPLICABILITY OF THE DECIS ION OF HONBLE MADRAS HIGH COURT IN THE CASE OF SCM CREATIONS (SUP RA), SUBMITTED THAT PRINCIPLE OF SUB-SILENCIO RULE COULD NOT BE APPLIED TO THE DECISION. THE AFORESAID DECISION OF HIGH COU RT BEING DECISION OF A SUPERIOR COURT HAS TO BE GIVEN PREFER ENCE OVER THE DECISION OF ROGINI GARMENTS CASE (SUPRA) (SPECIAL BENCH). IN SUPPORT OF THIS CONTENTION, IT WAS SUBMITTED THAT E VEN DECISION OF NON-JURISDICTIONAL HIGH COURT IS TO BE GIVEN PREFER ENCE OVER THE SPECIAL BENCH DECISION. IN THIS CONNECTION, RELIANC E WAS PLACED ON THE DECISION OF MADHYA PRADESH HIGH COURT IN THE CASE OF NATIONAL TEXTILE CORPN. LTD. V. CIT [2008] 171 TAXMAN 339 AS ALSO ON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF ALL INDIA LAKSHMI COMMERCIAL BANK OFFICERS UNION V. UNI ON OF INDIA [1984] 150 ITR 1. SHRI VOHRA ALSO SUBMITTED THAT CE RTAIN OBSERVATIONS OF THE BENCH OF ITAT IN THE CASE OF NO DI EXPORTS (SUPRA), MORADABAD, CLEARLY EXCEEDED ITS JURISDICTI ON. AFTER CAREFUL CONSIDERATION OF DECISION OF HONBLE MADRAS HIGH COURT IN THE CASE OF SCM CREATIONS (SUPRA), WE HAVE ALREADY HELD THAT THE SAID DECISION CANNOT BE TREATED AS A PRECEDENT. THE ISSUE HAS BEEN DISCUSSED THREADBARE AND THOSE REASONS NEE D NOT BE REPEATED AGAIN. OBSERVATIONS OF HONBLE MADRAS HIGH COURT IN THE LATER DECISION DATED 20-12-2008 IN CASE OF GENE RAL OPTICS (ASIA) LTD. (SUPRA) HAS PUT THE CONTROVERSY BEYOND ANY SHADOW OF DOUBT. IN THE ABOVE CASE, AMENDMENT BROUGHT WITH EF FECT FROM 1- 4-1999 INTRODUCING SECTIONS (9) AND (9A) IN 80-IA A ND 80-IB RESPECTIVELY WERE CLEARLY NOTICED. THESE AMENDMENTS WERE NOT BROUGHT TO THE KNOWLEDGE OF THE HONBLE COURT IN TH E CASE OF SCM CREATIONS. THEREFORE, THERE IS NO QUESTION OF S UPERSESSION OF SPECIAL BENCH DECISION IN THE CASE OF ROGINI GAR MENTS (SUPRA). THE SAID DECISION IS APPLICABLE WITH FULL FORCE. WE DO AGREE THAT CORRECT PROPOSITIONS IN THE CASE OF NODI EXPORTS (SUPRA) ARE OVERSTATED. THERE IS NO QUESTION OF TRI BUNAL NOT FOLLOWING AND APPLYING DECISION OF SUPERIOR COURT. THE QUESTION ITA NO.1379/DEL/2008 ITA NO.1380/DEL/2008 11 INVOLVED HERE IS WHETHER DECISION OF SCM CREATIONS CAN BE TREATED AS A PRECEDENT. FOR THE REASONS ALREADY GIV EN, THE SAID DECISION DID NOT LAY DOWN THAT SECTION80-IA(9) OR 8 0-IB(13) SHOULD BE DISREGARDED WHILE COMPUTING DEDUCTION UND ER SECTION 80HHC OR OTHER DEDUCTION UNDER CHAPTER C OF VI-A. 37. WE ACCORDINGLY HOLD THAT DEDUCTION TO BE ALLO WED UNDER ANY OTHER PROVISION OF CHAPTER VI-A WITH THE HEADING C IS TO BE REDUCED BY AMOUNT OF DEDUCTION ALLOWED UNDER SECTIO N 80-IB/80- IA OF THE INCOME-TAX ACT. WE ANSWER THE QUESTION RE FERRED TO THE SPECIAL BENCH IN THE AFFIRMATIVE I.E. IN FAVOUR OF THE REVENUE. 11. THEREFORE, RESPECTFULLY FOLLOWING THE AFOREMENT IONED DECISION OF SPECIAL BENCH CONSISTING OF FIVE MEMBERS, WE HOLD THAT THE LD. CIT (A) HAS ERRED IN DIRECTING THE ASSESSING OFFICER TO COMPUTE DEDUCTIO N U/S 80HHC WITHOUT REDUCING DEDUCTION U/S 80-IB. LD. ASSESSING OFFICE R WAS RIGHT IN COMPUTING THE DEDUCTION U/S 80HHC WHEN HE HAS REDUCED THE DEDUCTI ON ALLOWED U/S 80-IB WHILE COMPUTING DEDUCTION U/S 80HHC. WE, THEREFORE , RESTORE THE ORDER OF THE ASSESSING OFFICER SO AS IT RELATES TO COMPUTATION O F DEDUCTION U/S 80HHC AND THE ORDER OF THE LD. CIT (A) ON THIS ISSUE IS SET ASIDE . WITH THESE OBSERVATIONS THIS GROUND OF THE DEPARTMENTAL APPEAL IS ALLOWED. 12. APROPOS GROUND NO.2, THE ASSESSING OFFICER HAS DEALT WITH THIS ISSUE AT PAGE 4 TO 7 OF THE IMPUGNED ORDER. DURING THE COU RSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAD CLAIMED EXPENSES ON ACCOUNT OF BANK COMMISSION AND INTEREST AMOUNTING TO RS.15,52,873/-. HE ALSO NOTICED THAT THERE WERE SO ME OUTSTANDING ADVANCES GIVEN TO THE FOLLOWING THREE PERSONS:- AJAY KUMAR SONI RS.10,00,000/- ASHOK KUMAR SONI RS.10,00,000/- VORKA INSPIRATION RS.19,72,293/- ------------------- TOTAL RS.39,72,293/- =========== ITA NO.1379/DEL/2008 ITA NO.1380/DEL/2008 12 13. THEREFORE, THE ASSESSING OFFICER REQUIRED THE A SSESSEE TO EXPLAIN AS TO WHY PROPORTIONATE INTEREST SHOULD NOT BE DISALLOWED AS THE ABOVE ADVANCES HAVE BEEN GIVEN FOR NON-BUSINESS PURPOSES. IT WAS SUBMI TTED BY THE ASSESSEE THAT NO DISALLOWANCE SHOULD BE MADE FOR THE SIMPLE REASON T HAT THE PARTNERS ARE HAVING SUFFICIENT CAPITAL BALANCE OF RS.135 LAC AT THE EN D OF THE YEAR AGAINST WHICH THESE ADVANCES COULD BE MADE. REFERENCE WAS MADE T O THE DECISION OF HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. HOTEL SAVE RA (1998) 239 ITR 795 (MAD) TO CONTEND THAT WHERE THE AMOUNT BORROWED BY THE AS SESSEE FIRM WAS MIXED WITH ITS OWN FUNDS AND CERTAIN AMOUNT WAS LENT TO A PRIV ATE LIMITED COMPANY AND WHERE THE FIRM HAD SUFFICIENT FUNDS TO COVER THE AD VANCES, THERE WOULD BE A PRESUMPTION THAT ADVANCE HAD BEEN MADE WITH THE FIR MS OWN FUNDS AND NO INTEREST WAS BEING PAID BY THE FIRM TO ITS PARTNERS AND IT WAS HELD THAT THE ENTIRE AMOUNT OF INTEREST PAID WAS DEDUCTIBLE U/S 36 (1)(I II). HOWEVER, THE ASSESSING OFFICER DID NOT ACCEPT SUCH SUBMISSIONS AND HE MADE THE DISALLOWANCE. THE LD. CIT (A) HAS DELETED THE DISALLOWANCE WITH THE FOLLO WING OBSERVATIONS:- I HAVE CAREFULLY CONSIDERED THE SITUATION AND FACT S OF THE CASE, THE SUBMISSION OF THE LD. AR THAT THE APPELLANT IS NOT A PRIVATE LIMITED COMPANY, THE APPELLANT HAS NOT MADE ANY ADVANCE TO PARTNERS, THE APPELLANT FOR MAKING ADVANCE TOOK NO SPECIFIC LOAN FROM BANK, THE AMOUNT OF ADVANCE MADE BY THE APPELLANT WAS OUT OF PARTNERS CAPITAL AND THE FIRM ON PARTNERS CAPITAL PAYS NO I NTEREST AND THEREFORE NO AMOUNT OF INTEREST WAS DISALLOWABLE AP PEARS CONVINCING. HOWEVER THE INTEREST LIABILITY WHICH W OULD HAVE BEEN DEBITED TO PARTNERS CAPITAL IS MUCH MORE (RS.135 LAKH) THEN THE TOTAL AMOUNT OF INTEREST FREE ADVANCES (RS.39.72 LA KH) AND VARIOUS COURTS HAVE HELD THAT INTEREST FREE ADVANCES SHOULD NOT ATTRACT CHARGING OF INTEREST OR DISALLOWANCE OF INTEREST PA ID/PAYABLE BY THE APPELLANT TO THE EXTENT OF PARTNERS CAPITAL. IN T HE CIRCUMSTANCES OF THE CASE, THERE IS NO OPTION BUT TO DELETE THE HALF COOKED ADDITION OF RS.5,67,432/-. IN THE RESULT THE GROUND OF APPEAL AS RAISED BY THE APPELLANT SUCCEEDS. 14. LD. DR RELYING ON THE ORDER OF THE ASSESSING OF FICER PLEADED THAT THE DISALLOWANCE WAS RIGHTLY MADE BY THE ASSESSING OFFI CER AND LD. CIT (A) HAS WRONGLY DELETED THE DISALLOWANCE. HE FURTHER CONTE NDED THAT THE ONUS WAS ON THE ASSESSEE TO PROVE THAT INTEREST BEARING FUNDS W ERE NOT UTILIZED TO ADVANCE ITA NO.1379/DEL/2008 ITA NO.1380/DEL/2008 13 INTEREST FREE SUMS TO THESE PERSONS. THUS, IT WAS PLEADED BY LD. DR THAT DISALLOWANCE DELETED BY THE LD. CIT (A) WAS NOT WAR RANTED. HE PLEADED THAT THE ORDER OF THE ASSESSING OFFICER ON THIS ISSUE SHOULD BE RESTORED AND THAT OF THE LD. CIT (A) SHOULD BE SET ASIDE. 15. ON THE OTHER HAND, RELYING ON THE AFOREMENTIONE D DECISION OF THE HONBLE MADRAS HIGH COURT IT WAS PLEADED BY LD. AR THAT DIS ALLOWANCE HAS RIGHTLY BEEN DELETED BY THE LD. CIT (A) AND HIS ORDER SHOULD BE UPHELD. 16. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTI ONS IN THE LIGHT OF THE MATERIAL PLACED BEFORE US. THE FACT THAT THE PARTN ERS WERE HAVING CAPITAL AMOUNTING TO RS.135 LAC HAS NOT BEEN DISPUTED. SIN CE THE SAID AMOUNT IS MORE THAN THE INTEREST FREE ADVANCES, ON WHICH THE DISAL LOWANCE HAS BEEN MADE BY THE ASSESSING OFFICER, IT WAS SUBMITTED BY THE ASSE SSEE BEFORE THE ASSESSING OFFICER THAT THE DISALLOWANCE IS NOT WARRANTED AND RELIANCE WAS PLACED ON THE AFOREMENTIONED DECISION OF THE HONBLE MADRAS HIGH COURT. IN THIS VIEW OF THE SITUATION, WE ARE OF THE OPINION THAT THE INITIAL B URDEN LAID UPON THE ASSESSEE TO EXPLAIN THE EXPENDITURE IN QUESTION WAS DISCHARGED. THEREAFTER, THE ONUS SHIFTED ON ASSESSING OFFICER TO FIND OUT WHETHER THE INTERE ST FREE ADVANCES WERE HAVING NEXUS WITH THE INTEREST BEARING FUNDS. THERE IS NO FINDING OF THE ASSESSING OFFICER THAT ANY INTEREST BEARING FUND WAS UTILIZE D FOR MAKING INTEREST FREE ADVANCES. IN THE ABSENCE OF SUCH A FINDING BY THE ASSESSING OFFICER AND IN THE ABSENCE OF SUCH PLEADING ON BEHALF OF THE REVENUE T HAT THERE WAS ANY NEXUS BETWEEN INTEREST BEARING FUNDS AND INTEREST FREE AD VANCES, WE ARE OF THE OPINION THAT ADDITION HAS RIGHTLY BEEN DELETED BY THE LD. C IT (A). THE DECISION OF HONBLE MADRAS HIGH COURT IS APPLICABLE ON THE FACTS OF THI S CASE. THEREFORE, WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT (A) VIDE WHIC H THE IMPUGNED ADDITION HAS BEEN DELETED. THIS GROUND OF THE REVENUE IS, THER EFORE, DISMISSED. ITA NO.1379/DEL/2008 ITA NO.1380/DEL/2008 14 17. IN THE RESULT, BOTH THE APPEALS ARE PARTLY ALLO WED. . 18. THE ORDER PRONOUNCED IN THE OPEN COURT ON 21.08 .2009. [K.D. RANJAN] [I.P. BANSAL] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED, 21.08.2009. DK COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT TRUE COPY BY ORDER, DEPUTY REGISTRAR, ITAT, DELHI BENCHES