BANCO PRODUCTS (INDIA) LTD., Baroda V. ACIT, CIRCLE-1(1), Baroda

ITA 1418/AHD/2006

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 5846 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 10-06-2010
• Assessment Year: 2002-2003
• Appeal Filed On: 31-05-2006
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: C K MISHRA SRDR
• Keywords: Capital asset; Gift; Business income; Bad and doubtful debts; Competent authority; Revenue expenditure; Capital expenditure; Rule 8D; Set aside
• Section: 143(3); 80HHC; 14A; 201; 80HH

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD AHMEDABAD D BENCH BEFORE SHRI G.D. AGARWAL, VICE-PRESIDENT (AZ) AND SHRI MAHAVIR SINGH, JUDICIAL MEMBER ITA NO.1418 & 1450/AHD/2006 [ASSTT.YEAR: 2002-03] DATE OF HEARING: 10.6.10 DRAFTED: 14.6.10 BANCO PRODUCTS (INDIA) LTD. -VS- ACIT, CIRCLE-1(1) , BIL, NR. BHAILI RAILWAY STATION, BARODA PO BHAILY, BARODA PAN NO.AAACB8630L ACIT, CIRCLE-1(1), BARODA -VS- BANCO PRODUCTS (IND IA) LTD., BIL, NR. BHAILI RLY. STATION, PADRA ROAD, BARODA ITA NO.3 & 89/AHD/2007 [ASSTT. YEAR: 2003-04] ACIT, CIRCLE-1(1), BARODA -VS- BANCO PRODUCTS (IND IA) LTD. BIL, NR. BHAILI RLY. STATION, PADRA ROAD, BARODA-391 410 BANCO PRODUCTS (INDIA) LTD. -VS- ACIT, CIRCLE-1(1) , BARODA BIL. NR. BHAILI RLY. STATION, PO BHAILY, BARODA ITA NO.877/AHD/2009 & CO. NO.80/AHD/2009 (ARISING OUT ITA NO.877/ AHD/2009) [ASSTT. YEAR : 2 005-06] DCIT,CIRCLE1-(1), BARODA -VS- BANCO PRODUCTS (I), LTD. BIL, NR. BHAILI RLY. STATION, PADRA ROAD, BARODA (APPELLANT) (RESPONDENT) REVENUE BY : SHRI C.K. MISHRA, SR-DR ASSESSEE BY:SHRI MILIN MEHTA, AR O R D E R ITA NOS.1418, 1450/AHD/06; 3 & 89/AHD/07, 877/AHD/09 & CO 80/A/09 PAGE 2 BANCO PRODUCTS (I) LTD. V. ACIT & DCIT CIR-1(1) BRD A YS 02-03, 03-04 & 05-06 PER BENCH:- THESE FIVE APPEALS THREE BY REVENUE AND TWO BY A SSESSEE, AND ONE CROSS OBJECTION (CO) BY ASSESSEE, ALL ARE ARISING OUT OF ORDER OF COMMISSIONER OF INCOME- TAX (APPEALS), V & I, BARODA IN APPEAL NOS. CIT(A)- V/CAB/I/200/2004-05 ; CAB/I- 33/06-07 AND CAB-I/271/07-08 OF DIFFERENT DATES I.E . 20-03-200613-10-2006 AND 10- 12-2008. THE ASSESSMENTS WERE FRAMED BY ACIT, CIRC LE-1(1), BARODA BY ORDERS OF DIFFERENT DATES 24-02-2006, 24-12-2006 AND 27-12-20 07 U/S. 143(3) OF THE INCOME- TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT ) FOR ASSESSMENT YEARS 2002-03, 2003-04 AND 2005-06 RESPECTIVELY. FIRST WE WILL DEAL WITH ASSESSEES APPEAL IN ITA NO .1418/AHD/2006, ITA NO.89/AHD/2007 & REVENUES APPEAL IN ITA NO.1450/A HD/2006. 2. THE FIRST COMMON ISSUE IN THESE APPEALS IS AGAIN ST THE ORDER OF CIT(A) IN DIRECTING THE ASSESSING OFFICER TO REDUCE ONLY NET OFF INSURANCE CLAIM IN AT 90% FROM BUSINESS PROFITS WHILE COMPUTING DEDUCTION U/S.80HH C OF THE ACT. 3. AFTER HEARING THE RIVAL CONTENTIONS AND GOING TH ROUGH THE FACTS OF THE CASE, WE FIND THAT THE ASSESSEE HAS CONTENDED THAT THERE IS NO PROFIT ELEMENT INVOLVED IN INSURANCE RECEIPTS, AS THE INSURANCE CLAIM IS PUREL Y FOR THE RECOVERY OF LOSS OF MATERIAL AND ASSET OF THE COMPANY DUE TO DAMAGE TO THE MATERIAL AND ASSETS. WE ARE OF THE VIEW THAT THE EXPENDITURE INCURRED BY TH E ASSESSEE ON MATERIAL AND ASSETS LOST DUE TO DAMAGE IS MORE THAN THE INSURANCE CLAIM AND THERE WAS NO INCOME TO THE ASSESSEE IN THE NATURE OF INSURANCE CLAIM. THIS VI EW HAS ALSO TAKEN BY SPECIAL BENCH OF THIS TRIBUNAL OF AHMEDABAD IN THE CASE OF NRIMA INDUSTRIES V. ACIT (2005) 95 TTJ 867 (AHD). THIS RECEIPT OF INSURANCE CLAIM IS NOT AN INCOME, THE SAME WILL NOT BE INCLUDED EITHER IN THE TOTAL TURNOVER NOR IN THE BUSINESS PROFITS OF THE ASSESSEE FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/S.80H HC OF THE ACT. ACCORDINGLY, ASSESSING OFFICER IS DIRECTED TO REDUCE THIS INSURA NCE CLAIM FROM THE TOTAL TURNOVER AS WELL AS FROM THE BUSINESS INCOME OF THE ASSESSEE AN D COMPUTE DEDUCTION U/S 80HCC OF THE ACT. THIS ISSUE OF ALL THESE APPEALS I S ALLOWED FOR STATISTICAL PURPOSES. ITA NOS.1418, 1450/AHD/06; 3 & 89/AHD/07, 877/AHD/09 & CO 80/A/09 PAGE 3 BANCO PRODUCTS (I) LTD. V. ACIT & DCIT CIR-1(1) BRD A YS 02-03, 03-04 & 05-06 4. THE NEXT COMMON ISSUE IN THESE APPEALS IS AGAINS T THE ORDER OF CIT(A) IN RESTRICTING THE DEDUCTION U/S.80HHC ON THE NET AMOU NT OF COMPENSATION AFTER REDUCING THE NET FROM THE BUSINESS PROFIT. 5. AFTER HEARING THE RIVAL CONTENTIONS AND GOING TH ROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND THAT THE ASSESSE E-COMPANY RECEIVED COMPENSATION FROM OVERSEAS SUPPLIER AS PER THE ORDE R OF TRIBUNAL IN LITIGATION AT GREAT BRITAIN (UK). THIS AMOUNT WAS RECEIVED WITH R ESPECT TO SOME DISPUTE AROSE IN CONNECTION WITH THE SUPPLY OF RAW MATERIALS. THE A SSESSING OFFICER HELD THAT THE COMPENSATION RECEIVED FROM AN OVERSEAS SUPPLIER CAN NOT BE CONSIDERED AS BUSINESS INCOME AS THIS AMOUNT WAS RECEIVED WITH RESPECT TO THE SOME DISPUTE AROSE IN CONNECTION WITH THE SUPPLY OF RAW MATERIAL AND BY N O STRETCH OF INTERPRETATION IT CAN BE REGARDED AS INCOME DERIVED FROM THE BUSINESS ACT IVITY OF THE ASSESSEE. IN VIEW OF DISCUSSION, THE ASSESSING OFFICER TREATED THE CO MPENSATION RECEIVED BY ASSESSEE AS OTHER RECEIPTS. THE CIT(A) TREATED THIS COMPENSA TION BUSINESS INCOME BY HOLDING THAT THE TRANSACTION OF PURCHASE OF RAW MATERIALS W AS IN THE NORMAL COURSE OF BUSINESS AND COMPENSATION RECEIVED IS FOR DEFAULT O F THE SUPPLIER IN SUPPLYING THE RAW MATERIALS. ACCORDINGLY, CIT(A) DIRECTED THE AS SESSING OFFICER TO RE-COMPUTE THE DEDUCTION U/S.80HHC BY EXCLUDING ONLY NET INCOME AN D NOT THE GROSS IN VIEW OF CLAUSE (BAA) TO THIS SECTION. AGGRIEVED, BOTH CAME IN APPEAL BEFORE US. 6. WE FIND THAT COMPENSATION IS RECEIVED ON ACCOUNT OF FAILURE OF THE FOREIGN SUPPLIER TO SUPPLY THE GOODS AS PER THE SCHEDULE FO R SHIPMENT. THE GOODS WERE NOT SUPPLIED DESPITE THE SCHEDULE OF SHIPMENT WAS REVIS ED AND THEREFORE THE ASSESSEE HAD TO PROCURE THE MATERIAL FROM THE OPEN MARKET IN ORDER TO PREVENT INTERRUPTION OF PRODUCTION AND FOR THIS THE ASSESSEE HAD TO PAY HIG HER COST THAN WHAT WAS AGREED WITH THE ORIGINAL SUPPLIER. THAT THE ASSESSEE MADE TOTAL CLAIM OF US $ 3,4000 OUT OF WHICH US $ 2,08,257 REPRESENT COST INCURRED IN RESP ECT OF EXCESS PRICE PAID TO BUY COPPER FROM ALTERNATIVE SOURCE AND THE BALANCE WAS ON ACCOUNT OF INTEREST AND LEGAL COSTS. WE FIND THAT THE ARBITRATOR FINALLY SETTLED THE CLAIM OF US $ 1,00,000 WHICH THE ASSESSEE CLAIMS IS NOTHING BUT REIMBURSEMENT OF EXP ENSES INCURRED FOR BUYING MATERIALS FROM OPEN MARKET AND TOWARDS INTEREST AND LEGAL EXPENSES. IN VIEW OF THE ABOVE FACTS, WE ARE OF THE VIEW THAT THE COMPENSATI ON IS FINALLY SETTLED BY ARBITRATOR ON ACCOUNT OF REIMBURSEMENT OF EXPENSES INCURRED FO R BUYING MATERIALS FROM OPEN ITA NOS.1418, 1450/AHD/06; 3 & 89/AHD/07, 877/AHD/09 & CO 80/A/09 PAGE 4 BANCO PRODUCTS (I) LTD. V. ACIT & DCIT CIR-1(1) BRD A YS 02-03, 03-04 & 05-06 MARKET, INTEREST AND LEGAL EXPENSES, THESE ARE NOTH ING BUT RECEIPTS DIRECTLY RELATED TO EXPORT BUSINESS, HENCE, NOTHING IS TO BE EXCLUDED F ROM THE PROFITS OF BUSINESS IN VIEW OF CLAUSE (BAA), WHILE COMPUTING DEDUCTION U/S.80HH C OF THE ACT. ACCORDINGLY, THIS ISSUE OF THE REVENUES APPEAL IS DISMISSED AND THAT OF THE ASSESSEE IS ALLOWED. 7. THE NEXT COMMON ISSUE IN REVENUES APPEAL IN ITA NO.1450/AHD/2006 AND ITA NO.3/AHD/2007 IS AS REGARDS TO EXCLUSION OF EXCISE DUTY AND SALES TAX FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/S.80HHC OF TH E ACT. 8. AT THE OUTSET, LD. COUNSEL FOR THE ASSESSEE ARGU ED THAT THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION O F HONBLE APEX COURT IN THE CASE OF CIT V. LAKSHMI MACHINE WORKS (2007) 290 ITR 667 (SC), WHEREIN THE HONBLE APEX COURT HAS HELD AS UNDER:- IN FACT, IN CIVIL APPEAL NO.4409 OF 2005, THE ABOV E PROPOSITION HAS BEEN ACCEPTED BY THE ASSESSING OFFICER [SEE : PAGE NO.24 OF THE PAPER BOOK], IF SO, THEN EXCISE DUTY AND SALES TAX ALSO CANNOT FORM PAR T OF THE TOTAL TURNOVER UNDER SECTION 80HHC(3), OTHERWISE THE FORMULA BECOM ES UNWORKABLE. IN OUR VIEW, SALES TAX AND EXCISE DUTY ALSO DO NOT HAVE AN Y ELEMENT OF TURNOVER WHICH IS THE POSITION EVEN IN THE CASE OF RENT, COM MISSION, INTEREST ETC., IT IS IMPORTANT TO BEAR IN MIND THAT EXCISE DUTY AND SALE S TAX ARE INDIRECT TAXES. THEY ARE RECOVERED BY THE ASSESSEE ON BEHALF OF THE GOVERNMENT. THEREFORE, IF THEY ARE MADE RELATABLE TO EXPORTS, THE FORMULA UNDER SECTION 80HHC WOULD BECOME UNWORKABLE. THE VIEW WHICH WE HAVE TAKEN IS IN THE LIGHT OF THE AMENDMENTS MADE TO SECTION 80HHC FROM TIME TO TIME. RESPECTFULLY FOLLOWING THE HONBLE APEX COURT, WE C ONFIRM THE ORDER OF CIT(A) AND THIS COMMON ISSUE BOTH THE REVENUES APPEALS ARE DI SMISSED. 9. THE NEXT COMMON ISSUE IN THIS APPEAL OF REVENUE IN ITA NO.1450/AHD/2006 AS WELL AS ASSESSEES APPEAL IN ITA NO.89/AHD/2007 IS AGAINST THE ORDER OF CIT(A) IN REDUCING THE NET AMOUNT OF BROKERAGE OF INVESTME NT WHILE COMPUTING BUSINESS PROFIT FOR THE CLAIM OF DEDUCTION U/S.80HHC OF THE ACT. 10. AFTER HEARING THE RIVAL CONTENTIONS AND GOING T HROUGH THE FACTS OF THE CASE, WE FIND THAT THE ASSESSING OFFICER HAS NOTED THIS AMOU NT IS ON ACCOUNT OF SHARE IN BROKERAGE RECEIPTS FROM THE BROKERAGE FOR INVESTMEN T MADE BY THE ASSESSEE- COMPANY DURING THE YEAR UNDER CONSIDERATION AMOUNTI NG TO RS.42,958/-. THEREFORE, ITA NOS.1418, 1450/AHD/06; 3 & 89/AHD/07, 877/AHD/09 & CO 80/A/09 PAGE 5 BANCO PRODUCTS (I) LTD. V. ACIT & DCIT CIR-1(1) BRD A YS 02-03, 03-04 & 05-06 ASSESSING OFFICER WHILE COMPUTING THE DEDUCTION U/S . 80HHC REDUCED 90% OF BROKERAGE ON INVESTMENT UNDER CLAUSE (BAA) WHILE CO MPUTING BUSINESS PROFIT OF THE ASSESSEE. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFO RE CIT(A) AND CIT(A) REDUCING THE BROKERAGE ON INVESTMENTS OF RS.42,958/- HOLD TH AT ABOVE ITEM CANNOT BE INCLUDED IN BUSINESS INCOME AND THEREFORE THE ACTIO N OF THE ASSESSING OFFICER IS CONFIRMED IN REGARD TO BROKERAGE INCOME STATING THA T THIS ACTUALLY REPRESENTS INCOME OF BROKERAGE ON INVESTMENTS MADE BY THE ASSESSEE-CO MPANY. HOWEVER, THE CIT(A) DIRECTED THE ASSESSING OFFICER THAT PART OF BROKERA GE WAS REFUNDED TO THE COMPANY WHICH WOULD GO TO REDUCE THE BROKERAGE EXPENSE INCU RRED WHILE MAKING INVESTMENTS AND THERE IS NO ELEMENT OF PROFIT INVOLVED, AND DIR ECTED TO AO TO VERIFY AND EXCLUDE ONLY THE NET AMOUNT FROM PROFITS OF BUSINESS. WE FI ND THAT THIS BROKERAGE INCOME IN ANY WAY IS NOT RELATED TO EXPORT EARNING BUT THE EX PENDITURE RELATING TO THIS BROKERAGE INCOME IN ANY CASE IS TO BE EXCLUDED. ACCORDINGLY, IF THERE IS A DIRECT NEXUS WITH THIS INCOME OF ANY EXPENDITURE, THE SAME WILL BE REDUCED AND ONLY NET INCOME HAS TO BE EXCLUDED TO THE EXTENT OF 90% UNDER CLAUSE (BAA) WH ILE COMPUTING DEDUCTION U/S.80HHC OF THE ACT. THIS COMMON ISSUE OF REVENUE S APPEAL AND THAT OF ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOS ES, IN VIEW OF THE ABOVE DIRECTION. 11. THE NEXT ISSUE IN THIS APPEAL OF REVENUE IN ITA NO.1450/AHD/2006 IS AGAINST THE ORDER OF CIT(A) FOR DIRECTING THE ASSESSING OFF ICER TO EXCLUDE THE EXCHANGE RATE DIFFERENCE OF RS.7,54,240/- FROM PROFIT OF BUSINESS WHILE CALCULATING THE DEDUCTION U/S.80HHC OF THE ACT. 12. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE TH ROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE ASSESSI NG OFFICER HAS EXCLUDED THIS EXCHANGE RATE DIFFERENCE FROM PROFIT OF BUSINESS WH ILE COMPUTING DEDUCTION U/S.80HHC OF THE ACT AND THE CIT(A) DIRECTED THE AO NOT TO EXCLUDE THIS INCOME FROM THE BUSINESS PROFIT BY STATING THAT EXCHANGE RATE D IFFERENCE IS PART OF SALE REALIZATION AND THEREFORE IT IS NOT REQUIRED TO BE REDUCED FROM PROFIT OF THE BUSINESS AND IT HAS DIRECT NEXUS WITH THE INCOME OF EXPORTS. WE FIND T HAT THE ISSUE IS COVERED BY THE TRIBUNALS DECISION IN THE CASE OF SUJATA GROVER V. DCIT (2002) 74 TTJ 347 (DEL). FURTHER, THE ISSUE IS ALSO COVERED BY THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. AMBA IMPEX (2006) 282 ITR 144 (GUJ), WHEREIN THE HONBLE HIGH COURT HELD AS UNDER:- ITA NOS.1418, 1450/AHD/06; 3 & 89/AHD/07, 877/AHD/09 & CO 80/A/09 PAGE 6 BANCO PRODUCTS (I) LTD. V. ACIT & DCIT CIR-1(1) BRD A YS 02-03, 03-04 & 05-06 THE ENTIRE CASE OF THE REVENUE IS BUILT ON THE FAC T THAT THE AMOUNT HAS BEEN RECEIVED IN A YEAR SUBSEQUENT TO THE YEAR OF EXPORT S. AS CAN BE SEEN FROM THE ASSESSMENT ORDER IT TALKS OF EXPORT REALIZATION FOR EXPORTS MADE UP IN MARCH 31, 2000. THERE IS NOTHING TO INDICATE, AND N ONE OF THE AUTHORITIES HAVE APPLIED THEIR MIND, AS TO WHETHER THE SUM OF RS.13, 18,068 IS RELATABLE TO EXPORTS MADE DURING ONLY ONE FINANCIAL YEAR OR MORE THAN ONE FINANCIAL YEAR PRECEDING MARCH 31, 2000. THIS WOULD HAVE A MATERIA L BEARING, TAKING INTO CONSIDERATION THE PROVISIONS OF SUB-SECTION (2) OF SECTION 80HHC OF THE ACT AS WAS APPLICABLE DURING THE YEAR UNDER CONSIDERATION. UNDER SUB-SECTION (2) OF SECTION 80HHC OF THE ACT, SALE PROCEEDS OF GOODS OR MERCHANDISE EXPORTED OUT OF INDIA AND RECEIVED IN C ONVERTIBLE FOREIGN EXCHANGE BECOME ENTITLED TO THE DEDUCTION SUBJECT T O FULFILLMENT OF OTHER REQUISITE CONDITIONS. CLAUSE (A) OF SUB-SECTION (2 ) OF SECTION 80HHC OF THE ACT PROVIDES THAT SUCH SALE PROCEEDS HAVE TO BE REC EIVED IN CONVERTIBLE FOREIGN EXCHANGE WITHIN A PERIOD OF SIX MONTHS FROM THE END OF THE PREVIOUS YEAR OR, WITHIN SUCH FURTHER PERIOD AS THE COMPETEN T AUTHORITY MAY ALLOW IN THIS BEHALF. THUS, A PLAIN READING OF THE PROVISION MAKE S IT CLEAR THAT ONCE THE COMPETENT AUTHORITY HAS EXTENDED THE TIME, IN A CAS E WHERE IT IS NECESSARY, OR, WHERE THE SALE PROCEEDS HAVE BEEN RECEIVED WITH IN A PERIOD OF SIX MONTHS FROM THE END OF THE PREVIOUS YEAR, SUCH SALE PROCEE DS ARE DIRECTLY RELATABLE TO THE EXPORTS MADE AND NO FURTHER INQUIRY IS NECESSAR Y. THEREFORE, THE ENTIRE CONTROVERSY AS TO WHETHER SUCH RECEIPT AMOUNTS TO ANY OTHER RECEIPT STIPULATED IN EXPLANATION (BAA)(1) NEED NOT BE TAKEN UP FOR CONSIDERATION. ONCE THE LEGISLATURE HAS PROVIDED FOR TREATING A RE CEIPT WITHIN A PERIOD OF SIX MONTHS AFTER THE END OF THE PREVIOUS YEAR, OR WITHI N FURTHER EXTENDED PERIOD, AS SALE PROCEED RELATABLE EXPORTS, IT WOULD NOT BE OPEN TO THE REVENUE TO RAISE SUCH A CONTROVERSY. THE LEGISLATURE IN ITS WI SDOM HAS TAKEN INTO CONSIDERATION THE FACT THAT IN THE CASE OF EXPORTS MADE, SALE PROCEEDS ARE NOT NECESSARILY REALIZABLE IMMEDIATELY WITHIN THE ACCOU NTING PERIOD IN WHICH EXPORTS HAVE BEEN MADE. AS A COROLLARY, BY THE TIME SUCH SALE PROCEEDS ARE RECEIVED WITHIN THE PRESCRIBED TIME, BY VIRTUE OF E XCHANGE RATE DIFFERENCE, THERE MIGHT BE A SITUATION WHERE A LARGER AMOUNT IS RECEIVED THAN THE AMOUNT AS REFLECTED IN THE SHIPPING BILL. HENCE, MERELY BE CAUSE AN AMOUNT IS RECEIVED IN A YEAR SUBSEQUENT TO THE YEAR OF EXPORT BY WAY O F EXCHANGE RATE DIFFERENCE, IT DOES NOT NECESSARILY ALWAYS FOLLOW THAT THE SAME IS NOT RELATABLE TO THE EXPORTS MADE. AS CAN BE SEEN FROM THE IMPUGNED ORDER OF THE TRIB UNAL AS WELL AS THE ORDERS OF THE COMMISSIONER (APPEALS) AND THE ASSESSING OFF ICER, NONE OF THE AUTHORITIES HAVE APPROACHED THE ISSUE IN THE LIGHT OF THE PROVISIONS OF SUBS- SECTION (2) OF SECTION 80HHC OF THE ACT. NO EVIDENC E IS AVAILABLE ON RECORD TO ESTABLISH FULFILLMENT OR OTHERWISE, OF THE CONDITIO NS STIPULATED BY SUBS-SECTION (2) OF SECTION 80HHC OF THE ACT. IN THESE CIRCUMST ANCES, IT WOULD NOT BE FAIR AND JUST FOR EITHER SIDE TO RESOLVE THE CONTROVERSY IN THE ABSENCE OF THE RELEVANT FACTS AND EVIDENCE BEING AVAILABLE ON RECO RD. IN THE LIGHT OF WHAT IS STATED HEREINBEFORE, THE Q UESTION IS LEFT UNANSWERED AND THE APPEAL IS RESTORED TO THE FILE OF THE TRIBUNAL ONLY IN RELATION TO THE ISSUE ITA NOS.1418, 1450/AHD/06; 3 & 89/AHD/07, 877/AHD/09 & CO 80/A/09 PAGE 7 BANCO PRODUCTS (I) LTD. V. ACIT & DCIT CIR-1(1) BRD A YS 02-03, 03-04 & 05-06 RELATABLE TO DEDUCTION UNDER SECTION 80HHC OF THE A CT WITHOUT EXPRESSING ANY FINAL OPINION ON THE MERITS OF THE MATTER. THE TRIB UNAL SHALL, AFTER HEARING BOTH THE SIDES, DECIDE THE APPEAL ON THIS COUNT, BE OPEN TO THE TRIBUNAL TO RESTORE THE ISSUE TO THE FILE OF THE ASSESSING AUTHORITY TO ASCERTAIN PROPER FACTS IN THE CIRCUMSTANCES. IN VIEW OF THE ABOVE FACTS AND THE DECISION OF HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF AMBA IMPEX (SUPRA), THE ISSUE IS COVERED IN FAVOUR OF THE ASS ESSEE AND AGAINST THE REVENUE. THIS ISSUE OF THE REVENUES AP PEAL IS DISMISSED. 13. THE NEXT COMMON ISSUE IN BOTH THE APPEALS OF AS SESSEE IN ITA NO.1418/AHD/2006 AND ITA NO.89/AHD/2007 IS AS REGARDS TO THE EXCLUSION OF INTEREST INCOME ON TRADE DEBTORS, INTEREST ON INTER EST REFUND AND INTEREST FROM BANK FROM THE BUSINESS PROFITS, WHILE COMPUTING DEDUCTIO N U/S.80HHC OF THE ACT. 14. AS REGARDS TO INTEREST ON INCOME-TAX REFUND, THE LD. COUNSEL FOR ASSESSEE HAS NOT PRESSED THIS ISSUE AND ACCORDINGLY SAME IS DISMISSED AS NOT PRESSED. AS REGARDS TO INTEREST INCOME ON OUTSTANDING TRADE DEB TORS AND INTEREST FROM BANK ON MARGIN MONEY, THE LD. COUNSEL FOR THE ASSESSEE STAT ED THAT ONLY NETTING HAS TO BE GRANTED IN VIEW OF THE DECISION OF HONBLE DELHI HI GH COURT IN THE CASE OF CIT V. SHRI RAM HONDA POWER EQUIP (2007) 289 ITR 475 (DEL). ON THE OTHER HAND THE LEARNED SR. DR STATED THAT NOW THE ISSUE HAS BECOME CLEAR A FTER THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V. ASIAN STAR CO. LTD. IN ITA NO.200 OF 2009 (BOM), WHEREIN, HONBLE BOMBAY HIGH COURT OBSERVED THAT EXPLANATION (BAA) TO S. 80HHC REQUIRES THAT NINETY PER CENT OF RECEIPTS BY WAY OF BROKERAGE, COMMISSION, INTEREST, RENT, CHARGES OR ANY OTHER RECEIPT OF A S IMILAR NATURE HAVE TO BE REDUCED FROM THE PROFITS. THE REASON WHY ITEMS LIKE BROKERA GE ETC HAVE TO BE EXCLUDED IS BECAUSE THEY DO NOT POSSESS ANY NEXUS WITH EXPORT T URNOVER AND THEIR INCLUSION IN PROFITS WOULD RESULT IN A DISTORTION OF THE FIGURE OF EXPORT PROFITS. HOWEVER, AS SOME EXPENDITURE MIGHT HAVE BEEN INCURRED IN EARNING THE SE INCOMES, AN ADHOC DEDUCTION OF TEN PER CENT FROM SUCH INCOME IS ALLOWED. IT WAS FURTHER OBSERVED BY THE HONBLE HIGH COURT THAT ONCE PARLIAMENT HAS LEGISLATED BOTH IN REGARD TO THE NATURE OF THE EXCLUSION AND THE EXTENT OF THE EXCLUSION, IT WOULD NOT BE OPEN TO THE COURT TO ORDER OTHERWISE BY REWRITING THE LEGISLATIVE PROVISION. T HE TASK OF INTERPRETATION IS TO FIND OUT THE TRUE INTENT OF A LEGISLATIVE PROVISION AND IT I S CLEARLY NOT OPEN TO THE COURT TO ITA NOS.1418, 1450/AHD/06; 3 & 89/AHD/07, 877/AHD/09 & CO 80/A/09 PAGE 8 BANCO PRODUCTS (I) LTD. V. ACIT & DCIT CIR-1(1) BRD A YS 02-03, 03-04 & 05-06 LEGISLATE BY SUBSTITUTING A FORMULA OR PROVISION OT HER THAN WHAT HAS BEEN LEGISLATED BY PARLIAMENT. IT IS NOT OPEN TO SAY THAT SOMETHING MORE THAN THE 10% STATUTORILY PROVIDED SHOULD ALSO BE ALLOWED. HONBLE HIGH COURT FURTHER HELD THAT IN CIT V. SHRI RAM HONDA POWER EQUIP , (2007)289 ITR 475 (DEL), THE DELHI HIGH COURT HA S NOT ADEQUATELY EMPHASIZED THE ENTIRE RATIONALE FOR CONF INING THE DEDUCTION ONLY TO THE EXTENT OF NINETY PER CENT OF THE EXCLUDIBLE RECEIPT S AND IT CANNOT BE FOLLOWED. AS REGARDS THE JUDGEMENT OF THE SPECIAL BENCH IN LALSONS ENTERPRISES , HONBLE HIGH COURT HELD THAT WE ARE AFFIRMATIVELY OF THE VIEW THAT THE TRIBUNA L HAS TRANSGRESSED THE LIMITATIONS ON THE EXERCISE OF JUDICIAL POWER A ND . HAS IN EFFECT LEGISLATED BY PROVIDING A DEDUCTION ON THE GROUND OF EXPENSES OTH ER THAN IN THE TERMS WHICH HAVE BEEN ALLOWED BY PARLIAMENT. THAT IS IMPERMISSIBLE. IN REPLY THE LEARNED COUNSEL FOR THE ASSESSEE STATED THAT WHEN TWO HIGH COURTS DIFFER ON THE SAME ISSUE, THE BENEFICIAL VIE W SHOULD BE TAKEN IN FAVOUR OF THE ASSESSEE. HE STATED THAT HONBLE DELHI HIGH COURT I N THE CASE OF CIT V. SHRI RAM HONDA POWER EQUIP (2007) 289 ITR 475 (DELHI) HAS ALLOWED THE CLAIM O F THE ASSESSEE AS REGARD TO NETTING OF INTEREST ON THE AL LOWANCE OF DEDUCTION UNDER SECTION 80HHC OF THE ACT. 15. WE FIND THAT THE HONBLE BOMBAY HIGH COURT IN T HE CASE OF ASIAN STAR CO. LTD. (SUPRA) HAS CONSIDERED THE DELHI HIGH COURT JUDGMEN T IN THE CASE OF SHRI RAM HONDA POWER EQUIP (SUPRA) AS WELL THE CASE OF SPECIAL BENCH OF THIS TRIBUNAL IN LALSON ENTERPRISES AND HELD THAT 90% OF RECEIPTS BY WAY OF INTEREST HA VE TO BE REDUCED FROM THE BUSINESS PROFITS WHILE COMPUTING D EDUCTION U/S.80HHC OF THE ACT UNDER CLAUSE (BAA). RESPECTFULLY FOLLOWING HONBLE BOMBAY HIGH COURT IN ASIAN STAR CO. LTD. (SUPRA), WE UPHOLD THE ORDER OF CIT(A) AND THIS IS SUE OF THE ASSESSEES APPEAL IS DISMISSED. 16. THE NEXT ISSUE IN THIS APPEAL OF THE ASSESSEE IN ITA NO.1418/AHD/2006 IS AS REGARDS TO THE CLAIM OF DEDUCTION U/S.80HHC OF THE ACT ON SALE TAX REFUND. AT THE OUTSET, THE LD. COUNSEL FOR THE ASSESSEE STATED THA T HE HAS INSTRUCTION FROM THE ASSESSEE NOT TO PRESS THIS ISSUE DUE TO SMALLNESS O F THE AMOUNT. AS THE ASSESSEE IS NOT INTERESTED IN PROSECUTING THIS ISSUE DUE TO SMA LLNESS OF AMOUNT, THE SAME IS DISMISSED AS NOT PRESSED. ITA NOS.1418, 1450/AHD/06; 3 & 89/AHD/07, 877/AHD/09 & CO 80/A/09 PAGE 9 BANCO PRODUCTS (I) LTD. V. ACIT & DCIT CIR-1(1) BRD A YS 02-03, 03-04 & 05-06 17. THE NEXT COMMON ISSUE IN THESE APPEALS OF THE A SSESSEE IN ITA NO.1418/AHD/2006 AND ITA NO.89/AHD/2007 IS AS REGARDS TO EXCLUSION OF SUNDRY BALANCES WRITTEN OFF FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/S.80HHC ON BUSINESS PROFIT. 18. AFTER HEARING THE RIVAL CONTENTIONS AND GOING T HROUGH THE FACTS OF THE CASE, WE FIND THAT SUNDRY BALANCE WRITTEN OFF ARE AMOUNTS RE PRESENTS SMALL AMOUNT OUTSTANDING IN THE ACCOUNTS OF DEBTORS. SINCE THESE AMOUNTS ARE GENERATED IN NORMAL COURSE OF BUSINESS, THE SAME REPRESENTS BUSI NESS PROFITS DIRECTLY RELATED TO EXPORT BUSINESS. SINCE, THESE AMOUNTS DIRECTLY RELA TES TO EXPORT BUSINESS, NOTHING IS TO BE EXCLUDED WHILE COMPUTING DEDUCTION U/S.80HHC OF THE ACT. ASSESSING OFFICER IS DIRECTED ACCORDINGLY. THIS COMMON ISSUE OF THE ASS ESSEES APPEALS IS ALLOWED. 19. THE NEXT ISSUE IN THIS APPEAL OF ASSESSEE IN ITA NO.1418/AHD/2006 IS AS REGARDS TO SALES TAX SET OFF AND REFUND OF RS.21,80 ,383/-, DIRECTED BY CIT(A) TO THE ASSESSING OFFICER TO EXCLUDE THIS AMOUNT FROM THE B USINESS PROFIT OF THE ASSESSEE WHILE COMPUTING DEDUCTION U/S.80HHC OF THE ACT. 20. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE TH ROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE SALES T AX SET OFF AND REFUND OF SALES TAX AMOUNT IS NEITHER THE PAYMENT NOR A RECEIPT, RATHER THIS WILL NOT EFFECT EITHER THE TURNOVER OF THE ASSESSEE OR THE BUSINESS PROFITS. ACCORDINGLY, THE ASSESSING OFFICER IS DIRECTED TO RE-COMPUTE THE DEDUCTION U/S.80HHC A FTER EXCLUDING THE SALES TAX SET OFF AND REFUND FROM THE TOTAL TURNOVER AS WELL AS T HE BUSINESS PROFIT OF THE ASSESSEE BECAUSE THIS AMOUNT DOES NOT REPRESENTS NEITHER REC EIPT NOR THE BUSINESS PROFIT OF THE ASSESSEE AND THIS WILL NOT BE INCLUDED EITHER I N THE BUSINESS PROFIT OR IN THE TOTAL TURNOVER OF THE ASSESSEE. ACCORDINGLY, THIS ISSUE OF THE ASSESSEES APPEAL IS SET ASIDE TO THE FILE OF ASSESSING OFFICER AND WE DIREC T HIM TO DECIDE IN TERMS OF THE ABOVE. 21. THE NEXT ISSUE IN BOTH THE APPEALS OF ASSESSEE IN ITA NO.1418/AHD/2006 AND ITA NO.89/AHD/2007 IS, WHETHER RELIEF UNDER SECTION 80-IA SHOULD BE DE DUCTED FROM THE PROFITS AND GAINS OF THE BUSINESS BEFORE COMPUT ING RELIEF UNDER SECTION 80HHC OF THE ACT OR NOT. ITA NOS.1418, 1450/AHD/06; 3 & 89/AHD/07, 877/AHD/09 & CO 80/A/09 PAGE 10 BANCO PRODUCTS (I) LTD. V. ACIT & DCIT CIR-1(1) BRD A YS 02-03, 03-04 & 05-06 22. WE FIND THAT THE ISSUE IS SQUARELY COVERED BY T HE DECISION OF SPECIAL BENCH OF THIS TRIBUNAL IN THE CASE OF ACIT V. ROGINI GARMENTS (2007) 294 ITR 15 (AT), (CHENNAI) (SB), WHEREIN IT IS HELD AS UNDER:- FROM THE ABOVE, IT IS CLEAR THAT IF RESTRICTIVE CL AUSE NOT IN THE SAME SECTION BUT ION SOME OTHER PROVISION, IS CLEARLY SHOWING TH E MENS LEGIS IT HAS TO BE GIVEN FULL EFFECT. THEREFORE, IF RESTRICTION IS PL ACED ON THE CLAIM OF REPETITIVE DEDUCTION IN SECTION 80IA(9) AND IS MADE APPLICABLE IN RESPECT OF ALL DEDUCTIONS UNDER CHAPTER VI-A, THEN THIS RESTRICTIO N IS TO BE APPLIED. SINCE THE WORDINGS USED ARE ANY OTHER DEDUCTIONS UNDER CHAPT ER VI-A FULL EFFECT IS TO BE GIVEN TO THIS PROVISION AND WHENEVER AN ASSESSEE WANTS TO CLAIM DEDUCTION UNDER SECTION 80-IA(9) RESTRICTION IS TO BE READ IN EVERY OTHER PROVISION PROVIDING FOR DEDUCTION UNDER CHAPTER VI- A. APROPOS THE ARGUMENT THAT THE PROVISION IS COUCHED WITH AMBIGUITIES, AND THEREFORE THE SPIRIT OF THE ACT IS TO BE SEEN AND J USTICE BE DONE WE FIND THAT THE FREEDOM FOR THE SEARCH OF THE SPIRIT OF THE ACT OR THE MISCHIEF AT WHICH IT IS AIMED OPENS THE POSSIBILITY OF LIBERAL INTERPRETATI ON. THIS FINER ASPECT CANNOT BE NARROWLY WATCHED. IT IS THAT DELICATE AND IMPORT ANT BRANCH OF JUDICIAL POWER, THE CONCESSION OF WHICH IS DANGEROUS BUT THE DENIAL IS DISASTROUS. AT ONE STREAM STANDS LORD DENNING WHO SAID : WE DO NOT SIT HERE TO PULL THE LANGUAGE OF PARLIAMENT TO PIECES AND MAKE NON-SENSE OF IT. THAT IS AN EASY THING TO DO. WE SIT HERE TO FIND OUT THE INTENTION OF PARLIAMENT AND CARRY IT OUT. WE DO THIS BETTER BY FILLING IN THE GAPS AND MAKING SENSE OF THE ENACTMENT THAN BY OPENING TO DESTRUCTIVE ANALYSIS. VISCOUNT SIMONDS CALLED IT A NAKED USURPATION OF THE LEGISLATIVE FUNCTION UNDER THE TH ING GUISE OF INTERPRETATION. IN OUR OPINION, THE INTENTION OF LEGISLATURE IS A V ERY SLIPPERY PHASE. WHEN THE LANGUAGE OF THE STATUTE IS TRANSPARENTLY PLAIN, IT IS WRONG TO GIVE IT COLOUR ACCORDING TO THE TEMPER OF TIME. WHEN THE LANGUAGE IMPLIED BY THE ENACTMENT IS CLEAR, THERE IS NO QUESTION OF INTERPRETING THE PROVISIONS IN ANY MANNER EXCEPT BY GIVING THEM THEIR PLAIN AND OBVIOUS MEANI NG. NEBULOUS CONCEPT OF THE LEGISLATIVE INTENT CANNOT BE USED TO CURTAIL TH E EXPLICIT PROVISIONS IN A STATUTE. A STATUTE OR ANY ENACTING PROVISIONS THERE IN MUST BE SO CONSTRUED SO AS TO MAKE IT EFFECTIVE AND OPERATIVE ON THE PRINCI PLE EXPRESSED IN THE MAXIM, UT RES MAGIS VALEAT QUAM PEREAT. THERE IS NO SCOPE FOR IMPORTING INTO THE STATUTE IS THE EDICT OF THE LEGISLATURE AND THE DUT Y OF THE JUDICATURE IS TO ACT UPON THE SENTETIA LEGIS. THERE IS NO ESTOPPEL AGAIN ST THE STATUTE. WE HAVE GONE THROUGH THE CIRCULAR RELIED ON BY LEAR NED COUNSEL FOR THE ASSESSEE. IT NOWHERE SUGGESTS THAT MORE THAN 100 PE R CENT DEDUCTION ON THE SAME PROFIT CAN BE GRANTED TO THE ASSESSEE UNDER VA RIOUS SECTIONS ENUMERATED IN CHAPTER VI-A. SECTION 80HHC IS PART O F CHAPTER VI-A. THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. SHARON VANEERS P. LTD.[2007] 294 ITR 18 (MAD.) (T.C.(A) NO.62 OF 2004 DATED FEBRUARY 26, 2007) , HAS MADE IT CLEAR THAT IT IS NOT CORRECT TO SAY T HAT SECTION 80HHC OF THE ACT IS A SELF-CONTAINED PROVISION. THE DEDUCTION CA NNOT BE ALLOWED IGNORING THE RESTRICTIVE CLAUSE CONTAINED IN SECTION 80-IA(9 ). THE RESTRICTIVE CLAUSE IN ITA NOS.1418, 1450/AHD/06; 3 & 89/AHD/07, 877/AHD/09 & CO 80/A/09 PAGE 11 BANCO PRODUCTS (I) LTD. V. ACIT & DCIT CIR-1(1) BRD A YS 02-03, 03-04 & 05-06 SECTION 80-IA MAKES IT ABUNDANTLY CLEAR THAT WHEREV ER DEDUCTION UNDER ANY OTHER SECTIONS OF CHAPTER VI-A(C) IS CLAIMED, THE C OMPUTATION WILL BE SUBJECT TO THE RESTRICTIONS LAID DOWN IN SECTION 80-IA(9). IT PRECLUDES PRO TANTO, ALL THE DEDUCTIONS OF SUCH PROFITS AND GAINS CLAIMED UNDER CHAPTER VI-A(C). SECTION 80HHC IS A PART OF CHAPTER VI-A(C). IT IS NOT A SEL F-CONTAINED PROVISION. THERE IS ABSOLUTELY NO AMBIGUITY ON THIS ASPECT. WE ARE T HEREFORE OF THE OPINION THAT RELIEF UNDER SECTION 80-IA SHOULD BE DEDUCTED FROM THE PROFITS AND GAINS OF THE BUSINESS BEFORE COMPUTING RELIEF UNDER SECTION 80HH C OF THE ACT. FURTHER WE FIND THAT A LARGER BENCH OF FIVE MEMBERS CONSTITUTED IN THE CASE OF ACIT V. HINDUSTAN MINT AND AGRO PRODUCTS P. LTD. (2009) 315 ITR (AT) 401 (DEL) (SB), HAS DISTINGUISHED THE JUDGMENT OF HONBLE MADRAS HIGH C OURT IN THE CASE OF SCM CREATIONS V. ACIT (2008) 304 ITR 319 (MAD), CONFIRMING THE VIEW OF SPECIAL BENCH OF THIS TRIBUNAL IN THE CASE OF ROGINI GARMENTS (SUPRA). RESPECTFULLY FOLLOWING THE CASE OF HINDUSTAN MINT AND AGRO PRODUCTS (SUPRA) AND ROGINI GARMENTS (SUPRA), WE DISMISS THIS COMMON ISSUE BOTH OF THE ASSESSEES AP PEAL. 23. THE NEXT COMMON ISSUE IN BOTH APPEALS AND CO OF ASSESSEE IN ITA NO.1418/AHD/2006, ITA NO.89/AHD/2007 AND CO NO.80/AHD/2009 IS AGAINST THE ORDER OF CIT(A) CONFIRMING THE ACTION OF ASSESSING OFFICER IN MAKING AD HOC DISALLOWANCE OF RS.50,000/- OUT OF OFFICE EXPENSES. 24. AFTER HEARING THE RIVAL CONTENTIONS AND GOING T HROUGH THE FACTS OF THE CASE, WE FIND THAT THE ASSESSEE HAS NOT VOUCHED THE EXPENSES AND THE ASSESSING OFFICER ON SCRUTINY FOUND THAT THESE EXPENSES INCLUDES THE OF FICE EXPENSES INCURRED AT ITS BRANCHES AT MADRA, BOMBAY, DELHI AND KOLKATA. ACCOR DING TO THE ASSESSING OFFICER, ON SCRUTINY OF THESE EXPENSES HE FINDS THAT THERE A RE MANY EXPENSES WHICH HAVE BEEN INCURRED IN PROVIDING TEA, COFFEE, REFRESHMENT S, COLD DRINKS, ETC. TO VARIOUS VISITORS BUT NATURE OF ALL THESE EXPENSES REVEALS T HAT THESE ARE MANY EXPENSES WHICH ARE NOT SUBJECT TO VERIFICATION AND NOT PROPERLY VO UCHED ALSO. NONE BUSINESS NATURE OF MANY EXPENSES CAN ALSO NOT BE RULED OUT. THE CIT (A) ALSO CONFIRMED THE ACTION OF THE ASSESSING OFFICER. WE FIND THAT, EVEN NOW BEFOR E THAT THE ASSESSEE COULD NOT ADDUCE ANYTHING TO CONTROVERT THAT THE EXPENSES ARE VOUCHED FULLY AND THERE IS NO PERSONAL ELEMENT IN THESE EXPENDITURES. ACCORDINGL Y, WE CONFIRM THE DISALLOWANCE ITA NOS.1418, 1450/AHD/06; 3 & 89/AHD/07, 877/AHD/09 & CO 80/A/09 PAGE 12 BANCO PRODUCTS (I) LTD. V. ACIT & DCIT CIR-1(1) BRD A YS 02-03, 03-04 & 05-06 25. THE NEXT ISSUE IN THESE APPEALS OF ASSESSEE IN ITA NO.1418/AHD/2006 ITA NO.89/AHD/2007 AND CO NO.80/AHD/2009 IS AS REGARDS TO SALES PROMOTION EXPENSES AT RS.3,09,498/-, RS.4,93,760/- AND RS.65, 198/-. 26. AFTER HEARING THE RIVAL CONTENTIONS AND GOING T HROUGH THE FACTS OF THE CASE, WE FIND THAT THE ASSESSEE-COMPANY HAS DEBITED RS.61,89 ,960/- AS SALES PROMOTION EXPENSES. THE ASSESSING OFFICER FOUND DURING THE CO URSE OF SCRUTINY OF THESE EXPENSES THAT THE SAME INCLUDE EXHIBITION EXPENSES, SAMPLE EXPENSES, MEETING EXPENSES, DEALERS CONFERENCE AT VARIOUS PLACES AND GIFT COUPONS ETC. NATURE OF ALL THESE EXPENSES REVEALS THAT THERE ARE MANY EXPENSES WHICH ARE NOT SUBJECT TO VERIFICATION AND NOT PROPERLY VOUCHED ALSO. ACCORDI NG TO AO, THESE EXPENSES ARE NOT VERIFIABLE, AND IN TOTALITY OF ALL THESE FACTS AND CIRCUMSTANCES. IN VIEW OF THE ASSESSEES PAST RECORDS, WE CONSIDER IT REASONABLE TO CONFIRM DISALLOWANCE MADE BY THE AO. ACCORDINGLY, THIS COMMON ISSUE IN BOTH THE APPEALS AND CO OF THE ASSESSEE IS DISMISSED. 27. THE NEXT COMMON ISSUE IN BOTH THE APPEALS OF AS SESSEE IN ITA NO.1418/AHD/2006 AND ITA NO.89/AHD/2007 IS AS REGARDS TO CHARGING INTEREST U/S.234D OF THE ACT. AT THE OUTSET, LD. COUNSEL FOR THE ASSESSEE STATED THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST TH E REVENUE BY THE DECISION OF DELHI SPECIAL BENCH IN THE CASE OF ITO V. EKTA PROMOTER PVT. LTD. 117 TTJ 289 (DEL). RESPECTFULLY FOLLOWING THE DECISION OF TRIBUNAL DEL HI SPECIAL BENCH WE ALLOW THE CLAIM OF THE ASSESSEE. THIS COMMON ISSUE OF THE ASS ESSEES APPEALS IS ALLOWED. 28. THE NEXT ISSUE IN THIS APPEAL OF ASSESSEE IN ITA NO.89/AHD/2007 IS AS REGARDS TO THE CLAIM OF BAD DEBTS RECOVERED. THE LD . COUNSEL FOR THE ASSESSEE THAT HE HAS INSTRUCTION FROM THE ASSESSEE NOT TO PRESS T HIS ISSUE. ACCORDINGLY, WE DISMISS THE SAME AS NOT PRESSED. 29. THE NEXT ISSUE IN THIS APPEAL OF THE ASSESSEE I N ITA NO.89/AHD/2007 IS AS REGARDS TO EXCLUSION OF CALIBRATION INCOME AMOUNTIN G TO RS.98,084/- FROM THE BUSINESS PROFIT WHILE COMPUTING DEDUCTION U/S.80HHC OF THE ACT. ITA NOS.1418, 1450/AHD/06; 3 & 89/AHD/07, 877/AHD/09 & CO 80/A/09 PAGE 13 BANCO PRODUCTS (I) LTD. V. ACIT & DCIT CIR-1(1) BRD A YS 02-03, 03-04 & 05-06 30. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE TH ROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE ASSESSE E HAS CLAIMED BEFORE LOWER AUTHORITIES THAT THE MANUFACTURE OF GOODS QUALITY P RODUCTS AND TO MAINTAIN THE QUALITY THE ASSESSEE-COMPANY IS HAVING NUMBER OF SOPHISTICA TED INSTRUMENTS FOR THE PURPOSE OF CALIBRATION OF VARIOUS INSTRUMENTS USED IN THE COMPANY AND TO OPTIMIZE THE USE OF THESE SOPHISTICATED CALIBRATION INSTRUME NTS COMPANY IS UNDERTAKING CALIBRATION WORK FOR VARIOUS OUTSIDE PARTIES. THIS IS A KIND OF SERVICE HAVING OFFERED BY THE COMPANY UNDER THE REGULAR COURSE OF BUSINESS AN D INCOME EARNED ON THIS ACCOUNT IS BUSINESS INCOME. THE ASSESSING OFFICER A S WELL AS CIT(A) HAS EXCLUDED 90% OF SUCH BUSINESS INCOME FOR THE PURPOSE OF COMP UTATION OF DEDUCTION U/S.80HHC OF THE ACT AS THIS INCOME DOES NOT HAVE A NY NEXUS WITH THE EXPORTS. WE FIND THAT THE CIT(A) HAS RIGHTLY CONFIRMED THE ACTI ON OF ASSESSING OFFICER IN EXCLUDING 90% OF SUCH BUSINESS INCOME UNDER CLAUSE (BAA) TO S ECTION 80HHC OF THE ACT. WE CONFIRM THE SAME AND THIS ISSUE OF THE ASSESSEES A PPEAL IS DISMISSED. 31. THE NEXT ISSUE IN ITA NO.877/AHD/2009 OF THE REVENUES APPEAL IS AS REGARDS TO THE ORDER OF CIT(A) IN DIRECTING THE ASS ESSING OFFICER TO ALLOW THE EXPENDITURE INCURRED TOWARDS MACHINERY & PLANT AS C APITAL IN NATURE. FOR THIS, REVENUE HAS RAISED FOLLOWING GROUND NO.1 :- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN DELETING THE ADDITION ON ACCOUNT OF RS.17,25,841/- MADE ON ACCOUNT OF CAPITAL EXPENDITURE IRRESPECTIVE OF THE FACTS HUGE EXPENDITURE TOWARDS MACHINERY/PLANT MADE, WHICH EXTENDED THE LI FE TIME, RELYING ON THE DECISION OF HON. SUPREME COURT IN THE CASE OF CIT V S. SARAVANA SPINNING MILLS PVT. LTD. (2007) 293 ITR 201 (SC) 32. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE TH ROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT CIT(A) HAS ALLOWED THE CLAIM OF THE ASSESSEE BY HOLDING THE EXPENDITURE AS CAPITAL IN N ATURE BY GIVING FOLLOWING FINDINGS IN PARA.5.3 TO 5.3.5 OF HIS APPELLATE ORDER:- 5.3. I HAVE CONSIDERED THE SUBMISSIONS OF THE LD. A.R AND THE FACTS OF THE CASE. IN VARIOUS CASES THE SUPREME COURT AND OTHER HIGH COURTS HAVE HELD THAT REPLACEMENT OF A PART OF A LARGER MACHINE WOUL D NOT AMOUNT TO CREATION OF ANY NEW ASSET OR INCURRING OF CAPITAL EXPENDITURE. WHERE THE MANUFACTURING ACTIVITY IS CARRIED ON BY MACHINES COMPRISING OF VA RIOUS PARTS, AND WHERE ONE OR MORE OF THE PARTS IS REPLACED, IT WOULD NOT AMOU NT TO REPLACEMENT OF THE ITA NOS.1418, 1450/AHD/06; 3 & 89/AHD/07, 877/AHD/09 & CO 80/A/09 PAGE 14 BANCO PRODUCTS (I) LTD. V. ACIT & DCIT CIR-1(1) BRD A YS 02-03, 03-04 & 05-06 WHOLE. THIS PROPORTION HAS BEEN REITERATED BY THE S UPREME COURT IN THE CASE OF SARAVANA SPINNING MILLS. IN THE CONTEXT OF A PAR T CALLED AUTO LEVELER FORMING PART OF A CARDING MACHINE, IN THE FOLLOWING TERMS: SIMILARLY, IN THE CARDING DEPARTMENT WE HAVE CARDI NG MACHINES WITH AUTO LEVELERS. IF THE AUTOLEVELER FAILS, THE CARDIN G MACHINE BECOMES NON-FUNCTIONAL. IF AN AUTOLEVELER IS TO BE REPAIRED THEN THAT REPAIR WOULD COME WITHIN THE CONNOTATION OF THE WORD CURRENT REPAIRS BECAUSE IT IS A PART OF THE CARDING MACHINE. EVEN IF IN A GIVEN CAS E, REPLACEMENT OF AN AUTOLEVELER COULD COME WITHIN THE CONNOTATION OF TH E WORD CURRENT REPAIRS IF THE OLD PART IS NOT AVAILABLE IN THE MARKET. IT IS A CURRENT REPAIR BECAUSE THE CARDING MACHINE REMAINS AS AN ASSET W ITHOUT ANY CHANGE EVEN AFTER REPAIR OR REPLACEMENT OF THE AUTO LEVELER. TO GIVE AN EXAMPLE, A COMPRESSOR IS AN IMPORTANT PART OF AN IM PORTANT PART OF AN AIR-CONDITION MACHINE. REPAIR OF THE COMPRESSOR WIL L COME IN THE CONNOTATION OF THE WORD CURRENT REPAIRS IN SECTION 31(I) OF THE SAID ACT BECAUSE THE ASSESSEE DOES NOT REPLACE THE AIR-CONDI TION MACHINE. SO IS INN THE CASE OF THE PICTURE TUBE IN A TELEVISION SET, WHEN THE PICTURE TUBE IS REPLACED THE TELEVISION SET IS NOT REPLACED , THEREFORE, SUCH REPAIRS ALONE CAN COME WITHIN THE CONNOTATION OF T HE WORD CURRENT REPAIRS IN SECTION 31(I) OF THE SAID ACT AS IT STOOD AT TH E MATERIAL TIME. THEY ARE EFFETED TO PRESERVE AND MAINTAIN THE ASSET , VIZ., AIR- CONDITIONER OR CARDING MACHINE. 5.3.1 HENCE, JUDICIAL OPINION IS QUITE CLEARLY ARTI CULATED TO THE EFFECT THAT REPLACEMENT OF ONE OR MORE PART(S) OF A CAPITAL ASS ET WOULD CONSTITUTE REVENUE EXPENDITURE AND NOT CAPITAL EXPENDITURE. IF PRESERV ATION OF THE CAPITAL ASSET ENTAILS REPLACEMENT OF WORN-OUT PARTS, SUCH EXPENSE S WOULD BE REVENUE IN NATURE. 4.3.2 SO FAR AS ITEM NO.(A) ABOVE IS CONCERNED IN R ESPECT OF RS.1,80,000/-, IT IS SEEN THAT THE EXPENSES ARE ION THE NATURE OF MAINTE NANCE EXPENSES ONLY. THE MACHINE WAS INSTALLED LONG BACK AND ONLY SERVICING CHARGES HAVE BEEN CLAIMED. NO NEW ASSET HAS BEEN BROUGHT INTO EXISTEN CE. ACCORDINGLY, IT IS HELD THAT THE AO WAS NOT JUSTIFIED IN TREATING SUCH EXPE NSES OF RS.1,80,000/- AS CAPITAL EXPENSES. THE ADDITION IS DELETED TO THIS E XTENT. 5.3.3 RGARDING ITEM NOS. (B), (D) & (E) INVOLVING A GGREGATE EXPENSES OF RS.9,04,493/-, IT IS SEEN THAT THE EXPENSES WERE IN CURRED ON PURCHASE OF BAND KNIVES FOR USE IN SPLITTING MACHINE. THE NATURE OF THE ITEMS INDICATES THAT IT IS A SPARE PART WHICH REQUIRES FREQUENT REPLACEMENT. FUR THER, THE BAND KNIVES DO NOT HAVE ANY APPLICATION OTHER THAN AS PART OF THE SPLITTING MACHINE. HENCE, THE EXPENDITURE INCURRED ON PURCHASE OF SUCH SMALL PARTS WOULD, IN MY OPINION, CONSTITUTE REVENUE EXPENDITURE. ACCORDINGL Y, THE DISALLOWANCE OF RS.9,S04,493/- IS DIRECTED TO BE DELETED. 5.3.4 REGARDING EXPENSES OF RS.3,86,580/- ON ROLLER REPAIRING, DISCUSSED AT ITEM NO.(C) ABOVE, IT IS VERY CLEAR THAT THE EXPEND ITURE INCURRED ON REMOVING ROLLER JAM IN ORDER TO MAKE IT FUNCTIONAL WOULD CON STITUTE REVENUE EXPENDITURE AND NOT CAPITAL EXPENDITURE. HENCE, THE DISALLOWANC E OF RS.3,86,580/- DELETED. ITA NOS.1418, 1450/AHD/06; 3 & 89/AHD/07, 877/AHD/09 & CO 80/A/09 PAGE 15 BANCO PRODUCTS (I) LTD. V. ACIT & DCIT CIR-1(1) BRD A YS 02-03, 03-04 & 05-06 5.3.5 REGARDING THE EXPENDITURE OF RS.6,97,948/- ON CHILLED CAST IRON ROLLER OF CALENDAR MACHINE AND RS.1,12,327/- ON FREQUENCY CON VERTER OF DIVIN MACHINE, AGAIN IT IS APPARENT FROM THE NATURE OF THE PARTS R EPLACED THAT THE ROLLER AND THE FREQUENCY CONVERTER ARE SMALL PARTS OF LARGE MA CHINES, WHICH MAY REQUIRE REPLACEMENT ON BEING WORN OUT. BY INCURRING EXPENDI TURE ON PURCHASE OF SUCH ITEMS, NO NEW ASSETS CAME INTO EXISTENCE WHICH WERE CAPABLE OF PRODUCING ANY SALEABLE ITEM. THE CHILLED CAST IRON ROLLER AND FREQUENCY CONVERTER ARE USEFUL ONLY WHEN ATTACHED TO A CALENDAR MACHINE OR DIVIN MACHINE. ACCORDINGLY, IT IS HELD THAT EXPENDITURE ON REPLACE MENT OF SUCH PARTS IS REVENUE IN NATURE. ACCORDINGLY, THE DISALLOWANCE OF RS.6,97,948/- & RS.1,12,327/- RESPECTIVELY ARE DIRECTED TO BE DELET ED. WE FIND NO INFIRMITY IN THE ORDER OF CIT(A) GOING T HROUGH THE NATURE OF EXPENDITURE AND NATURE OF REPAIRS. WE FIND THAT THE CIT(A) HAS IDENTIFIED THE INDIVIDUAL ITEMS AND NOTED THAT THESE ARE EXPENSES IN THE NATURE OF MAIN TENANCE AND THE MACHINERY WERE INSTALLED LONG BACK. IT IS ALSO FINDING THAT THE N ATURE OF ITEMS SUCH AS, BAND KNIVES, ROLLER JAM ARE TO MAKE MACHINERY FUNCTIONAL CONSTIT UTE REVENUE EXPENDITURE AND NOT CAPITAL IN NATURE. ACCORDINGLY, WE CONFIRM THE OR DER OF CIT(A). THIS ISSUE OF REVENUES APPEAL IS DISMISSED. 33. THE NEXT ISSUE IN THIS APPEAL OF THE REVENUE IN ITA NO.877/AHD/2009 IS AGAINST THE ORDER OF CIT(A) IN DELETING THE DISALLO WANCE U/S.14A OF THE ACT ON ACCOUNT OF EXPENDITURE INCURRED FOR EARNING DIVIDEN D INCOME. FOR THIS, THE REVENUE HAS RAISED THE FOLLOWING GROUND NO.2 ;- 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED CIT(A) IN DELETING THE DISALLOWANCE U/S.14A OF THE EXPENSES OF RS.3,74,834/- INCURRED FOR EARNING DIVIDEND INCOME EXEMPT U/S.10( 34) / 10(35) IRRESPECTIVE OF DECISION OF CIT VS. ABHISHEK LAND P. LTD. (286 I TR 01) CP & H HIGH COURT WHEREIN IT WAS HELD THAT, THE ONUS WAS ENTIRELY ON THE ASSESSEE TO PROVE THAT ALL THE BORROWED FUNDS WERE USED FOR BUSINESS. IN T ERMS OF SEC. 106 OF THE EVIDENCE ACT, THE ASSESSEE WAS UNDER OBLIGATION TO PROVE THAT INTEREST BEARING FUND WAS NOT USED FOR INVESTMENT YIELDING E XEMPT INCOME. 34. AT THE OUTSET LD. COUNSEL FOR THE ASSESSEE STAT ED THAT HE HAS NO OBJECTION, IN CASE THE ISSUE IS SET ASIDE TO THE FILE OF THE ASSE SSING OFFICER AND IF DIRECTED THE AO TO DECIDE IN TERMS OF THE DECISION OF SPECIAL BENCH OF THIS TRIBUNAL IN THE CASE OF ITO V. DAGA CAPITALS INVESTMENT PVT. LTD. (2006) 119 TTJ 209 (MUM) (SB) WHEREIN THE TRIBUNAL HAS HELD AS UNDER:- ITA NOS.1418, 1450/AHD/06; 3 & 89/AHD/07, 877/AHD/09 & CO 80/A/09 PAGE 16 BANCO PRODUCTS (I) LTD. V. ACIT & DCIT CIR-1(1) BRD A YS 02-03, 03-04 & 05-06 SECTION 14A APPLIES TO ALL HEADS OF INCOME AND AIM S AT DISALLOWING EXPENDITURE INCURRED IN RELATION TO INCOME NOT FORM ING PART OF TOTAL INCOME EVEN THOUGH SUCH EXPENDITURE MAY BE ALLOWABLE UNDER ANY OTHER PROVISION, E.G., S.36(1)(III); PROVISIONS OF S. 14A ARE APPLIC ABLE WITH RESPECT TO THE DIVIDEND INCOME EARNED BY THE ASSESSEE ENGAGED IN T HE BUSINESS OF DEALING IN SHARES AND SECURITIES, ON THE SHARES HELD AS STO CK-IN-TRADE; PROVISIONS OF SUB-S. (2) AND (3) OF S. 14A ARE PROCEDURAL IN NATU RE, HENCE APPLICABLE RETROSPECTIVELY. RESPECTFULLY FOLLOWING THE DECISION OF MUMBAI SPECI AL BENCH IN THE CASE OF DAGA CAPITAL INVESTMENT PVT. LTD. (SUPRA), WE SEND BACK THE MATTER TO THE FILE OF AS SESSING OFFICER AND DIRECT HIM TO DECIDE THIS ISSUE IN VIEW OF THE RULE 8D OF THE I.T. RULES, 1962 AND THE DECISION OF MUMBAI SPECIAL BENCH IN TH E CASE OF DAGA CAPITAL INVESTMENT PVT. LTD. (SUPRA). THIS ISSUE OF REVENUES APPEAL IS ALLOWE D FOR STATISTICAL PURPOSES. 35. IN THE RESULT, REVENUES AS WELL AS ASSESSEES APPE ALS IN ITA NO.1450/AHD/2006, ITA NO.1418/AHD/2006, ITA NO.877/ AHD/2009, 89/AHD/2007 ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO.3/AHD/2007 OF REVENUES APPEAL AND CO NO.80/AHD/2009 OF THE ASSESSEE ARE DISMISSED . ORDER PRONOUNCED ON THIS DAY OF 30 JUNE,2010 SD/- SD/- ( G.D.AGARWAL ) ( MAHAVIR SINGH ) (VICE PRESIDENT) (JUDICIAL MEMBER) AHMEDABAD, DATED : 30/06/2010 *DKP COPY OF THE ORDER FORWARDED TO :- 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(APPEALS)-V, I, BARODA 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, /TRUE COPY/ DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD