The DCIT, Circle-1, RAJKOT-GUJARAT V. Intricast Pvt. Ltd., RAJKOT-GUJARAT

ITA 178/RJT/2011

• Counselvise Citation: [2011] 119 COUNSELVISE.COM (IT) 7330 (ITAT-RAJKOT)
• Duration Of Justice: 7 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-12-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 05-10-2011
• Assessment Year: 1998-1999
• Appeal Filed On: 29-04-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: LD BHARTI
• Assessee Lawyers: GIRISH PARIKH DATE PF HEARING
• Section: 80HHC

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, RAJKOT BENCH, RAJKOT. BEFORE SHRI T. K. SHARMA (JM) AND SHRI A. L. GEHL OT AM). ITA NO. 178/RJT/2011. (ASSESSMENT YEAR 1998-99) THE D.C.I.T., CIRCLE-1, VS. INTRICAST PVT. LTD., RAJKOT. 212, AMRUTA COMMERCIAL COMPLEX, SARDARNAGAR MAIN ROAD, RAJKOT. PAN/GI NO:31-801-CT-0834. (APPELLANT) (RESPONDENT) REVENUE BY : SHRI L. D. BHARTI, D. R. ASSESSEE BY : SHRI GIRISH PARIKH. DATE PF HEARING : 24-11-2011. DATE OF PRONOUNCEMENT : 15-12-2011. O R D E R. PER A. L. GEHLOT (A.M.) : THIS APPEAL BY REVENUE IS FILED AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-X X, AHMEDABAD DATED 24-01-2011 FOR ASSESSMENT YEAR 1998-99. 2. THE EFFECTIVE GROUNDS RAISED BY REVENUE IN ITS APPE AL ARE REPRODUCED AS UNDER:- (1) THE LEARNED CIT(A)-I, RAJKOT, HAS ERRED IN LAW AND ON FACTS IN DELETING ADDITION OF RS.3,87,071/- MADE ON ACCOUNT OF REDUCING THE CLAIM OF 80HHA OF THE IT ACT. (2) THE LEARNED CIT(A)-I, RAJKOT, HAS ERRED IN LAW AND ON FACTS IN DIRECTING TO ALLOW INTEREST PAYMENT OUT OF RECEIPT INTEREST OF RS.7,54,315/- WHILE CALCULATING THE DEDUCTION U/S.8 0HHA. ITA 178-RJT-2011. A.Y. 1998-99. 2 (3) THE LEARNED CIT(A)-I, RAJKOT, HAS ERRED IN LAW AND ON FACTS IN DIRECTING EXCLUDE THE SALES TAX AND EXCISE DUTY FRO M THE TOTAL TURNOVER OF THE ASSESSEE FOR THE PURPOSE OF COMPUTA TION OF DEDUCTION U/S.80HHC. (4) THE LEARNED CIT(A)-I, RAJKOT, HAS ERRED IN LAW AND ON FACTS IN DIRECTING TO ALLOW THE DEDUCTION U/S.80HHA FROM THE INCOME FOR COMPUTATION OF DEDUCTION U/S.80HHC. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSES SEE IS ENGAGED IN BUSINESS OF MANUFACTURING INVESTMENT CASTINGS. DURING THE A SSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASSESSEE HAS CLAIMED A SUM OF RS.17,59,255/- THE DEDUCTION U/S.80HHA OF THE ACT. FROM THE PROFIT AN D LOSS ACCOUNT, THE AO FOUND THAT THE ASSESSEE HAS CLAIMED 20% DEDUCTION U /S.80HHA ON ENTIRE PROFIT INCLUDING FOLLOWING ITEMS:- DISCOUNT 863 INTEREST ON BANK HUNDI 54790 INTEREST ON FD 434341 INTEREST ON UNSECURED LOANS 396390 INTEREST ON SECURED DEPOSIT 91245 DIVIDEND 3284 INTEREST ON BOND 191911 1172824 4. THE AO RELIED UPON THE JUDGMENT OF APEX COURT IN CASE OF STERLING FOODS LTD. 287 ITR 579 AND HELD THE INCOME TO THE E XTENT OF RS.11,72,824/- IS NOT DERIVED FROM INDUSTRIAL UNDERTAKING. THEREFO RE, SAME IS REQUIRED TO BE EXCLUDED FOR THE PURPOSE OF COMPUTATION OF DEDUCTIO N U/S.80HHA OF THE ACT. THE AO FURTHER NOTICED THAT THE ASSESSEE HAS PURCHA SED AND SOLD THE MOULDS AND EARNED TRADING PROFIT TO THE EXTENT OF RS.7,62, 531/-. SINCE THIS IS A TRADING PROFIT, THEREFORE SAME IS REQUIRED TO BE EX CLUDED FOR THE PURPOSE OF ITA 178-RJT-2011. A.Y. 1998-99. 3 DEDUCTION U/S.80HHA OF THE ACT. THE AO ACCORDINGLY , EXCLUDED RS.19,35,355/- (11,72,824/- + 7,62,531) AND ACCORDI NGLY, 20% OF THIS AMOUNT BEING RS.3,87,071/- WAS EXCESSIVE DEDUCTION U/S.80HHA OF THE ACT. THE AO DISALLOWED THE CLAIM OF THE ASSESSEE U/S.80H HA TO THE EXTENT OF RS.3,87,071/-. 5. THE CIT(A) DIRECTED THE AO TO EXCLUDE ONLY THE F OLLOWING INCOME FOR COMPUTATION OF DEDUCTION U/S.80HHA:- INTEREST ON FD 434341 INTEREST ON UNSECURED LOANS 396390 DIVIDEND 3284 INTEREST ON BOND 191911 TOTAL 1025926 6. THE CIT(A) HELD THAT DISCOUNT IS RECEIVED ON PUR CHASES WHICH IS INTEGRAL PART OF THE INDUSTRIAL UNDERTAKING. THEREF ORE, SAME CANNOT BE EXCLUDED FOR THE PURPOSE OF COMPUTATION OF DEDUCTIO N U/S.80HHA OF THE ACT. IN RESPECT OF HUNDI LOAN, BOND AND OTHER INTEREST I NCOME THE CIT(A) HELD AS UNDER IN PARA-4.2(III) AND (IV) OF THE ORDER:- 4.2(IV) AS FAR AS THE INTEREST ON HUNDIS ARE CONCE RNED, THE CIT(A) VIDE HIS ORDER IN APPEAL NO.CIT(A)-I/R/89,129,130/00-01 &341 /01-02,16,17,18,36/02-03 DATED 10/03/2004 HAS HELD THAT THIS IS INTRINSICALL Y ELATED WITH THE INTEREST PAID BY THE APPELLANT ON THE WORKING CAPITAL LOAN TAKEN FRO M THE BANKS. THE FACTS IN THE CURRENT YEAR ARE EXACTLY THE SAME AS IN EARLIER YEA RS. I AGREE WITH THE FINDINGS OF THE CIT(A) IN THE EARLIER YEARS. THE AO SHOULD NOT REDUCE THE INTEREST ON HUNDIS FOR COMPUTATION OF DEDUCTION U/S.80HHA OF THE ACT. 4.2(III) AS FAR AS THE INCOME ON INTEREST OUT OF FIXED DEPOSITS, UNSECURED LOANS AND SECURED DEPOSITS ARE CONCERNED IT IS SEEN THAT THE IMMEDIATE SOURCE OF THESE INCOMES ARE THE FIXED DEP OSITS/LOANS AND NOT THE INDUSTRIAL UNIT. THUS IT COULD NOT BE SAID THAT THESE INCOMES ARE DERIVED FROM THE INDUSTRIAL UNIT. APPELLANT HA S CONTENDED THAT THE INCOME FROM THESE INTERESTS SHOULD BE REDUCED BY TH E INTEREST PAID BY THE APPELLANT AND ONLY THE NET INTEREST INCOME SHOU LD BE CONSIDERED ITA 178-RJT-2011. A.Y. 1998-99. 4 FOR THE REDUCTION IN THE COMPUTATION OF DEDUCTION U /S.80HHA OF THE ACT. IT IS SEEN THAT A SIMILAR ADDITION WAS MADE I N THE CASE OF APPELLANT FOR THE YEAR A.YS.94-95 TO 97-98. THE CI T(A)-I, RAJKOT VIDE HIS ORDER IN APPEAL NO. CIT(A)-I/R/89, 129, 130/00- 01 & 341/01-02, 16,17,18,36/02-03 DATED 10/03/2004 HAS THE ENTIRE I NTEREST EXPENDITURE COULD NOT BE EXCLUDED FOR THE CALCULATI ON OF NET INTEREST TO BE CONSIDERED FOR REDUCTION OF DEDUCTION U/S.80HHA OF THE ACT. THE ITAT HAS OBSERVED THAT ONLY SUCH INTEREST EXPENSES CAN BE REDUCED FROM THE INTEREST EARNED AS ARE RELATED TO THE INTE REST EARNED BY THE APPELLANT. THE APPELLANT HAS RECEIVED INTEREST OF RS.91,425 ON SECURITY DEPOSIT MADE FOR AVAILING CARE FINANCE FRO M GUJARAT LEASE FINANCE LIMITED AND KOTAK MAHINDRA FINANCE LTD. TH E APPELLANT HAS PAID INTEREST OF RS.1,72,824/- TO GUJARAT LEASE FIN ANCE LIMITED AND KOTAK MAHINDRA FINANCE LTD. 7. THE LEARNED REPRESENTATIVES OF THE PARTIES SUBMI TTED THAT THERE IS NO APPEAL BY THE ASSESSEE. WE HAVE HARD THE LEARNED R EPRESENTATIVES OF THE PARTIES, RECORD PERUSED. AFTER GOING THROUGH THE G ROUNDS OF THE APPEAL OF REVENUE, WE NOTICED THAT THE GROUND NO.1 APPEARED T O BE A GENERAL IN NATURE AS THE CIT(A) DID NOT SET ASIDE ENTIRE WORKING OF T HE AO. THE CIT(A) HAS ALLOWED PARTLY RELIEF, WHEREAS IN THE GROUND OF APP EAL OF THE REVENUE, THE REVENUE HAS CHALLENGED ENTIRE DISALLOWANCE MADE BY THE AO. AS REGARDS THE GROUND NO.2 OF THE APPEAL, WE NOTICED THAT THE GROU ND IS RAISED WITHOUT APPRECIATING THE FACTS NOTED BY THE CIT(A). WE FIN D THAT THE CIT(A) HAS GIVEN ITEMWISE FINDING AND WE DO NOT FIND ANY DIREC TION OF THE CIT(A) THAT HE HAS DIRECTED AO TO ALLOW INTEREST PAYMENT OUT OF RECEIPT ON INTEREST OF RS.7,54,315/- WHILE CALCULATING DEDUCTION U/S.80HHA OF THE ACT. AS NOTED ABOVE, THE CIT(A) HAS CLEARLY DIRECTED AO TO EXCLUD E THE INTEREST INCOME DETAILED IN PARA-4.2 (IV) OF THE ORDER OF THE CIT(A ) WHICH IS IN FAVOUR OF THE REVENUE. AS REGARDS OTHER INTEREST, CIT(A) FOLLOWE D EARLIER YEAR ORDER OF ITAT. THEREFORE, THE REVENUE SHOULD HAVE NO SUCH G RIEVANCE. IN THE LIGHT OF ITA 178-RJT-2011. A.Y. 1998-99. 5 ABOVE DISCUSSION, WE DO NOT FIND ANY SUBSTANCE IN G ROUND NOS.1 AND 2 OF REVENUES APPEAL. 8. AS REGARDS THE GROUND NO.3 RELATED TO EXCLUDING THE SALES TAX AND EXCISE DUTY FROM TURNOVER FOR THE PURPOSE OF COMPUT ATION OF DEDUCTION U/S.80HHC, WE FIND THAT THE CIT(A) HAS FOLLOWED HIS EARLIER ORDERS FOR A.YS. 1994-95 TO 1997-98. WE FIND THAT THE ORDER O F CIT(A) IS IN CONSONANCE WITH THE JUDGMENT OF THE APEX COURT IN T HE CASE OF LAXMI MACHINE WORKS 290 ITR 667 WHEREIN, IT HAS BEEN HELD THAT EXCISE DUTY AND SALES TAX ARE TO BE EXCLUDED FROM THE TOTAL TURNOVE R. IN THE LIGHT OF THE FACT, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CI T(A). 9. THE FOURTH GROUND IS IN RESPECT OF DIRECTING BY CIT(A) TO ALLOW THE DEDUCTION U/S.80HHA FROM THE INCOME OF COMPUTATION OF DEDUCTION U/S.80HHC OF THE ACT. THE CIT(A) FOLLOWED HIS EARL IER ORDERS FOR A.YSS.1994-95 TO 1997-98 WHEREIN, IT HAS BEEN HELD THAT THE AO WAS NOT JUSTIFIED IN REDUCING THE DEDUCTION U/S.80HHA FROM THE INCOME FOR COMPUTATION OF DEDUCTION U/S.80HHA. THE REVENUE FI LED APPEAL BEFORE THE ITAT AGAINST THE SAID ORDER OF THE CIT(A). THE ITA T HAS DISMISSED THE REVENUES APPEAL VIDE ITA NOS.398, 399, 400 & 401/R JT/2004 ORDER DATED 7 TH MARCH,2007. WE FIND THAT THE CIT(A) HAS FOLLOWED T HE ORDER OF ITAT IN EARLIER YEARS. WE FIND THAT SUBSEQUENTLY, THERE IS A DEVELOPMENT IN THE LAW BY VARIOUS JUDGMENTS INCLUDING THE JUDGMENTS OF THE BOMBAY HIGH COURT IN THE CASE OF ASSOCIATED CAPSULES PVT. LTD. VS. DY.CI T 332 ITR 42 (BOM) WHEREIN, IT HAS BEEN HELD THAT THE ASSESS WAS ELIGI BLE FOR DEDUCTION FOR BOTH U/S.80HHA AND 80HHC OF THE ACT. IN THE LIGHT OF TH E ABOVE FACT, WE FIND THAT THE CIT(A) HAS FOLLOWED THE ORDER OF THE ITAT IN THE EARLIER YEARS TO ITA 178-RJT-2011. A.Y. 1998-99. 6 MAINTAIN CONSISTENCY. WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A). THE ORDER OF CIT(A) IS CONFIRMED. 10. IN THE RESULT, APPEAL FILED BY THE REVENUE IS D ISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 15-12-2011. SD/- SD/- ( T. K. SHARMA ), ( A. L. GEHLOT ), JUDICIAL MEMBER. ACCOUNTANT MEMBER. RAJKOT. DATED: 15-12-2011. NVA/ COPY TO:- 1.THE D.C.I.T.,CIRCLE-1, RAJKOT. 2.THE INTRICAST PVT. LTD., RAJKOT. 3.THE C.I.T.(A)-II, RAJKOT. 4.THE C.I.T., RAJKOT. 5.THE D.R., ITAT, RAJKOT. TRUE COPY. BY ORDER, ASSTT. REGISTRAR, ITAT,RAJKOT.