The DCIT, Circle-2, Guntur V. M/s Best India Tobacco Suppliers Pvt Ltd, Guntur

ITA 185/VIZ/2001

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 56882 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 10 year(s) 7 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-12-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 12-12-2011
• Assessment Year: 1996-1997
• Appeal Filed On: 04-05-2001
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: T LUCAS PETER
• Keywords: Business income; Opportunity of being heard
• Section: 43B

Judgement Text

ITA NOS.221/V/2000 BEST INDIA TOBACCO SUPPLIERS (P) LTD. GUNTUR & ITA NO.185/V/2001 BEST INDIA TOBACCO SUPPLIERS , GU NTUR PAGE 1 OF 9 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE: SHRI D MANMOHAN, VICE PRESIDENT AND SHRI BR BASKARAN, ACCOUNTANT MEMBER ITA NO.221/VIZAG/2000 ASSESSMENT YEAR: 1996-97 JCIT (ASST) SPL RANGE GUNTUR M/S. BEST INDIA TOBACCO SUPPLIERS (P) LTD. GUNTUR (APPELLANT) VS. (RESPONDENT) GIR NO.B-12 ITA NO.185/VIZAG/2001 ASSESSMENT YEAR: 1996-97 DCIT CIRCLE-2 GUNTUR M/S. BEST INDIA TOBACCO SUPPLIERS GUNTUR (APPELLANT) VS. (RESPONDENT) GIR NO.B-301 APPELLANT BY: SHRI T. LUCAS PETER, CIT(DR) RESPONDENT BY: SHRI G.V.N. HARI, CA DATE OF HEARING: 13.12.2011 DATE OF PRONOUNCEMENT: 26.12.2011 ORDER PER SHRI B. R. BASKARAN, ACCOUNTANT MEMBER: THESE APPEALS, FILED BY THE DEPARTMENT, ARE DIRECTE D AGAINST THE ORDERS PASSED BY LD CIT(A), VIJAYAWADA IN THE RESPE CTIVE HANDS OF THE ASSESSEES CITED ABOVE AND THEY RELATE TO THE ASSESS MENT YEAR 1996-97. SINCE THE MAIN ISSUE URGED IN THESE TWO APPEALS IS ARISING OUT OF COMMON SET OF FACTS, THEY WERE HEARD TOGETHER AND ARE BEIN G DISPOSED OF BY THIS COMMON ORDER, FOR THE SAKE OF CONVENIENCE. 2. THE COMMON ISSUE URGED IN BOTH THE APPEALS IS WH ETHER THE LD CIT(A) IS JUSTIFIED IN ALLOWING THE CLAIM MADE UNDE R THE HEAD LOSS DUE TO EXPORT CLAIM. ITA NOS.221/V/2000 BEST INDIA TOBACCO SUPPLIERS (P) LTD. GUNTUR & ITA NO.185/V/2001 BEST INDIA TOBACCO SUPPLIERS , GU NTUR PAGE 2 OF 9 3. THE FACTS RELATING TO THE ABOVE SAID ISSUE A RE STATED IN BRIEF. BOTH THE ASSESSEES ARE IN THE BUSINESS OF TOBACCO EXPORTS. IN THE MONTH OF NOVEMBER 1991, BOTH THE ASSESSEES ENTERED INTO A CO NTRACT WITH A COMPANY NAMED M/S SNTA LOCATED IN ALGERIA TO EXPORT TOBACCO. ACCORDINGLY M/S BEST INDIA TOBACCO SUPPLIERS (P) LT D (COMPANY) EXPORTED 1000 MT OF TOBACCO AND M/S BEST INDIA TOBACCO SUPPL IERS (PARTNERSHIP FIRM) EXPORTED 1500 MT OF TOBACCO IN THE MONTH OF J ANUARY 1994 AND PROCEEDS WERE REALIZED IN JUNE 1995. THE EXPORTED GOODS WERE FOUND INFESTED WITH PESTS AND THE FUMIGATION PROCESS CARR IED ON BY THE ASSESSEE COULD NOT STOP REDUCTION IN THE WEIGHT OF THE TOBAC CO. CONSEQUENTLY, M/S SNTA, ALGERIA DEMANDED COMPENSATION FROM THE ASSESS EES. AFTER DUE ARBITRATION, IT WAS SETTLED BETWEEN THEM ON 20 TH JUNE 1995 THAT THE ASSESSEES HEREIN SHALL COMPENSATE M/S SNTA FOR THE LOSS BY EXPORTING FOLLOWING QUANTITIES OF TOBACCO AT FREE OF COST, WH ICH WAS CALCULATED AT 7.6% OF THE EXPORTED QUANTITY. (A) M/S BEST INDIA TOBACCO SUPPLIERS (P) LTD - 76 TONNES (B) M/S BEST INDIA TOBACCO SUPPLIERS - 114 TONNES. THE VALUE OF QUANTITY TO BE COMPENSATED BY THE (P) LTD COMPANY WAS ESTIMATED AT RS.34,20,000/- AND BY THE PARTNERSHIP FIRM WAS ESTIMATED AT RS.41,04,000/-. SINCE BOTH THE ASSESSEES WERE FOLL OWING MERCANTILE SYSTEM OF ACCOUNTING, THEY ACCOUNTED FOR ABOVE SAID AMOUNT AS EXPENDITURE IN THEIR RESPECTIVE BOOKS OF ACCOUNTS U NDER THE HEAD LOSS DUE TO EXPORT CLAIM IN THE YEAR RELEVANT TO THE ASSES SMENT YEAR 2006-07. THE ASSESSING OFFICER DISALLOWED THE CLAIM MADE BY THESE ASSESSEES FOR CERTAIN REASONS, WHICH ARE NARRATED BY LD CIT(A) IN THE ORDER PASSED IN THE HANDS OF M/S BEST INDIA TOBACCO SUPPLIERS AND THE S AME IS EXTRACTED BELOW: (A) DURING THE RELEVANT PREVIOUS YEAR, THE APPELLANT DI D NOT EXPORT ANY GOODS TO ANY COUNTRY. (B) THE APPELLANTS LIABILITY TO EXPORT 114 MT AS FREE SUPPLY TO SNTA HAD NOT CRYSTALLIZED DURING THE YEAR. ITA NOS.221/V/2000 BEST INDIA TOBACCO SUPPLIERS (P) LTD. GUNTUR & ITA NO.185/V/2001 BEST INDIA TOBACCO SUPPLIERS , GU NTUR PAGE 3 OF 9 (C) AS PER SETTLEMENT, THE APPELLANT WAS TO HONOUR THE FREE SUPPLY WITHIN THE TIME FRAME OF THREE MONTHS FROM 20 TH JUNE 1995. (D) THE APPELLANT DID NOT HONOUR THE SAME. (E) THE EXPENDITURE IS NOT RELATABLE TO THE ASST. YEAR 1996-97. (F) EVEN FOR THE ASSESSMENT YEAR 1994-95, THE APPELLANT WAS NOT A DIRECT EXPORTER TO SNTA OF ALGERIA. EXPORT WAS ROUT ED THROUGH ITC, CALCUTTA WHO ISSUED A DISCLAIMER CERTIFICATE. 4. BOTH THE ASSESSEES CARRIED THE MATTER IN APPE AL BEFORE LEARNED CIT(A) AND THE CLAIM OF THE ASSESSEES WERE ALLOWED BY THE FIRST APPELLATE AUTHORITY. AGGRIEVED, THE REVENUE IS IN APPEALS BEF ORE US. 5. THE LD D.R, INVITING OUR ATTENTION TO THE AS SESSMENT ORDER PASSED IN THE HANDS OF M/S BEST INDIA TOBACCO SUPPLIERS (P) L TD., SUBMITTED THAT THE LIABILITY WHICH ACCRUED UPON THE ASSESSEE BY VIRTUE OF SETTLEMENT ENTERED ON 20-06-1995 WAS CANCELLED AND THERE AFTER A NEW A GREEMENT WAS ENTERED IN APRIL 1996. ACCORDINGLY, HE CONTENDED T HAT THE LIABILITY ACCRUED ON 20-6-2005 GOT ABATED, BUT INSTEAD IT HAS ACCRUED ONLY IN APRIL 1996, I.E. IN THE SUCCEEDING YEAR. CONSEQUENTLY, THE ASSESSEE COULD NOT CLAIM DEDUCTION IN THE YEAR RELEVANT TO THE ASSESSMENT YE AR 1996-97, AS IT DID NOT RELATE TO THE RELEVANT PREVIOUS YEAR. 6. HOWEVER, THE LD A.R SUBMITTED THAT THE ORIGI NAL SETTLEMENT REACHED BETWEEN THE ASSESSEES HEREIN AND M/S SNTA ON 20-06- 1995 WAS NEVER CANCELLED. BY INVITING OUR ATTENTION TO THE COPIES OF SETTLEMENT DOCUMENTS, THE LD A.R SUBMITTED THAT THE AGREEMENT WAS REACHED INITIALLY TO EXPORT THE GOODS ON C & F (COST AND FREIGHT) BASIS. UNDER C & F BASIS, THE ASSESSEE HAS TO INCUR THE EXPENSES OF SHIPPING AND TRANSPORT ATION TO ALGERIA. HOWEVER, SINCE THE ASSESSEES COULD NOT IDENTIFY THE SHIPPING FACILITIES, THE AGREEMENT WAS MODIFIED IN APRIL 1996 TO FOB BASIS . UNDER THE FOB BASIS, M/S SNTA, ALGERIA HAS TO BEAR THE EXPENSES O F SHIPPING AND ITA NOS.221/V/2000 BEST INDIA TOBACCO SUPPLIERS (P) LTD. GUNTUR & ITA NO.185/V/2001 BEST INDIA TOBACCO SUPPLIERS , GU NTUR PAGE 4 OF 9 TRANSPORTATION. ACCORDINGLY, THE QUANTITY OF GOODS TO BE EXPORTED FREE OF COST WAS ENHANCED IN THE MODIFIED AGREEMENT IN ORDE R TO COMPENSATE THE EXPENSES CITED ABOVE. HOWEVER, THE ASSESSEE HAS NO T REVISED THE AMOUNT OF LIABILITY CLAIMED BY IT IN THE BOOKS OF ACCOUNT. HE FURTHER SUBMITTED THAT THE ASSESSEE INITIALLY EXPORTED THE TOBACCO TO M/S SNTA, ALGERIA THROUGH M/S ITC LTD IN PURSUANCE OF A TRIPARTITE AGREEMENT ENTERED BETWEEN THE ASSESSEES, M/S ITC AND M/S SNTA. AS PER THE SAID A GREEMENT, THE LIABILITY ON THE DAMAGES, IF ANY, OCCURRING ON THE PRODUCTS I S FASTENED UPON THE ASSESSEES. ACCORDINGLY, THESE ASSESSEES WERE MADE TO COMPENSATE THE BUYER IN RESPECT OF REDUCTION IN THE WEIGHT OF THE TOBACCO EXPORTED BY THEM THROUGH ITC LTD. AFTER DUE ARBITRATION, AN AG REEMENT WAS REACHED ON 20 TH JUNE, 1995 BETWEEN THE ASSESSEES AND M/S SNTA, ALG ERIA, ON WHICH DATE THE IMPUGNED LIABILITY HAS CRYSTALLIZED INTO AN ASCERTAINED LIABILITY. SINCE THE ASSESSEES ARE FOLLOWING MERCAN TILE SYSTEM OF ACCOUNTING, THEY HAVE ACCOUNTED FOR THIS LIABILITY IN THE BOOKS OF ACCOUNTS AND CLAIMED THE SAME AS DEDUCTION IN THEIR RESPECTIVE PROFIT AN D LOSS ACCOUNT, WHICH IS IN ACCORDANCE WITH THE PRINCIPLES OF ACCOUNTANCY. ACCORDINGLY, HE CONTENDED THAT THE ORDERS PASSED BY LD CIT(A) ON TH IS ISSUE SHOULD BE UPHELD. 7. WE HAVE HEARD THE RIVAL CONTENTIONS ON THIS ISSUE AND PERUSED THE RECORD. THE QUESTION BEFORE US IS WHETHER THE LIAB ILITY ON ACCOUNT OF EXPORT CLAIM HAS ACCRUED ON 20 TH JUNE, 1995 OR NOT. THE REVENUES CONTENTION IS THAT THE LIABILITY, WHICH INITIALLY ACCRUED ON 20-0 6-1995, GOT ABATED ON ENTERING A NEW AGREEMENT IN APRIL 1996. HOWEVER, T HE CONTENTION OF THE ASSESSEE IS THAT THERE WAS ONLY MODIFICATION OF THE TERMS OF AGREEMENT BY CHANGING THE TERMS OF COMPENSATION FROM C & F BAS IS TO FOB BASIS. ON A CAREFUL PERUSAL OF THE SETTLEMENT DOCUMENTS REFER RED BY LD A.R, WE FIND MERIT IN THE CONTENTIONS OF THE ASSESSEES. IN OUR VIEW, THERE IS NO ABATEMENT OF INITIALLY LIABILITY ACCRUED UPON THE A SSESSEE AS PER THE SETTLEMENT REACHED ON 20-06-1995. IN THE SUBSEQUEN T SETTLEMENT REACHED ITA NOS.221/V/2000 BEST INDIA TOBACCO SUPPLIERS (P) LTD. GUNTUR & ITA NO.185/V/2001 BEST INDIA TOBACCO SUPPLIERS , GU NTUR PAGE 5 OF 9 IN APRIL 1996, THERE IS ONLY MODIFICATION OF THE QU ANTITY (ENHANCEMENT OF QUANTITY) TO BE EXPORTED FREE OF COST, THAT TOO, IN VIEW OF THE CHANGE IN TERMS FROM C & F BASIS TO FOB BASIS. SUCH KIND OF MODIFICATION OF TERMS, IN OUR VIEW, DOES ABATE THE LIABILITY INITIA LLY ACCRUED ON 20-06-1995. 8. THE LEARNED CIT(A), IN THE HANDS OF M/S BEST INDIA SUPPLIERS (PARTNERSHIP FIRM) HAS DEALT WITH THE PRINCIPLES OF ACCOUNTANCY VIS--VIS THE ACCRUAL OF LIABILITY. FOR THE SAKE OF CONVENIENC E, WE EXTRACT THE SAID OBSERVATIONS AND ALSO THE DECISION RENDERED BY HIM. 5. THERE IS NO DISPUTE THAT THE APPELLANT FIRM HAS BEEN AN EXPORTER OF DRIED TOBACCO. THE BASIC FACTS NARRATE D SUPRA ARE ALSO FREE FROM DOUBT. THAT THE ASSESSEE FOLLOWS ME RCANTILE METHOD IS CERTAIN. IN THIS BACK GROUND, ANY SETTLE D DISPUTE GIVE RAISE TO AN ACCRUAL OF LIABILITY. EXACT QUANT IFICATION, EVEN IF POSTPONED, DOES NOT POSTPONE THE ACCRUAL OF LIABILI TY. ESTIMATED LIABILITY CAN BE CLAIMED, ACCORDING TO PR INCIPLES ESTABLISHED BY THE APEX COURT AND THE HIGH COURTS. EVEN RELEVANT ENTRIES ARE NOT A MUST IN THIS REGARD. TH E APPELLANT COULD NOT ACTUALLY EXPORT THE FREE SUPPLY OF TOBACC O DUE TO POLITICAL REASONS. THIS IS NOT AN ITEM COVERED BY THE PROVISIONS OF SEC. 43B CALLING FOR DISALLOWANCE IN ABSENCE OF ACTUAL PAYMENT. THE APEX COURT HAS HELD IN THE CASE OF K. J.FRANCIS VS. CIT (236 ITR 308)(SC) AND IN THE CASE OF CIT VS . BHARAT CARBON AND RIBBON MANUFACTURING CO. (P) LTD REPORTE D IN 239 ITR 505 (SC) THAT ENTRIES IN THE ACCOUNT BOOKS DO N OT MAKE OR UNMAKE INCOME OF LOSS. 6. VIEWED AGAINST THIS BACKGROUND, THERE IS CON SIDERABLE FORCE IN THE CONTENTIONS OF THE LEARNED AR AND THE ASSESSEE DESERVES TO SUCCEED ON THIS GROUND. THE ASSESSING OFFICER IS DIRECTED TO ALLOW THE CLAIM OF THE ASSESSEE ON THE BASIS THAT THE LIABILITY ACCRUED DURING THE PREVIOUS YEAR RELE VANT TO THE ASSESSMENT YEAR 1996-97 FOR A SUM OF RS.41,04,000/- . WHENEVER SUCH FREE SUPPLY IS ACTUALLY EXPORTED, THE RESULTANT EFFECT, WHETHER POSITIVE OR NEGATIVE, CAN BE WORKED OUT IN THAT YEAR. ITA NOS.221/V/2000 BEST INDIA TOBACCO SUPPLIERS (P) LTD. GUNTUR & ITA NO.185/V/2001 BEST INDIA TOBACCO SUPPLIERS , GU NTUR PAGE 6 OF 9 9. THE FOLLOWING OBSERVATIONS MADE BY LD CIT(A) I N THE HANDS OF BEST INDIA SUPPLIERS (P) LTD ARE ALSO PERTINENT HERE: 5.1 I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS M ADE BY THE APPELLANT AS WELL AS THE ARGUMENTS ADVANCED BY THE LEARNED COUNSEL. THE MOMENT THE CLAIM AGREEMENT IS SIGNED, THERE IS AN OBLIGATION ON THE APPELLANTS COMPANY TO HONOUR THE SAME AND THE OTHER PARTU VIZ, M/S S.N.T.A. ALGERIA HAS A CQUIRED A RIGHT TO PROCEED AGAINST THE APPELLANT COMPANY IN C ASE OF NON- FULFILLMENT. THE HARDSHIPS CONFRONTED BY THE APPEL LANT COMPANY CAN BE UNDERSTOOD WITH THE KNOWLEDGE OF INTERNATIONAL TRADE. THE CONTINUOUS CORRESPONDENCE AND THE ULTIMATE LEGAL NOTICE FROM THE ADVOCATES OF M/S S.N .T.A. ALGERIA TO THE APPELLANT COMPANY SHOWS THE SERIOUSN ESS OF CLAIM COMMITMENT AND ALSO THE INVOLVEMENT OF INDIAN EMBASSY IN ALGERIA AND THE TOBACCO BOARD (MINISTRY OF COMME RCE) BY WAY OF REMINDERS TO THE APPELLANT COMPANY FOR EARLY EXECUTION OF CLAIMS ADDS MORE SERIOUSNESS TO THE PROBLEM OF T HE CLAIM. IN VIEW OF THE ABOVE, THE PENDING CLAIM OF THE APPE LLANTS COMPANY WITH M/S S.N.T.A ALGERIA CANNOT BE DOUBTED. 5.2 ACCORDING TO THE MERCANTILE SYSTEM OF ACCOU NTING, THE CORRECT YEAR FOR ALLOWANCE IS THE ONE IN WHICH THE DISPUTE IS SETTLED EITHER AMICABLY OR OTHERWISE. IN THIS CONT EXT, THE DECISION IN THE CASE OF COMMISSIONER OF INCOME TAX VS. SURAJ MULL NAGAR MULL (1981)(129 ITR 169) (CAL) HAS DIREC T RELEVANCE TO THE FACTS AND CIRCUMSTANCES OF THE APPELLANTS C ASE. THUS, THE LEARNED CIT(A), IN BOTH THE CASES, HAS DU LY CONSIDERED THE DOCUMENTARY EVIDENCES CONCERNING THE ISSUE, THE PRI NCIPLES OF ACCOUNTANCY AND ACCORDINGLY HAS COME TO THE CONCLUSION THAT THE LIABILITY HAS CRYSTALLIZED UPON THE ASSESSEE DURING THE YEAR UNDER CONSIDERATI ON. HENCE, IN OUR VIEW, THE DECISIONS RENDERED BY LD CIT(A) IN THE HANDS OF BOTH THE ASSESSEES, IN THE FACTS AND CIRCUMSTANCES OF THE CASE, DO NO SUFF ER FROM ANY INFIRMITY. ACCORDINGLY, WE UPHOLD HIS ORDERS ON THIS ISSUE. 10. THE NEXT ISSUE IN THE HANDS OF M/S BEST IND IA TOBACCO SUPPLIERS (P) LTD RELATES TO THE TREATMENT OF INTEREST RECEIPTS. THE ASSESSEE TREATED THE INTEREST RECEIPTS OF RS.1,36,70,989/- AS ITS BUSINE SS RECEIPTS. THE MAJOR PORTION OF THE SAID INTEREST INCOME CONSISTED OF IN TEREST RECEIVED FROM M/S ITA NOS.221/V/2000 BEST INDIA TOBACCO SUPPLIERS (P) LTD. GUNTUR & ITA NO.185/V/2001 BEST INDIA TOBACCO SUPPLIERS , GU NTUR PAGE 7 OF 9 S.N.T.A, ALGERIA. IT ALSO INCLUDED A SUM OF RS.2,0 2,500/- ACCRUED/RECEIVED FROM THE FIXED DEPOSIT WITH S.B.I. THE ASSESSING O FFICER ASSESSED THE ENTIRE INTEREST RECEIPTS OF RS.1,36,70,989/- UNDER THE HEA D INCOME FROM OTHER SOURCES. 11. BEFORE THE TAX AUTHORITIES, IT WAS SUBMITTE D THAT THE ASSESSEE COMPANY EXPORTED TOBACCO DURING DECEMBER 1992 TO AL GERIA ON 18 MONTHS ELONGATED CREDIT. IT WAS FURTHER SUBMITTED THAT, F OR THE SAID PURPOSE, THE ASSESSEE COMPANY BORROWED FUNDS FROM ANDHRA BANK ON AN INTEREST RATE OF 16%, WHERE AS M/S S.N.T.A OF ALGERIA WAS CHARGED IN TEREST ONLY @ 6% P.A, AS PER THE TERMS OF EXPORT. IT WAS SUBMITTED THAT THE ASSESSEE HAS ACCOUNTED FOR BOTH THE INTEREST PAYMENTS MADE TO TH E BANK AND ALSO INTEREST RECEIVED FROM M/S S.N.T.A EVEN FOR THE DEL AYED PERIOD OVER AND ABOVE 18 MONTHS. IT WAS ALSO SUBMITTED THAT THE C HARGING OF INTEREST ON SNTA FORMED INTEGRAL PART OF THE EXPORT AGREEMENT A ND FURTHER THE SAID INTEREST RECEIPT IS LINKED WITH THE INTEREST PAID T O THE BANK. ACCORDINGLY, IT WAS CONTENDED BEFORE THE LD CIT(A) THAT THE IMPUGNE D INTEREST RECEIPTS SHOULD BE CONSIDERED AS PART OF BUSINESS RECEIPTS I N THE ORDINARY COURSE OF BUSINESS. IT WAS ALSO SUBMITTED THAT THE IMPUGNED INTEREST HAS NOT BEEN RECEIVED BY ADVANCING OR INVESTING ANY SURPLUS FUND S. THE ASSESSEE RELIED UPON THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. MOTILAL HEERABAI SPG. & WEVG. CO. LTD. (1978)(113 I TR 173). THE LD CIT(A) AGREED WITH THE CONTENTIONS OF THE ASSESSEE THAT THE IMPUGNED INTEREST RECEIPTS FORM PART OF BUSINESS INCOME AND ACCORDINGLY ISSUED SUITABLE DIRECTIONS TO THE ASSESSING OFFICER. HENC E THE REVENUE IS CONTESTING THE SAID DECISION OF LD CIT(A). 12. WITH REGARD TO THIS ISSUE, THE LEARNED D.R R ELIED UPON THE ASSESSMENT ORDER. ON THE OTHER HAND, THE LEARNED A .R STRONGLY SUPPORTED THE ORDER OF LEARNED CIT(A). WE HAVE HEARD THE RIV AL CONTENTIONS ON THIS ISSUE. THE UNDISPUTED FACT IS THAT THE ASSESSEE HA D BORROWED FUNDS FROM ITA NOS.221/V/2000 BEST INDIA TOBACCO SUPPLIERS (P) LTD. GUNTUR & ITA NO.185/V/2001 BEST INDIA TOBACCO SUPPLIERS , GU NTUR PAGE 8 OF 9 THE BANK FOR THE PURPOSE OF EXPORTING TOBACCO TO AL GERIA, ON WHICH IT PAID INTEREST @ 16% P.A. IT WAS SUBMITTED THAT, AS PER THE TERMS AND CONDITIONS ATTACHED TO THE EXPORT, THE BUYER WAS OB LIGED TO PAY INTEREST ON THE ELONGATED CREDIT AND ACCORDINGLY, THE ASSESSEE HAS RECEIVED INTEREST FROM THE ALGERIAN COMPANY. THERE CANNOT BE ANY DIS PUTE THAT THE ASSESSEE COULD ALLOW CREDIT FACILITY TO THE ALGERIA N COMPANY IN VIEW OF THE AVAILABILITY OF FUNDS BORROWED FROM BANK, ON WHICH IT WAS PAYING INTEREST. THERE IS ALSO NO DISPUTE THAT THE TERMS OF EXPORT B ETWEEN THE ASSESSEE AND THE ALGERIAN COMPANY PROVIDED FOR COLLECTION OF INT EREST FROM THE ALGERIAN COMPANY. HENCE, IN THE FACTUAL MATRIX OF THE CASE, WE ARE OF THE VIEW THAT THE INTEREST RECEIVED FROM M/S SNTA, ALGERIA SHOULD BE CONSIDERED AS FORMING INTEGRAL PART OF EXPORT ACTIVITY. CONSEQUEN TLY, IN OUR VIEW, SAID INTEREST RECEIPTS SHOULD BE CONSIDERED AS PART OF B USINESS RECEIPTS ONLY. THE SUBMISSION OF THE ASSESSEE THAT IT IS NOT A CAS E OF ADVANCING OF ANY SURPLUS MONEY ALSO ADDS SUPPORT TO OUR VIEW. 13. IT WAS SUBMITTED BY LD D.R THAT THE IMPUGNED I NTEREST RECEIPTS ALSO INCLUDED INTEREST ACCRUED/RECEIVED FROM FIXED DEPOS ITS HELD WITH SBI AMOUNTING TO RS.2,02,500/- AND THE SAME IS TO BE ASSESSED UNDER THE HEAD INCOME FROM OTHER SOURCES. IN THIS REGARD, H E RELIED UPON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CI T VS. K. RAVINDRANATHAN NAIR REPORTED IN 295 ITR 228 (SC). WE HAVE GONE THROUGH THE SAID DECISION AND NOTICE THAT IT HAS BE EN RENDERED ON THE CONTEXT OF COMPUTATION OF DEDUCTION UNDER SECTION 8 0HHC OF THE ACT. HOWEVER, THE ISSUE BEFORE US IS WHETHER THE INTERES T EARNED ON BANK DEPOSITS IS ASSESSABLE AS BUSINESS INCOME OR OTH ER SOURCES INCOME. ON A CAREFUL PERUSAL OF THE ASSESSMENT ORDER AND THE O RDER OF LEARNED CIT(A), WE NOTICE THAT THE FACTS PERTAINING THE SAME HAVE N OT BEEN PROPERLY BROUGHT OUT ON RECORD. HENCE, IN OUR VIEW, THE SAI D QUESTION REQUIRES FRESH EXAMINATION. ACCORDINGLY, WE SET ASIDE THE ISSUE RE LATING TO THE INTEREST INCOME OF RS.2,02,500/- TO THE FILE OF ASSESSING OF FICER WITH A DIRECTION TO ITA NOS.221/V/2000 BEST INDIA TOBACCO SUPPLIERS (P) LTD. GUNTUR & ITA NO.185/V/2001 BEST INDIA TOBACCO SUPPLIERS , GU NTUR PAGE 9 OF 9 CONSIDER THE SAME AFRESH IN ACCORDANCE WITH LAW AFT ER AFFORDING NECESSARY OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THE OR DER OF LEARNED CIT(A) STANDS MODIFIED ACCORDINGLY. 14. IN THE RESULT, THE APPEAL OF THE REVENUE IN ITA NO.221/V/2000 IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES AND THE APPEAL IN ITA NO.185/VIZAG/2001 IS DISMISSED. PRONOUNCED ON 26.12.2011. SD/- SD/- (D MANMOHAN) (B R BASKARAN) VICE PRESIDENT ACCOUNTANT M EMBER VG/SPS VISAKHAPATNAM, DATE: 26 TH DECEMBER, 2011 COPY TO 1 JCIT (ASST) SPECIAL RANGE, GUNTUR 2 DCIT, CIRCLE-2, GUNTUR 3 M/S. BEST INDIA TOBACCO SUPPLIERS (P) LTD., D.NO. 9-11-1, KOTHAPET, GUNTUR 4 M/S. BEST INDIA TOBACCO SUPPLIERS, KOTHAPET, GUNT UR-522 001. 5 6 THE CIT VIJAYAWADA THE CIT(A), VIJAYAWADA 7 THE DR, ITAT, VISAKHAPATNAM. 8 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM