M/S. SAMANTA ORGANICS P. LTD, Mumbai V. THE DY CIT RG 8(3), Mumbai

ITA 1898/MUM/2005

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 1562 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 8 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-11-2009
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: J
• Assessment Year: 2000-2001
• Appeal Filed On: 11-03-2005
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: L K AGRAWAL
• Assessee Lawyers: SUBHASH SHETTY
• Keywords: Set aside
• Section: 143(3); 80HHC; 80IB; 80IA; 147; 148; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH J, MUMBAI BEFORE SHRI D.K. AGARWAL, JUDICIAL MEMBER AND SHRI J.SUDHAKAR REDDY, ACCOUNTANT MEMBER. I.T.A. NO. 1898/MUM/2005 ASSESSMENT YEAR : 2000-01. M/S SAMANTA ORGANICS P. LTD., DY. COMMISSIONER OF 194, ARVIND CHAMBERS, VS. INCOME TAX, RANGE-8(3), OFF. WESTERN EXPRESS HIGHWAY, MUMBA I. ANDHERI (EAST), MUMBAI 400 069. PAN : AADCS 2099B (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SUBHASH SHETTY. RESPONDENT BY : SHRI L.K. AGRAWAL. O R D E R PER J. SUDHAKAR REDDY, A.M. : THIS IS AN APPEAL FILED BY THE ASSESSEE DIRECTED AGAINST THE ORDER OF THE CIT(APPEALS)-XXIX, MUMBAI DATED 14-01- 2005 FOR ASSESSMENT YEAR 2000-01. 2. FACTS IN BRIEF : THE ASSESSEE IS IN THE BUSINESS OF MANUFACTURING OF BULK DRUGS AND FINE CHEMICALS. IT FILED ITS RETURN OF IN COME FOR THE ASSESSMENT YEAR 2000-01 ON 29-11-2000 DECLARING TOTAL INCOME O F RS.2,70,770/-. THE AO REOPENED THE ASSESSMENT AND ISSUED NOTICE U/ S 148 AND COMPLETED THE ASSESSMENT ON 27-02-2004 AND DETERMIN ED THE TAXABLE INCOME AT RS.21,87,926/-. THE ASSESSEE CARRIED THE MATTER IN APPEAL. THE FIRST APPELLATE AUTHORITY PARTLY ALLOWED THE GR OUNDS OF THE ASSESSEE. A FURTHER APPEAL IS FILED BY THE ASSESSEE ON THE FO LLOWING GROUNDS : 2 I. 1) THE LEARNED CIT(A) HAS ERRED IN ACCEPTING TH E LEGALITY OF THE REOPENING OF THE ASSESSMENT U/S 147 BY THE LEARNED D.C.I.T. THOUGH HE DOES NOT HAVE ADEQUATE REASONS TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT 2) THE LEARNED C.I.T.(A) HAS ERRED IN NOT ACCEPTIN G THE CONTENTION OF THE APPELLANT THAT THE DISALLOWANCE M ADE WHICH WERE NOT CONNECTED WITH THE REASONS RECORDED IN WRI TING BY THE D.C.I.T. WERE NOT VALID DISALLOWANCE IN THE ORDER U /S 143(3) READ WITH SECTION 147 OF THE INCOME-TAX ACT. 3) THE C.I.T.(A) HAS ERRED IN CONFIRMING THE DISALL OWANCE OF TRAINING EXPENSES AMOUNTING TO RS.10,22,483/- THOUG H ALLOWANCE OF SUCH EXPENSES WERE NOT INCLUDED IN THE REASONS FOR REOPENING THE ASSESSMENT OF THE APPELLANT FOR T HE YEAR. II 1) THE LEARNED C.I.T.(A) HAS ERRED IN CON FIRMING THE DISALLOWANCE OF TRAINING EXPENSES AMOUNTING TO RS.10,22,483/- INCURRED BY THE AP PELLANT. 2) THE LEARNED C.I.T.(A) HAS ERRED IN CONCLUDING THAT THE DEGREE IN COMPUTER SCIENCE BEING OBTAINED BY THE TRAINEE IS OF GENERAL NATURE AND IT HAS NO NEXUS WITH THE BUSINESS OF THE APPELLANT COMPANY. III 1) THE LEARNED C.I.T.(A) HAS ERRED IN NOT ALLOWING THE FULL CLAIM OF DEDUCTION U/S 80IB AMOUNTING TO RS.8,58,766/-AS CLAIMED BY THE APPELLANT. 2) THE LEARNED C.I.T.(A) HAS ERRED IN NOT ALLOWING THE NETTING OF THE INTEREST RECEIVED BY THE APP ELLANT, WHILE WORKING OUT THE PROFIT ELIGIBLE FOR THE GRANT OF DEDUCTION U/S 80IB. 3) THE LEARNED C.I.T.(A) HAS ERRED I N CONFIRMING THE REDUCTION OF DEPB RECEIVED BY THE APPELLA NT AMOUNTING TO RS.8,71,463/- MADE BY THE D.C.I .T. FROM THE INCOME OF THE UNDERTAKING FOR CALCULATION OF DEDUCTIO N U/S 80IB. IV THE LEARNED C.I.T.(A) HAS ERRED IN N OT GRANTING CORRECT DEDUCTION U/S 80HHC TO THE APPE LLANT TO WHICH IT WAS ELIGIBLE. V THE C.I.T.(A) HAS ERRED IN CONFIRMI NG THE DEDUCTION OF THE FULL BANK FIXED DEPOSIT INTE REST AMOUNTING TO RS.1,09,924/- FROM THE PROFIT OF THE BUSINESS AS DEFINED 3 UNDER EXPLANATION (BAA) TO SE CTION 80HHC THOUGH AS PER THE EXPLANATION ONLY 90% OF T HE SAME SHOULD HAVE BEEN REDUCED THEREFROM. VI 1) THE LEARNED C.I.T.(A) HAS ERRED IN CONFIRMING THE OBSERVA- TION OF THE LEARNED D.C.I.T. THAT DUE TO THE PROVISIONS OF SECTION 80IA(9), THE PROFIT OF THE BUSINESS FOR THE PURPOSE OF SECTION 80HHC SHOULD BE R EDUCED BY THE AMOUNT OF DEDUCTION ALLOWED U/S 80IB T O THE APPELLANT. 2) THE LEARNED C.I.T.(A) HAS ERR ED IN CONCLUDING THAT MANUFACTURING ACTIVITY OF T HE PRODUCT ALWAYS PRECEDES EXPORT OF THE GOODS AND ACC ORDINGLY DEDUCTION U/S 80IA/ 80IB WOULD HENCE NECESSARIL Y PRECEDES THE DEDUCTION U/S 80HHC. ONCE DEDUCTION U /S 80IA HAS BEEN CLAIMED AND ALLOWED, THAT PART OF T HE INCOME NO MORE REMAINS THE PART OF GROSS TOTAL INCOME OR PROFITS OF THE BUSINESS. 3) THE LEARNED C.I.T.(A) HAS E RRED IN WRONGLY INTERPRETING THE PROVISIONS OF SECTION 80IA(G), 80IB AND 80HHC, EXPLANATION (BAA) FOR CAL CULATING THE DEDUCTION ALLOWABLE TO THE APPELLAN T AS PER THE PROVISIONS OF SECTION 80HHC. VII 1) THE LEARNED C.I.T.(A) HAS ERRE D IN ENHANCING THE INCOME OF THE APPELLANT BY RS.4,88,993/- BY WITH- DRAWING DEDUCTION U/ 80 HHC, THIS BEING THE AMOUNT ADDED BY THE APPELLANT I N CALCULATION OF DEDUCTION U/S 80HHC AS PER THE PROVISO TO SECTION 80HHC(3). 2) THE LEARNED C.I.T.(A) HAS ERRED IN NOT REDUCING AND NOT ORDERING THE LEARNED D. C.I.T. TO REDUCE THE 90% OF DEPB AMOUNT FROM THE PR OFITS OF THE BUSINESS THROUGH AS PER THE DEFINITION O F PROFITS OF THE BUSINESS IN EXPLANATION (BAA) TO SE CTION 80HHC ONLY INCOME REFERRED TO IN CLAUSE (IIIA), (IIIB) AND (IIIC) OF SECTION 28 OR A RECEIPT BY WAY OF BROKERAGE, COMMISSION, INTEREST, RENT, CHARGES OR ANY OTHER RECEIPT OF SIMILAR NATURE ARE TO BE REDUC ED FROM PROFIT AND GAINS OF BUSINESS OR PROFESSION AND THE C.I.T.(A) CONCLUDED THAT DEPB IS COVERED AS INCOME U/S 28(4) OF THE INCOME-TAX ACT. 3. WE HAVE HEARD MR. SUBHASH SHETTY, LEARNED COUNS EL FOR THE ASSESSEE AND MR. L.K. AGRAWAL, LEARNED DR. 4 4. ON A CAREFUL CONSIDERATION OF THE RIVAL CONTENT IONS AND ON A PERUSAL OF THE PAPERS ON RECORD AND THE ORDERS OF T HE AUTHORITIES BELOW AS WELL AS THE CASE LAWS CITED, WE HOLD AS FOLLOWS. 5. GROUND NO. I IS ON THE ISSUE OF REOPENING OF AS SESSMENT. THE SAME IS DISMISSED AS NOT PRESSED. 6. COMING TO GROUND NO. II WHICH IS ON THE ISSUE O F DISALLOWANCE OF TRAINING EXPENSES, THE LEARNED COUN SEL FOR THE ASSESSEE FAIRLY CONCEDED THAT THE ISSUE IS COVERED AGAINST T HE ASSESSEE BY THE DECISION OF THE E1 BENCH OF THE TRIBUNAL IN THE ASS ESSEES OWN CASE FOR THE EARLIER ASSESSMENT YEARS IN ITA NO. 2156/MUM/20 07 TO 2158/MUM/2007 ORDER DATED 16 TH DEC.,2008. IN VIEW OF THE ABOVE SUBMISSION, WE DISMISS THIS GROUND OF THE ASSESSEE. 7. GROUND NO. III IS WITH REGARD TO COMPUTATION OF RELIEF U/S 80IB. THE ASSESSEE SUBMITTED THAT HE IS NOT PRESSIN G SUB-GROUND (1) WHICH IS ON THE ISSUE OF CLAIM OF FULL DEDUCTION AM OUNTING TO RS.8,58,766/-. IN VIEW OF THIS SUBMISSION, SUB-GROU ND (1) IS DISMISSED. 7.1 COMING TO SUB-GROUND (2), THE ASSESSEE SUBMITS THAT THE INTEREST RECEIVED BY IT SHOULD BE NETTED FROM THE I NTEREST PAID AND ONLY THE DIFFERENCE HAS TO BE ELIMINATED WHILE COMPUTING RELIEF U/S 80IB. INTEREST INCOME HAS TO BE NECESSARILY ELIMINATED F ROM THE BUSINESS PROFIT WHILE COMPUTING RELIEF U/S 80IB AS THE SAME IS NOT DERIVED BY THE ASSESSEE FROM THE INDUSTRIAL UNDERTAKING. FOR THE P URPOSE OF NETTING OF, THE ASSESSEE HAS TO PROVE THAT THERE IS A DIRECT NE XUS BETWEEN THE INTEREST INCOME AND INTEREST EXPENDITURE. THE ASSES SEE HAS NOT PROVED THAT THE INTEREST EXPENDITURE OF RS.1,30,685/- WAS INCURRED FOR THE PURPOSE OF EARNING INTEREST INCOME OF RS.1,09,924/- .IN THE ABSENCE OF SUCH PROOF, WE HAVE TO DISMISS THIS PLEA OF THE ASS ESSEE. 5 7.2 COMING TO SUB-GROUND (3), IT IS ADMITTED THAT THE ISSUE IS COVERED AGAINST THE ASSESSEE AND IN FAVOUR OF THE R EVENUE BY THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF LI BERTY INDIA VS. CIT 317 ITR 218 (SC). RESPECTFULLY FOLLOWING THE SAME, WE DISMISS THIS GROUND. 8. GROUND NO. IV IS GENERAL IN NATURE. 9. GROUND NO. V IS TO BE SET ASIDE TO THE FILE OF THE AO WITH A DIRECTION THAT ONLY 90% OF THE INTEREST INCOME OF R S.1,09,924/- HAS TO BE ELIMINATED FROM THE PROFITS OF BUSINESS IN TERMS OF CLAUSE (BAA) TO SECTION 80HHC. THE AO IN THIS CASE HAS WRONGLY ELIM INATED 100%. THUS THIS GROUND OF THE ASSESSEE IS ALLOWED. 10. GROUND NO. VI IS ADMITTEDLY AGAINST THE ASSESS EE AND IN FAVOUR OF THE REVENUE BY THE DECISION OF SPECIAL BE NCH OF THE TRIBUNAL IN THE CASE OF HINDUSTAN MINT 119 ITD 107 (SB). 11. THE LAST GROUND IS ON THE ISSUE OF COMPUTATION OF DEDUCTION U/S 80HHC WITH RESPECT TO DEPB. THE ISSUE IS NOW CO VERED BY THE SPECIAL BENCH DECISION OF THE TRIBUNAL IN THE CASE OF TOPMAN EXPORT VS. ITO (2009) 318 ITR (AT) 87 (MUM.)(SB). WE SET ASID E THIS ISSUE TO THE FILE OF THE AO FOR FRESH ADJUDICATION IN TERMS OF T HE DECISION IN THE CASE OF TOPMAN EXPORT. ACCORDINGLY, THIS GROUND OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 6 12. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS A LLOWED IN PART. ORDER PRONOUNCED ON THIS 26 DAY OF NOVEM BER, 2009. SD/- SD/- (D.K. AGARWAL) (J. SUDHAKAR REDD Y) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT: 26 TH NOVEMBER, 2009 WAKODE COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, J-BENCH (TRUE COPY) BY ORDER ASSTT.REGISTRAR, ITAT, MUMBAI BENCHES