Rajkumari Rambilas Loya, Latur V. DCIT, Circle-3, Nanded

ITA 1997/PUN/2012

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 72369 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 1 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-11-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 15-10-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: P L PATHADE
• Keywords: Business income; Business expenditure
• Section: 80IB; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI R.S. PADVEKAR, JUDICIAL MEMBER AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO. 1997/PN/2012 (ASSTT.YEAR : 2008-09) RAJKUMARI RAMBILAS LOYA, PROP. LOYA AGRO INDUSTRIES, 29B, MARKET YARD, LATUR 413 512 .. APPELLANT PAN NO.AAIPL4765H VS. DCIT, CIRCLE-3, NANDED .. RESPONDENT APPELLANT BY : SHRI M.K. KULKARNI RESPONDENT BY : SHRI P.L. PATHADE DATE OF HEARING : 28-11-2013 DATE OF PRONOUNCEMENT : 29-11-2013 ORDER PER R.K. PANDA, AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 16-08-2012 OF THE CIT(A) AURANGABAD RELATING TO ASS ESSMENT YEAR 2008-09. 2. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESS EE IS AN INDIVIDUAL AND IS ENGAGED IN THE BUSINESS OF DAL MANUFACTURING AND ALLIED BUSINESS. HE FILED HIS RETURN OF INCOME ON 30-09-2008 DECLARING TOTAL INCOME OF RS.8,35,950/- AFTER CLAIMING DEDUCTION OF RS.2,70,4 24/- U/S.80IB OF THE I.T. ACT. DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTED FROM THE DETAILS OF INTERES T DEBITED TO THE PROFIT AND LOSS ACCOUNT THAT THE ASSESSEE HAS DEBITED NET INTEREST EXPENSES TO PROFIT AND LOSS ACCOUNT AS SHE HAS MAINTAINED SEPAR ATE INTEREST ACCOUNT. FROM THE DETAILS, HE NOTED THAT THE ASSESSEE HAS PA ID TOTAL INTEREST ON 2 SECURED AND UNSECURED LOANS AT RS.19,41,732/- AND R ECEIVED INTEREST ON DEPOSITS AT RS.4,90,855/- AND DEBITED THE NET INTER EST AMOUNTING TO RS.14,50,877/-. HE FURTHER OBSERVED THAT THE AUDIT OR IN HIS REPORT U/S.44AB AT COLUMN NO.21 HAS GIVEN THE FOLLOWING RE MARKS : INTEREST RECEIPT OF RS.4,89,526/- NOT REDUCED BY TH E ASSESSEE WHILE COMPUTING THE INCOME FROM INDUSTRY AS THE SAME GOES TO REDUCE INTEREST EXPENSES INCURRED ON LOANS TAKEN FOR BUSINESS OF THE INDU STRIAL UNDERTAKING. 3. ON BEING QUESTIONED BY THE ASSESSING OFFICER IT WAS SUBMITTED THAT THE ASSESSEE HAS ARRANGED LOANS FOR THE PURPOS E OF ITS BUSINESS AND WHEN THE FUNDS ARE NOT IMMEDIATELY REQUIRED THEY AR E GIVEN ON SHORT TERM ADVANCES AND DEPOSITS. INTEREST EARNED ON THE SE SHORT TERM ADVANCES IS BUSINESS INCOME AND IT IS DERIVED FROM THE INDUSTRIAL UNDERTAKING AND PROPER INTEREST CHARGED AGAINST THE PROFIT OF INDUSTRIAL UNDERTAKING IS THE NET INCOME ONLY. IT WAS SUBMITT ED THAT THERE IS A NEXUS BETWEEN THE INTEREST EARNED AND THE BUSINESS ACTIVITIES OF THE INDUSTRIAL UNDERTAKING. 4. HOWEVER, THE ASSESSING OFFICER WAS NOT CONVINCED WITH THE EXPLANATION GIVEN BY THE ASSESSEE ON THE GROUND THA T THE ASSESSEE HAS NOT PROVED THAT THE ADVANCES HAVE BEEN MADE OUT OF LOAN RAISED AND ALSO NOT PROVED THAT THERE IS NEXUS BETWEEN THE INTEREST EAR NED AND BUSINESS ACTIVITIES OF THE INDUSTRIAL UNDERTAKING. ON THE C ONTRARY, HE NOTED AFTER VERIFICATION OF ADVANCES/LOANS GIVEN THAT THERE ARE SOME OPENING BALANCE OF ADVANCES GIVEN AND SOME UNSECURED LOANS ACCEPTED DURING THE YEAR. HE ACCORDINGLY HELD THAT THE ASSESSEE HAS EXCESS CL AIMED DEDUCTION U/S.80IB BY NOT DEBITING THE TOTAL INTEREST PAID ON BUSINESS LOAN TAKEN TO PROFIT AND LOSS ACCOUNT. THE EXCESS DEDUCTION ON AC COUNT OF NETTING OFF 3 OF INTEREST COMES TO RS.1,22,713/- WHICH HE DISALLO WED AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 5. IN APPEAL THE LD.CIT(A) UPHELD THE ACTION OF THE ASSESSING OFFICER BY HOLDING AS UNDER : 7. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AND RIVAL CONTENTIONS. ON PERUSAL OF THE SAME IT HAS BEEN NOTIC ED THAT THE A.O. HAS CORRECTLY POINTED OUT THAT THE APPELLANT HAS NOT PRO VED NEXUS BETWEEN INTEREST BEARING FUNDS BORROWED AND ADVANCES/LOANS GIVE N FOR EARNING INTEREST. EVEN DURING APPELLATE PROCEEDINGS, NO SUCH E XERCISE HAS BEEN DONE BY THE APPELLANT TO PROVE THAT THE INTEREST BEA RING IDLE FUNDS HAVE BEEN UTILIZED FOR SHORT PERIOD TO EARN INTEREST INCOM E. FURTHER THE APPELLANT HAS CLAIMED THAT THE SAID INTEREST INCOME IS TO BE REGARDED AS BUSINESS INCOME AND IS TO BE NETTED OFF AGAINST BUSINESS EXPENDITURE ON ACCOUNT OF INTEREST PAID. ON THE OTHER HAND THE A.O. HAS CLAIMED THAT THE SAID INTEREST INCOME OF THE APPELLANT IS INCOME FROM O THER SOURCES AND HENCE NOT ELIGIBLE FOR DEDUCTION U/S. 80IB OF THE A CT. THE PROVISIONS OF SECTION 80IB ARE RELEVANT, THE SAME ARE REPRODUCED BE LOW: 'DEDUCTION IN RESPECT OF PROFITS AND GAINS FROM CER TAIN INDUSTRIAL UNDERTAKINGS OTHER THAN INFRASTRUCTURE D EVELOPMENT UNDERTAKINGS 80IB- (1) WHERE THE GROSS TOTAL INCOME OF AN ASSESSEE INCLUDES ANY PROFITS AND GAINS DERIVED FROM ANY BUSINESS REFERRED TO IN SUB-SECTION(B) TO [(11), (11A) AND 11B) (SUCH BUSIN ESS BEING HEREINAFTER REFERRED TO AS THE ELIGIBLE BUSINESS), THERE SHALL, IN ACCORDANCE WITH AND SUBJECT TO THE PROVISIONS OF TH IS SECTION, BE ALLOWED, IN COMPUTING THE TOTAL INCOME OF THE ASSES SEE, A DEDUCTION FROM SUCH PROFITS AND GAINS OF AN AMOUNT EQUAL TO S UCH PERCENTAGE AND FOR SUCH NUMBER OF ASSESSMENT YEARS AS SPECIFIE D IN THE SECTION.' FROM THE ABOVE PROVISION IT IS EVIDENT THAT THE DEDUC TION U/S.80IB IS ALLOWABLE IN RESPECT OF PROFITS AND GAINS DERIVED FR OM THE BUSINESS WHICH IS ELIGIBLE FOR DEDUCTION U/S.80IB. IN THE CASE UNDER APPEAL THE BUSINESS OF THE APPELLANT IS THAT OF MANUFACTURING OF D AL. THE APPELLANT HAS RECEIVED INTEREST ON LOANS AND DEPOSITS GIVEN. THE SAID INTEREST INCOME CANNOT BE REGARDED AS DERIVED FROM 'INCOME FR OM BUSINESS' OF DAL MANUFACTURING. IN THIS REGARD THE DECISION OF HO N'BLE SUPREME COURT, IN THE CASE OF PANDIAN CHEMICALS LTD. VS. CIT (2003) 262 ITR 278 IS RELEVANT. IN THIS DECISION THE COURT HAS CONSIDERED THE WORDS 'DERIVED FROM' AND HAS STATED THAT IT MEANS SOMETHING WHICH HAS D IRECT OR IMMEDIATE NEXUS WITH THE APPELLANT'S INDUSTRIAL UNDERTAK ING. IN THIS CASE THE APPELLANT HAS RECEIVED INTEREST ON DEPOSIT WITH ELE CTRICITY BOARD WHICH HAS BEEN KEPT WITH THE ELECTRICITY BOARD FOR OBTAINING ELECTRICITY U SED FOR THE BUSINESS OF THE APPELLANT. THE HON'BLE SUPREME COU RT HAS HELD THAT THE SAID INTEREST ON DEPOSIT WITH ELECTRICITY BOARD CANNOT BE R EGARDED AS INTEREST INCOME DERIVED FROM THE BUSINESS OF THE APPELL ANT. IN VIEW OF THE ABOVE FACTS AND DISCUSSION, I AM OF THE CONSIDERED VIEW THAT THE A.O. IS JUSTIFIED IN HOLDING THAT THE APPELLANT IS NOT ELIGIBLE FOR DEDUCTION U/S.80IB IN RESPECT OF INTEREST INCOME EARNED. THE DISALLOWANCE RESULTING INTO ADDITION OF RS.L,22,713/- IS THEREFORE CONFIRMED . GROUND NOS.L & 2 ARE DISMISSED. 4 6. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASSE SSEE IS IN APPEAL BEFORE US WITH THE FOLLOWING GROUNDS : 1. THE LD.CIT(A) AURANGABAD HAS ERRED IN CONFIRMING THE REDUCTION BY RS.1,22,713/- MADE BY THE A.O. IN DEDUCTION U/S.80 IB WHICH WAS CLAIMED BY THE APPELLANT AT RS.2,70,424/- BY HOLDING THAT THE INTEREST RECEIPTS OF THE APPELLANT WERE NOT INCOME OF THE IND USTRIAL UNDERTAKING AND AS SUCH THE INCOME OF THE INDUSTRIAL UNDERTAKING H AD TO BE REDUCED BY THE EXTENT OF THE INTEREST RECEIPTS. 2. THE LD.CIT(A) HAS NOT APPRECIATED THE CLAIM OF TH E APPELLANT THAT ONLY NET INTEREST EXPENDITURE WAS TO BE CONSIDERED AS A N EXPENDITURE WHILE ARRIVING AT THE INCOME OF THE INDUSTRIAL UNDER TAKING FOR THE PURPOSE OF COMPUTATION OF THE DEDUCTION U/S.80IB AND THERE WAS NO NEED TO INCREASE THE INTEREST EXPENDITURE BY THE TENT OF T HE INTEREST RECEIPTS. 7. THE LD. COUNSEL FOR THE ASSESSEE REFERRING TO TH E DECISION OF THE AHMEDABAD BENCH OF THE ITAT IN THE CASE OF SULZON E NERGY LTD. VS. DCIT REPORTED IN 57 SOT 53 SUBMITTED THAT THE TRIBU NAL IN THE SAID DECISION HAS HELD THAT ONLY NET INTEREST SHOULD BE CONSIDERED FOR REDUCING FROM PROFITS OF BUSINESS FOR COMPUTING DEDUCTION U/ S.80IB. 8. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAND HEAVILY RELIED ON THE ORDER OF THE CIT(A) AND SUBMITTED THA T THERE IS NO DIRECT NEXUS BETWEEN INTEREST EARNED AND INTEREST PAID AND THEREFORE NETTING OFF IS NOT POSSIBLE IN THE FACTS OF THE INSTANT CASE. 9. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY B OTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAV E ALSO CONSIDERED THE VARIOUS DECISIONS CITED BY BOTH THE SIDES. WE FIND IN THE INSTANT CASE THE ASSESSEE HAS PAID TOTAL INTEREST OF RS.19,41,732/- ON SECURED AND UNSECURED LOAN AND HAS RECEIVED INTEREST OF RS.4,90 ,855/- ON DEPOSITS AND DEBITED THE NET INCOME OF RS.14,50,877/-. ACCORDIN G TO THE ASSESSING OFFICER, THE ASSESSEE HAS NOT PROVED THAT THE ADVAN CES HAVE BEEN MADE 5 OUT OF THE LOAN RAISED AND HAS NOT PROVED THAT THER E IS NEXUS BETWEEN INTEREST EARNED AND BUSINESS ACTIVITIES OF INDUSTRI AL UNDERTAKING. WE FIND THE LD.CIT(A) UPHELD THE ACTION OF THE ASSESSING OF FICER ON THE GROUND THAT BEFORE HIM ALSO THE ASSESSEE COULD NOT PROVE N EXUS BETWEEN INTEREST BEARING FUNDS BORROWED AND ADVANCES/LOANS GIVEN FOR EARNING INTEREST. FURTHER, THE LD.CIT(A) FOLLOWING THE DECISION OF HO NBLE SUPREME COURT IN THE CASE OF PANDIAN CHEMICALS LTD. (SUPRA) HELD THAT THE SAID INTEREST INCOME CANNOT BE REGARDED AS DERIVED FRO M BUSINESS OF DAL MANUFACTURING. 9.1 ADMITTEDLY, THE ASSESSEE HAS NOT PROVED THE NEX US BETWEEN INTEREST EARNED AND BUSINESS ACTIVITY OF INDUSTRIAL UNDERTAKING. SO FAR AS THE DECISION OF AHMEDABAD BENCH OF THE TRIBUNAL IN THE CASE OF SULZON ENERGY LTD. (SUPRA) IS CONCERNED, WE FIND IN THAT C ASE THE INTEREST WAS EARNED ON BANK DEPOSITS REQUIRED FOR OPENING LC. U NDER THESE CIRCUMSTANCES, THE TRIBUNAL FOLLOWING THE LOGIC OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF ACG ASSOCIATED CAPSULES PVT. LTD. HELD THAT NET INTEREST ONLY SHOULD BE CONSIDER ED FOR REDUCING FROM PROFITS OF BUSINESS FOR COMPUTING DEDUCTION U/S.80I B AND FOR THE PURPOSE OF COMPUTING NET INTEREST, ONLY THOSE EXPENDITURE W HICH ARE INCURRED FOR EARNING INTEREST INCOME SHOULD BE CONSIDERED AND RE DUCED FROM INTEREST INCOME. HOWEVER, IN THE INSTANT CASE THE INTEREST HAS BEEN EARNED ON ACCOUNT OF KEEPING OF SURPLUS IDLE FUNDS WITH BANK AND SHORT TERM ADVANCES TO OTHER PARTIES. THEREFORE, THE SAME IN OUR OPINION CANNOT BE NETTED OFF FOR THE PURPOSE OF CLAIMING HIGHER DEDUC TION U/S.80IB BY INFLATING THE PROFIT. IN THIS VIEW OF THE MATTER A ND IN VIEW OF THE DETAILED DISCUSSION BY LD.CIT(A) WE FIND NO INFIRMITY IN THE SAME. ACCORDINGLY, 6 WE UPHOLD THE ORDER OF THE CIT(A). GROUNDS RAISED BY THE ASSESSEE ARE ACCORDINGLY DISMISSED. 10. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED PRONOUNCED IN THE OPEN COURT ON 29-11-2013. SD/- SD/- (R.S. PADVEKAR) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE, DATED : 29 TH NOVEMBER, 2013 SATISH COPY OF THE ORDER IS FORWARDED TO : 1. THE ASSESSEE 2. THE DEPARTMENT 3. THE CIT(A), AURANGABAD 4. THE CIT, AURANGABAD 5. D.R. A BENCH, PUNE 6. GUARD FILE BY ORDER // TRUE COPY // SENIOR PRIVATE SECRETARY, INCOME TAX APPELLATE TRIBUNAL, PUNE