The ACIT, (Asstt) Spl-R-1, Ahmedabad V. M/S Adani Exports Ltd, Ahmedabad

ITA 2011/AHD/1999

• Counselvise Citation: 201120514 RSA 1999
• Duration Of Justice: 14 year(s) 5 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-03-2014
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 20-01-2014
• Assessment Year: 1996-1997
• Appeal Filed On: 08-10-1999
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: O P VAISHNAV
• Keywords: Capital asset; Business income; Depreciation; Business expenditure; Retrospective amendment; Revenue expenditure; Capital expenditure
• Section: 32; 69C; 43B; 80HHC; 234B; 37(1)

Judgement Text

1 , , , , B, IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD, B BENCH . .. . . . . . , , , , ! ! ! ! ' #$ ' #$ ' #$ ' #$ , , , , % % % % BEFORE S/SHRI N.S. SAINI, ACCOUNTANT MEMBER AND KUL BHARAT, JUDICIAL MEMBER) ITA NO.1856/AHD/1999 [ASSTT.YEAR : 1996-1997] ADANI EXPORTS LTD. ADANI HOUSE NR.MITHAKHALI SIX ROADS NAVRANGPURA, AHMEDABAD-9. /VS. JCIT(ASSTT), SR-1 AHMEDABAD. ITA NO.2011/AHD/1999 [ASSTT.YEAR : 1996-1997] JT. CIT, SPL.RANGE-1 AHMEDABAD. /VS. ADANI HOUSE NR.MITHAKHALI SIX ROADS NAVRANGPURA,AHMEDABAD-9. ( (( ('( '( '( '( / APPELLANT) ( (( ()*'( )*'( )*'( )*'( / RESPONDENT) +$ , - / ASSESSEE BY : SHRI S.N. SOPARKAR, WITH SHRI P.M. MEHTA / , - / REVENUE BY : SHRI O.P. VAISHNAV, CIT-DR '0 , $1/ DATE OF HEARING : 24 TH JANUARY, 2014 234 , $1/ DATE OF PRONOUNCEMENT : 19-3-2014 5 / O R D E R ITA NO.1856 & 2011/AHD/1999 2 PER N.S. SAINI, ACCOUNTANT MEMEBR: THESE ARE CROSS APPEALS FILED BY THE REVENUE AND ASSESSEE AGAINST THE ORDER OF THE CIT(A)-V, AHMEDABAD DATED 12.7.1999. BOTH THESE APPEALS ARE D ISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. FIRST WE TAKE UP THE REVENUES APPEAL: 3. THE GROUND NO.1 OF THE APPEAL OF THE REVENUE IS AGAINST THE ORDER OF THE CIT(A) DIRECTING TO ALLOW ADVERTISEMENT EXPENDI TURE OF RS.70,000/- IN THIS YEAR AND BALANCE IN EQUAL INSTALMENTS IN 9 YEA RS. IN GROUND NO.2 OF THE APPEAL OF THE ASSESSEE, THE GRIEVANCE OF THE ASSESSEE IS THAT THE CIT(A) OUGHT TO HAVE ALLOWED T HE EXPENDITURE ON ADVERTISEMENT INCURRED BY THE ASSESSEE OF RS.7,00, 000/- IN ITS ENTIRETY AND NOT 10% OF THE AMOUNT OF EXPENDITURE INCURRED BY TH E ASSESSEE. 4. BOTH THE PARTIES BEFORE US SUBMITTED THAT THE FA CTS AND ISSUE IN THIS GROUND OF THE APPEAL ARE SIMILAR TO THAT OF THE ASS TT.YEAR 1994-95, WHEREIN THE TRIBUNAL HAS HELD AS UNDER: 6. WE FIND THAT WE HAVE DECIDED THIS ISSUE IN ASSE SSMENT YEAR 1994-95 VIDE CONSOLIDATED ORDER PASSED IN ITA NO.34 03/AHD/1997 AND CO NO.73/AHD/2011 DATED 31.1.2014, WHEREIN, WE HAVE HELD AS UNDER: 14. THE LD. DR SUPPORTED THE ORDER OF ASSESSING OFFICER WHEREAS THE LD. AR OF THE ASSESSEE CONTENDED THAT THE NAME OF ADANI EXPORTS WILL BE DISPLAYED FOR EVER AND THEREFORE, THERE WAS NO BASIS FOR THE LD. CIT(A) TO AR RIVE AT A CONCLUSION THAT THE EXPENDITURE WOULD BENEFIT T HE ASSESSEE OVER A PERIOD OF 10 YEARS AND THEREBY ALLOWING 1/10 OF THE SAME AS DEDUCTION DURING THE YEAR UNDER CONSIDERATION. WE FIND THAT IN THE INSTANT CASE, IT IS N OT IN DISPUTE THAT THE ASSESSEE DURING THE YEAR PAID RS ITA NO.1856 & 2011/AHD/1999 3 7,00,000/- TO GUJARAT CRICKET ASSOCIATION. AS PER AGREEMENT ENTERED INTO WITH GUJARAT CRICKET ASSOCIATION WHICH HAS BEEN QUOTED BY THE ASSESSING OFFICER IN THE ASSESSMENT YEAR AS WELL AS COPY OF WHICH IS PLACED AT PAGE NUMBERS 44 TO 45 OF THE ASSESSEES PAPER BOOK IT IS OBSERVED THAT AS PER THE SAID AGREEMENT, THE ASSESSEE AGREED TO MEET PAYMENT OF RS.25,00,000/- INCLUDING RS.7,00,000- IN QUESTION IN CONSIDERATION OF ONE OF THE STADIUM TO BE CALLED AS ADANI STADIUM OR ANY OTHER N AME AGREED BY THE ASSESSEE DURING THE CRICKET MATCHES TO BE PLAYED IN THE SARDAR PATEL GUJARAT STADIUM AND A BO ARD DISPLAYING SUCH NAME WILL BE PUT UP IN THAT PAVILION. THUS, IT IS OBSERVED THAT PAYMENT WAS IN THE NATURE OF ADVERTISEMENT. THE CONCLUSION OF THE ASSESSING OFFICER THAT THE PAYMENT WAS MADE FOR ACQUIRING PERMANENT PAVILION SITE IS NOT CORRECT. WE FIND THAT NO PERMANE NT SITE WAS ACQUIRED BY THE ASSESSEE IN LIEU OF THE PAYMENT IN QUESTION AND THE ASSESSEE HAS NOT BECOME THE OWNER OF ANY SITE IN CONSIDERATION OF THE SAID PAYMENT. THEREFO RE, WE DO NOT FIND ANY MERIT IN THIS GROUND OF APPEAL OF THE REVENUE. 15. FURTHER, WE FIND THAT THERE WAS NO BASIS ON WHICH THE LD. CIT(A) COULD HAVE HELD THAT THE BENEFIT OF PAYME NT IN QUESTION WILL BE AVAILABLE FOR 10 YEARS ONLY AND CONSEQUENTIAL DEDUCTION IS TO BE ALLOWED OVER A PERIOD OF 10 YEARS. IT IS OBSERVED THAT THE BENEFIT WAS NOT FOR ANY FIXED PERIOD. WE AGREE WITH THE LD. CIT(A) THAT TH E EXPENDITURE IN QUESTION IS REVENUE IN NATURE AND NO CAPITAL ASSET OF ENDURING NATURE WAS ACQUIRED BY THE ASSESSEE BY MAKING THE PAYMENT IN QUESTION AND THEREFORE, THE EN TIRE PAYMENT IS ALLOWABLE AS DEDUCTION TO THE ASSESSEE IN THE YEAR ON INCURRING OF THE EXPENDITURE. WE, THEREFORE , MODIFY THE ORDER OF THE LD. CIT(A) AND DIRECT THE A SSESSING OFFICER TO ALLOW DEDUCTION FOR ENTIRE RS 7,00,000/- DU RING THE YEAR UNDER CONSIDERATION. THUS, RELEVANT GROUND OF APPEAL OF THE REVENUE IS DISMISSED AND RELEVANT GROUND OF CROSS-OBJECTION OF THE ASSESSEE IS ALLOWED. RESPECTFULLY FOLLOWING THE SAME, WE MODIFY THE ORDE R OF THE LEARNED CIT(A) AND DIRECT THE AO TO ALLOW DEDUCTION FOR ENT IRE AMOUNT OF RS.14.00 LAKHS DURING THE YEAR UNDER CONSIDERATION. THUS, THE GROUND ITA NO.1856 & 2011/AHD/1999 4 OF THE APPEAL OF THE REVENUE IS DISMISSED AND THAT OF THE ASSESSEE IS ALLOWED. 5. FOLLOWING THE ABOVE ORDER OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR A.Y.1994-95, WE DISMISS THE GROUND OF THE APPEA L OF THE REVENUE AND ALLOW THAT OF THE ASSESSEE. 6. THE GROUND NO.2 OF THE REVENUES APPEAL IS AGAIN ST THE ORDER OF THE CIT(A) IN DIRECTING TO ALLOW DEPRECIATION ON TRUCKS AT THE RATE OF 40%. 7. BEFORE US, BOTH THE PARTIES AGREED THAT THE FACT S AND ISSUES INVOLVED IN THIS GROUND ARE SIMILAR TO THAT OF A.Y.1995-96. IN A.Y.1995-96 IN ITA NO.2405 AND 2435/AHD/1998, WE HAVE HELD AS UNDER: 12. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE ORD ERS OF THE AUTHORITIES BELOW AND MATERIAL AVAILABLE ON RECOR D. IN THE INSTANT CASE, THE FACTS OF THE CASE ARE THAT THE ASSESSEE CLAIM ED HIGHER DEPRECIATION AT THE RATE OF 40% ON TRUCKS GIVEN BY IT ON LEASE. THE AO DISALLOWED THE CLAIM FOR HIGHER DEPRECI ATION AT THE RATE OF 40% ON TRUCKS GIVEN ON LEASE TO THE ASSESSEE, AND ALLOWED DEPRECIATION AT THE RATE 25% AND AS THE TRUCKS WERE ACTUALLY USED FOR LESS THAN 180 DAYS BY THE ASSESSEE, HE ALL OWED DEPRECIATION AT THE RATE 12.5% IN PLACE OF 20% CLAIME D BY THE ASSESSEE, AND THEREBY MADE DISALLOWANCE OF RS.15,49,241/- FOR THE REASON THAT THE TRUCKS WERE NOT USED BY THE ASSESSEE FO R THE BUSINESS OF HIRE. ON APPEAL, THE CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE FOR THE REASON THAT THE TRUCKS WERE GIVEN ON LEASE BY THE ASSESSEE WHICH WAS ONE OF THE BUSINESS OF THE ASSESSEE. BEING AGGRIEVED THE REVENUE IS APPEAL BEFORE US. WE FIND THAT THE HONBLE APEX COURT IN THE CASE OF ICDS LTD. (SUPRA) HAS HELD AS UNDER: HELD, AFFIRMING THE DECISION OF THE TRIBUNAL, (I) THAT THE ASSESSEE WAS A LEASING COMPANY WHICH LEASED OUT THE TRUCKS THAT IT PURCHASED. THEREFORE, ON A COMBINED READI NG OF SECTION 2(13) AND (24) OF THE ACT THE INCOME DERIVE D FROM LEASING OF THE TRUCKS WOULD BE BUSINESS INCOME, OR INCOME DERIVED IN THE COURSE OF BUSINESS, AND HAD BEEN S O ITA NO.1856 & 2011/AHD/1999 5 ASSESSED. HENCE, IT FULFILLED THE REQUIREMENT OF SECTION 32 OF THE ACT, THAT THE ASSET MUST BE USED IN THE COURSE O F BUSINESS. THE ASSESSEE DID USE THE VEHICLES IN THE COURSE OF ITS LEASING BUSINESS. THE FACT THAT THE TRUCKS THEMSELVE S WERE NOT USED BY THE ASSESSEE WAS IRRELEVANT FOR THE PURPOSE OF THE SECTION. (II) THAT A SCRUTINY OF THE MATERIAL FACTS AT HAND RAISE D A PRESUMPTION OF OWNERSHIP IN FAVOUR OF THE ASSESSEE. THE VEHICLE, ALONG WITH ITS KEYS, WAS -DELIVERED TO THE ASSE SSEE UPON WHICH, THE LEASE AGREEMENT WAS ENTERED INTO BY T HE ASSESSEE WITH THE CUSTOMER. THE FACT THAT AT THE END OF T HE LEASE PERIOD, THE OWNERSHIP OF THE VEHICLE WAS TRANSFERR ED TO THE LESSEE AT A NOMINAL VALUE DID NOT MAKE THE ASSESSE E IN EFFECT A FINANCIER. NO INFERENCE COULD BE DRAWN FRO M THE REGISTRATION CERTIFICATE AS TO OWNERSHIP OF THE LEGAL TI TLE OF THE VEHICLE. IF THE LESSEE WAS IN FACT THE OWNER, HE WOU LD HAVE CLAIMED DEPRECIATION ON THE VEHICLES, WHICH, AS SPECIFICALLY RECORDED IN THE ORDER OF THE TRIBUNAL, WA S NOT THE CASE. (III) THAT THE ENTIRE LEASE RENT RECEIVED BY THE ASSESSE E WAS ASSESSED AS BUSINESS INCOME IN ITS HANDS AND THE ENTIRE LEASE RENT PAID BY THE LESSEE HAD BEEN TREATED AS DEDUCTIBLE REVENUE EXPENDITURE IN THE HANDS OF THE LE SSEE. THIS REAFFIRMED THE POSITION THAT THE ASSESSEE WAS IN FACT THE OWNER OF THE VEHICLE, IN SO FAR AS SECTION 32 OF TH E ACT IS CONCERNED. (IV) THAT, THEREFORE, THE ASSESSEE WAS THE OWNER OF THE VEHICLES. AS THE OWNER, IT USED THE ASSETS IN THE COURSE OF ITS BUSINESS, SATISFYING BOTH REQUIREMENTS OF SECTION 32 O F THE ACT AND, HENCE, WAS ENTITLED TO CLAIM DEPRECIATION IN RESPECT OF ADDITIONS MADE TO THE TRUCKS, WHICH WERE LE ASED OUT. (V) THAT FOR PURPOSES OF THE ASSESSEES CLAIM TO THE HIGHE R RATE OF DEPRECIATION, THE INTERPRETATION OF THE TERM PURPOSES OF BUSINESS, USED IN THE -SECOND PROVISO TO SECTION 32(1) OF THE ACT WOULD NOT BE ANY DIFFERENT FR OM THAT ASCRIBED TO IT UNDER SECTION 32(1) OF THE ACT. THEREFORE, THE ASSESSEE FULFILLED EVEN THE REQUIREMENTS FOR A CLAIM OF A HIGHER RATE OF DEPRECIATION AND WAS -ENTI TLED THERETO. ITA NO.1856 & 2011/AHD/1999 6 WE FIND THAT THE ORDER OF THE CIT(A) IS SUPPORTED BY THE ORDER OF THE HONBLE SUPREME COURT IN THE CASE OF ICDS LTD. (SU PRA). WE, THEREFORE, DO NOT FIND ANY GOOD REASON TO INTERF ERE WITH THE ORDER OF THE CIT(A) ON THIS ISSUE, AND ACCORDINGLY, THE GROUND NO.2 OF THE APPEAL OF THE REVENUE IS DISMISSED. FOLLOWING THE ABOVE ORDER OF THE TRIBUNAL, WE DISMI SS THIS GROUND OF THE APPEAL OF THE REVENUE. 8. THE GROUND NO.3 OF THE APPEAL OF THE REVENUE IS AGAINST THE ORDER OF THE CIT(A) IN DIRECTING TO ALLOW DEDUCTION UNDER SE CTION 80HHC FOR MARINE DIVISION. 9. BOTH THE PARTIES BEFORE US AGREED THAT THE FACTS AND ISSUES INVOLVED ARE SIMILAR TO THE ASSTT.YEAR 1994-95 AND 1995-96, IN I TA NO. ITA NO.2405 AND 2435/AHD/1998 WHEREIN WE HAVE HELD AS UNDER: 18. WE FIND THAT THE FACTS AND ISSUE INVOLVED IN TH E PRESENT YEAR ARE SIMILAR TO THAT OF A.Y.1994-95 AND ON THE SIMILAR F ACTS AND CIRCUMSTANCES OF THE CASE, TRIBUNAL HELD AS UNDER: 36. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE ORDERS OF LOWER AUTHORITIES AND THE MATERIAL AVAILABL E ON RECORD. THE UNDISPUTED FACTS ARE THAT THE ASSESSEE IN ITS MARINE DIVISION SUFFERED LOSS OF RS.13,50,71,719/- ON EXPORT OF TRADING GOODS AND EARNED EXPORT INCENTIVES O F RS.13,70,45,917/-. THE ASSESSEE CLAIMED DEDUCTION U/S 80HHC OF RS.13,70,45,917/- ON THE GROUND THAT IN RESPE CT OF EXPORT TURNOVER IT HAS CLAIMED DEDUCTION U/S 80HHC BY ISSUING CERTIFICATE TO THE SUPPORTING MANUFACTURER IN RESPECT OF ENTIRE EXPORT TURNOVER. THE ASSESSING OFFICER DISALLOWED THE ENTIRE CLAIM ON THE GROUND THAT THERE WAS LOSS ON EXPORT OF TRADING GOODS AND ON THE GROUND THAT THE REQUIRED CERTIFICATE OF THE AUDITOR WAS NOT FURNISHED ALONG WITH RETURN OF INCOME. ITA NO.1856 & 2011/AHD/1999 7 37. ON APPEAL, THE LD. CIT(A) HELD THAT FURNISHING O F AUDITORS CERTIFICATE DURING THE COURSE OF ASSESSMENT PROCEEDINGS WAS SUFFICIENT COMPLIANCE. 38. FURTHER, THE LD. CIT(A) HELD THAT WHILE COMPUTIN G EXPORT PROFIT, THE LOSS IS TO BE IGNORED AND AFTER IGN ORING THE LOSS AS THE ASSESSEE HAD EXPORT INCENTIVES OF RS.13,70,95,917/-, THE ASSESSEE WAS ELIGIBLE FOR DEDUCTI ON U/S 80HHC SUBJECT TO THE CONDITION THAT SUCH DEDUCTION SHOULD NOT EXCEED THE GROSS TOTAL INCOME AS REDUCED BY DEDUCTION U/S 80HHC ALLOWED FOR TRADING DIVISION. 39. BEFORE US, THE LD. DR CONTENDED THAT AS THERE WAS LOSS ON EXPORT OF TRADING GOODS U/S 80HHC(3)(B), THE ASSESSEE WAS NOT ENTITLED TO ANY DEDUCTION U/S 80HHC IN RESPECT OF MARINE DIVISION. 40. ON THE OTHER HAND, THE LD. AR OF THE ASSESSEE SUPPORTED THE ORDER OF THE LD. CIT AND SUBMITTED THAT AS THE ASSESSEE ISSUED A DISCLAIMER CERTIFICATE IN RESPECT OF EXPORT TURNOVER AND THEREFORE, THE LOSS ON EXPORT OF TRADING GOODS IS TO BE IGNORED AND THE LD. CIT(A) WAS JUSTIFIED IN GRANTING DEDUCTION U/S 80HHC IN RESPECT OF EXPORT INCENTIVE. HE RELIED UPON THE DECISION OF THE D ELHI BENCH OF THE TRIBUNAL IN THE CASE OF MMTC VS. JCIT (200 7) 112 TTJ 15 (DELHI). 41. WE FIND THAT THE HONBLE SUPREME COURT IN THE C ASE OF IPCA LABORATORY LIMITED VS. DCIT (2004) 135 TAXM ANN 594 (SC) HELD AS UNDER: 15. IT WAS NEXT SUBMITTED THAT EVEN WHEN THE PROFITS ARE TO BE REDUCED BY THE LOSSES IN CASES WHERE AN EXPORT HOUSE HAS DISCLAIMED ITS TURNOVER IN FAVOUR OF A SUPPORTING MANUFACTURER, THE TURNOVER OF THE EXPORTER GETS REDUCED TO THE EXTENT DISCLAIMED. IT IS SUBMITTED THAT AS THE TURNOVER, WHICH IS DISCLAIMED, IS REDUCED IT CANNOT THEN BE TAKEN INTO CONSIDERATION FOR THE PURPOSES OF COMPUTING PROFITS UNDER SUB-SECTION 3(C)( II). IN OUR VIEW THIS IS AN ARGUMENT WHICH MERELY NEEDS TO BE STATED TO BE REJECTED. IF SUCH AN ARGUMENT IS ACCEPTED IT WOULD LEAD TO AN ABSURD RESULT. IT WOULD MEAN WHEN IF ITA NO.1856 & 2011/AHD/1999 8 THERE WAS NO DISCLAIMER THE EXPORT HOUSE WOULD NOT BE ENTITLED TO ANY DEDUCTION IN CASES WHERE THERE IS A LOSS BUT BECAUSE DISCLAIMER HAS BEEN MADE BOTH THE EXPORT HOUSE AND THE SUPPORTING MANUFACTURER WOULD BECOME ENTITLED TO DEDUCTIONS. THE PROVISO TO SUB-SECTION (3) OF SECTION 80HHC ENABLES A DISCLAIMER ONLY TO ENABLE THE EXPORT HOUSE TO PASS ON DEDUCTIONS. IT IN NO WAY REDUCES THE TURNOVER OF THE EXPORT HOUSE. IN COMPUTING TOTAL INCOME, THE ENTIRE TURNOVER IS TAKEN INTO ACCOUNT EVEN THOUGH THERE IS A DISCLAIMER. THUS EVEN THOUGH THE DISCLAIMER IS MADE THE TAXABLE INCOME OF RS. 4.39 CRORES HAS BEEN ARRIVED AT BY THE APPELLANTS AFTER TAKING INTO ACCOUNT THE ENTIRE TURNOVER FROM EXPORT OF TRADING GOODS. IN ARRIVING AT THE FIGURE OF RS. 4. 39 CRORES ADMITTEDLY THE LOSS OF RS. 6.86 CRORES HAS BEEN TAKEN INTO ACCOUNT. EVEN AFTER DISCLAIMER THE TURNOVER HAS REMAINED THE TURNOVER OF THE EXPORT HOUSE, I.E., THE APPELLANTS. THE DISCLAIMER IS ONLY FOR PURPOSES OF ENABLING THE EXPORT HOUSE TO PASS ON THE DEDUCTION WHICH IT WOULD HAVE GOT TO THE SUPPORTING MANUFACTURER. IT FOLLOWS THAT IF NO DEDUCTION IS AVAILABLE, BECAUSE THERE IS A LOSS, THEN THE EXPORT HOUSE CANNOT PASS ON OR GIVE CREDIT OF SUCH NON- EXISTING DEDUCTION TO A SUPPORTING MANUFACTURER. THUS, IN OUR CONSIDERED VIEW, THE LOSS OF RS.13,50,71,719/- SUFFERED ON EXPORT OF TRADING GOOD S CANNOT BE IGNORED ON THE GROUND THAT A DISCLAIMER CERTIFICATE WAS ISSUED IN RESPECT OF RELEVANT EXPORT TURNOVER TO THE SUPPORTING MANUFACTURER. 42. FURTHER, WE FIND THAT THE HONBLE DELHI HIGH COUR T IN THE CASE OF CIT VS. MEREENA CREATIONS 189 TAXMANN 71 (DEL.) HELD AS UNDER: 15. AFTER READING THE JUDGMENT OF THE SUPREME COURT IN IPCA LABORATORY LTD.S CASE (SUPRA), IT CLEARLY EMERGES: NO DOUBT, UNLESS THERE IS A POSITIVE PROFIT, THE BENEFIT OF SECTION 80HHC WOULD NOT BE GIVEN. THE COURT INTERPRETED IT TO MEAN THAT IF THE RE IS A LOSS THEN NO DEDUCTION WOULD BE AVAILABLE. HOWEVER, HOW THE TEST FOR DETERMINING THE FIGURE OF POSITIVE PROFIT IS APPLIED IS STATED AS FOLLOWS: ITA NO.1856 & 2011/AHD/1999 9 'IN ARRIVING AT THE FIGURE OF POSITIVE PROFIT, BOTH THE PROFITS AND THE LOSSES WILL HAVE TO BE CONSIDERED. IF THE NET FIGURE IS A POSITIVE PROFIT THEN THE ASSESSEE WILL BE ENTITLED TO A DEDUCTION. IF THE NET FIGURE I S A LOSS THEN THE ASSESSEE WILL NOT BE ENTITLED TO A DEDUCTION.' IT IS CLEAR FROM THE ABOVE THAT WHILE COMPUTING EXPORT PROFIT THE RESULT OF TWO ACTIVITIES IS TO BE NETTED. WHILE DOING SO, EXPORT INCENTIVES ARE ALSO TO BE TAKEN INTO CONSIDERATION. 43. WE FIND THAT THE DECISION OF THE DELHI TRIBUNAL I N THE CASE OF MMTC (SUPRA) IS NOT APPLICABLE IN THE INSTANT C ASE IN AS MUCH AS IN THE INSTANT CASE, THERE IS LOSS IN EXPORT O F TRADING GOODS WHICH COULD NOT BE PASSED ON TO SUPPORTIN G MANUFACTURER BY ISSUING DISCLAIMER CERTIFICATE IN VIEW OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF IPCA LABORATORY (SUPRA). IN VIEW OF THE ABOVE DECIS ION OF THE HONBLE DELHI HIGH COURT, WE FIND THAT AFTER TAKI NG INTO CONSIDERATION 90% OF EXPORT INCENTIVE, THERE WAS A POSITIVE PROFIT OF RS.20,24,198/- IN THE INSTANT CASE. THEREFORE, THE ASSESSEE WAS ENTITLED FOR DEDUCTION U/S 80HHC IN RESPECT OF RS.20,24,198/- ONLY. WE, THEREFORE , MODIFY THE ORDER OF THE LD. CIT(A) TO THE ABOVE EXT ENT. THUS, THE GROUND OF APPEAL OF REVENUE IS PARTLY ALLO WED. 10. IN THE PRESENT YEAR ALSO, IT IS NOT IN DISPUTE THAT THE ASSESSEE HAS INCURRED LOSS FROM EXPORT OF TRADING GOODS IN MARIN E DIVISION OF RS.15,04,77,383/- AND RECEIVED EXPORT INCENTIVE, 90 % OF WHICH IS RS.16,36,84,806/-. THE AO IS DISALLOWED DEDUCTION U/S.80HHC IN ITS ENTIRETY ON THE GROUND THAT THERE IS NO PROFIT FROM MARINE EXPORT AND ONLY PROFIT WAS IN THE FORM OF INCREMENT OF 90% OF EXPOR T INCENTIVE PROVIDED UNDER THE SECTION. THE LEARNED CIT(A) FOLLOWING HI S ORDER PASSED IN THE ASSESSMENT YEAR 1994-95 AND 1995-96 ALLOWED THE CLA IM OF THE ASSESSEE FOR DEDUCTION UNDER SECTION80HHC OF RS.16,36,84,806/- W HICH IS EQUAL TO 90% ITA NO.1856 & 2011/AHD/1999 10 OF EXPORT INCENTIVES SUBJECT TO THE GROSS TOTAL INC OME OF THE ASSESSEE. IN VIEW OF OUR DECISION IN THE ASSESSMENT YEAR 1994-95 AND 1995-96, THE ASSESSEE IS ENTITLED FOR DEDUCTION UNDER SECTION 80 HHC, AFTER NETTING OF LOSS FROM THE EXPORT INCENTIVE WHICH WORKS OUT TO RS.1,3 2,07,423/-. THUS, THIS GROUND OF THE APPEAL OF THE REVENUE IS ALLOWED. 11. THE GROUND NO.4 OF THE APPEAL OF THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE CIT(A) DIRECTING THE AO TO CONSIDER NE T INTEREST AS AGAINST GROSS INTEREST IN INDIRECT COST WHILE WORKING OUT DEDUCTI ON UNDER SECTION 80HHC FROM GENERAL DIVISION. 12. BOTH THE PARTIES AGREED BEFORE US THAT THE FACT S AND ISSUES INVOLVED ARE SIMILAR TO THAT FOR A.Y.1995-96, WHEREIN THE TRIBUN AL IN ITA NO.2405 AND 2435/AHD/1998 HAS HELD AS UNDER: 23. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND MATERIAL AVAILABLE ON RECORD. IN THE INSTANT CASE, THE UNDISPUTED FACTS ARE THAT THE AO WHILE CA LCULATING THE DEDUCTION ALLOWABLE TO THE ASSESSEE UNDER SECTION 8 0HHC IN RESPECT OF TRADING DIVISION WHILE CALCULATING INDIRECT COST CONSIDERED THE GROSS INTEREST EXPENDITURE OF RS.3,73,70,700/- WITH OUT REDUCING THEREFROM THE INTEREST INCOME EARNED BY THE ASSESSE E ON THE GROUND THAT THERE WAS NO NEXUS BETWEEN INTEREST EXPENDITUR E AND INTEREST INCOME EARNED BY THE ASSESSEE FROM VARIOUS SOURCES. THE CONTENTIONS OF THE ASSESSEE WAS THAT THE NET INTEREST EXPENDITU RE AFTER REDUCING THE INTEREST INCOME EARNED BY THE ASSESSEE SHOULD BE TA KEN AS INDIRECT COST OF THE TRADING GOODS FOR COMPUTING THE DEDUCTI ON UNDER SECTION 80HHC. THIS CONTENTION OF THE ASSESSEE WAS ACCEPTE D BY THE CIT(A), FOLLOWING THE DECISION OF THE MUMBAI BENCH OF THE T RIBUNAL IN THE CASE OF KANTILAL CHHOTALAL VS. ACIT (SUPRA). WE FIND THAT THE DECISION OF THE LEARNED CIT(A) IS SUPPORTED BY THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF ACG ASSOCIATES CAPSULES VS. CIT (SUPRA) WHEREIN IT HAS BEEN HELD THAT NOT THE G ROSS INTEREST BUT ONLY THE NET INTEREST, WHICH HAS BEEN INCLUDED IN T HE PROFITS OF ITA NO.1856 & 2011/AHD/1999 11 BUSINESS OF THE ASSESSEE AS COMPUTED UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION', IS TO BE DEDUCTED UNDER CLAUSE (1) OF EXPLANATION (BAA) TO SECTION 80HHC FOR DETERMINING THE PROFITS OF THE BUSINESS. IN THE INSTANT CASE, THE INTEREST INCOME WAS TREATED BY THE AS PART OF INCOME FROM PROFITS AND GAINS OF BUSINESS OR PROFESSION. THEREFORE, WE DO NOT FIND ANY INFIRMITY IN THE ORDE R OF THE CIT(A), WHICH IS CONFIRMED AND THE GROUND OF THE APPEAL OF THE REVENUE IS DISMISSED. FOLLOWING THE ABOVE ORDER OF THE TRIBUNAL, THIS GRO UND OF THE REVENUE IS DISMISSED. ASSESSES APPEAL: 13. IN ASSESSEES APPEAL THE GROUND NO.1 IS DIRECTE D AGAINST THE ORDER OF THE CIT(A) CONFIRMING THE DISALLOWANCE OF RS.4,50,0 00/- BEING FEES FOR THE INCREASE IN THE AUTHORIZED CAPITAL. 14. AT THE TIME OF HEARING, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THIS GROUND OF THE APPEAL IS TO BE DECIDED AGA INST THE ASSESSEE IN VIEW OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CA SE OF PUNJAB STATE INDUSTRIAL DEVELOPMENT LTD. VS.CIT, 225 ITR 792 (SC ), WHEREIN IT WAS HELD THAT THE FEES PAID TO REGISTRAR OF COMPANIES FOR EX PANSION OF CAPITAL BASIS OF A COMPANY IS DIRECTLY RELATED TO THE CAPITAL EXPEND ITURE INCURRED BY THE COMPANY AND ALTHOUGH INCIDENTALLY THAT WOULD CERTAI NLY HELP IN THE BUSINESS OF THE COMPANY AND MAY ALSO HELP IN PROFIT MAKING, IS STILL RETAINS THE CHARACTER OF CAPITAL EXPENDITURE, SINCE THE EXPENDI TURE IS DIRECTLY RELATED TO THE EXPANSION OF THE CAPITAL BASE OF THE COMPANY. WE, THEREFORE, DISMISS THIS GROUND OF THE APPEAL OF THE ASSESSEE. ITA NO.1856 & 2011/AHD/1999 12 15. THE GROUND NO.3 OF THE APPEAL OF THE ASSESSEE I S DIRECTED AGAINST THE ORDER OF THE CIT(A) IN CONFIRMING THE DISALLOWANCE OF RS.3,55,000/- AS ENTERTAINMENT EXPENSES. 16. AT THE TIME OF HEARING, THE LEARNED AR OF THE A SSESSEE HAS NOT PRESSED THIS GROUND OF APPEAL, HENCE, THE SAME IS DISMISSED , AS NOT PRESSED. 17. THE GROUND NO.4 OF THE APPEAL OF THE ASSESSEE I S DIRECTED AGAINST THE ORDER OF THE CIT(A) IN CONFIRMING THE ADDITION OF R S.13,93,492/- MADE FOR THE ALLEGED UNEXPLAINED PAYMENT TO ADITYA CARGO GRO UP. 18. BOTH THE PARTIES AGREED THAT FACTS AND ISSUES I NVOLVED IN THIS GROUND OF THE APPEAL ARE SIMILAR TO THAT FOR THE A.Y.995-96. IN A.Y.1995-1996, WE HELD AS UNDER: 45. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL AVAILABLE ON RECORD. WE FIND FORCE IN THE ARGUMENT OF THE LEARNED AR THAT AMENDMENT IN SECTION 69C TO THE EFFECT THAT DE DUCTION IN RESPECT OF UNEXPLAINED BUSINESS EXPENDITURE WILL NOT BE ALL OWED, HAS BEEN BROUGHT INTO FORCE BY THE FINANCE (NO.2) ACT, 1998 W.E.F. 1.4.1999. IN THE INSTANT CASE THE ASSESSMENT YEAR INVOLVED IS 19 95-96. IN THE INSTANT CASE, IT IS NOT IN DISPUTE THAT RS.26,50,74 4/- RELATES TO PAYMENT OF SERVICE CHARGES FOR IMPORT OF GOODS. THEREFORE, THE ASSESSEE IS ENTITLED FOR DEDUCTION OF RS.26,50,744/- WHEN THE S AID AMOUNT IS TREATED AS UNEXPLAINED BUSINESS EXPENDITURE OF THE ASSESSEE. WE, THEREFORE, SET ASIDE THE ORDERS OF THE LOWER AUTHOR ITIES ON THIS ISSUE AND ALLOW THE GROUND OF THE APPEAL OF THE ASSESSEE. FOLLOWING THE SAME, THE GROUND OF THE APPEAL OF THE ASSESSEE IS ALLOWED. 19. THE GROUND NO.5 OF THE APPEAL OF THE ASSESSEE I S DIRECTED AGAINST THE ORDER OF THE CIT(A) SETTING ASIDE THE ADDITION OF R S.80,50,000/- ON ACCOUNT OF PROVISION OF SECTION 69C OF THE ACT. ITA NO.1856 & 2011/AHD/1999 13 20. AT THE TIME OF HEARING, LEARNED COUNSEL FOR THE ASSESSEE HAS NOT PRESSED THIS GROUND OF APPEAL, HENCE, THE SAME IS D ISMISSED AS NOT PRESSED. 21. THE GROUND NO.6 IS DIRECTED AGAINST THE ORDER O F THE CIT(A) IN UPHOLDING THE DISALLOWANCE OF RS.12,949/- BY INVOKI NG THE PROVISIONS OF SECTION 43B OF THE IT ACT. 22. AT THE TIME OF HEARING, LEARNED COUNSEL FOR THE ASSESSEE HAS NOT PRESSED THIS GROUND OF APPEAL, HENCE, THE SAME IS D ISMISSED AS NOT PRESSED. 23. THE GROUND NO.7 IS AGAINST THE ORDER OF THE CIT (A) IN UPHOLDING THE DISALLOWANCE OF RS.70,000/- BEING THE LOSS ON INVES TMENTS DEBITED TO PROFIT & LOSS ACCOUNT WHEN THE SAME OUGHT TO HAVE BEEN ALL OWED AS INCIDENTAL TO BUSINESS. 24. AT THE TIME OF HEARING, LEARNED COUNSEL FOR THE ASSESSEE HAS NOT PRESSED THIS GROUND OF APPEAL, HENCE, THE SAME IS D ISMISSED AS NOT PRESSED. 25. THE GROUND NO.8 US AGAINST THE ORDER OF THE CIT (A) IN UPHOLDING THE DISALLOWANCE OF RS.51,000/- AS PAYMENTS MADE TO CLU BS OTHERWISE ADMISSIBLE UNDER SECTION 37(1) OF THE ACT. 26. AT THE TIME OF HEARING, LEARNED COUNSEL FOR THE ASSESSEE HAS NOT PRESSED THIS GROUND OF APPEAL, HENCE, THE SAME IS D ISMISSED AS NOT PRESSED. 27. THE GROUND NO.9 IS AGAINST THE ORDER OF THE CIT (A) IN UPHOLDING THE DISALLOWANCE OF RS.72,581/- ON ACCOUNT OF INTEREST GIVEN TO TORRENT EXPORT LTD. ITA NO.1856 & 2011/AHD/1999 14 28. AT THE TIME OF HEARING, LEARNED COUNSEL FOR THE ASSESSEE HAS NOT PRESSED THIS GROUND OF APPEAL, HENCE, THE SAME IS D ISMISSED AS NOT PRESSED. 29. THE GROUND NO.10 IS AGAINST THE ORDER OF THE CI T(A) IN SETTING ASIDE THE ISSUE REGARDING THE DISALLOWANCE OF INTEREST OF RS.11,52,124/- ON ACCOUNT OF ADVANCE GIVEN TO ANURAG CHEMICALS LTD. 30. AT THE TIME OF HEARING, LEARNED COUNSEL FOR THE ASSESSEE HAS NOT PRESSED THIS GROUND OF APPEAL, HENCE, THE SAME IS D ISMISSED AS NOT PRESSED. 31. THE GROUND NO.11 OF THE APPEAL IS DIRECTED AGAI NST THE ORDER OF THE CIT(A) IN UPHOLDING THE DISALLOWANCE OF RS.31,250/- UNDER SECTION 35D OF THE ACT. 32. BOTH THE PARTIES AGREED THAT THE FACTS AND ISSU ES INVOLVED IN THIS GROUND ARE SIMILAR TO THAT OF ASSTT.YEAR 1995-196. IN A.Y.1995-96 IN ITA NO.2405, 2435/AHD/1998, WE HAVE HELD AS UNDER: 36. WE FIND THAT THE TRIBUNAL IN THE CASE OF SIRHI ND STEEL LTD. (SUPRA) HAS HELD AS UNDER: 7. SINCE THERE IS NO AMOUNT OUTSTANDING ON ACCOUNT OF DEBENTURES AND LONG-TERM BORROWINGS AS ON THE LAST DAY OF THE PREVIOUS YEAR, EXPLANATION (C) TO SECTION 35D(3) I S IRRELEVANT. SO IS THE CASE WITHEXPLANATION (A) TO SECTI ON 35D(3) AS COST OF PROJECT IS ALSO MUCH LESS THAN ISSUED SHARE CAPITAL. THEREFORE, WE HAVE TO CONCENTRATE ON THE DEFINITION GIVEN TO TERM 'CAPITAL EMPLOYED IN THE BU SINESS OF THE COMPANY' IN EXPLANATION (B) TO SECTION 35D(3). THERE IS NO DISPUTE TO THE EXTENT THAT SHARE CAPITAL O F THE ASSESSEE-COMPANY AS STANDING UNDER THE HEAD 'SOURCES OF FUND' AS ON THE LAST DAY OF THE PREVIOUS YEAR IS RS. 4,00,71,000. THE CIT(A) HAS CONSIDERED THE ENTIRE OTH ER SUM OF RS. 14,86,64,238 (THE AMOUNT OUTSTANDING UNDER ITA NO.1856 & 2011/AHD/1999 15 THE HEAD RESERVE AND SURPLUS THE DETAILS OF WHICH HAV E ALREADY BEEN REPRODUCED ABOVE) AS PART OF ISSUED SHARE CAPITAL AND HAS CONCLUDED THAT 2.5 PER CENT OF SUCH CAPITAL EMPLOYED WAS WITHIN THE AMOUNT OF TOTAL EXPENDITURE INCURRED BY ASSESSEE ON PUBLIC ISSUE AND THUS THE ASSESSEE WAS ENTITLED TO CLAIM FULL DEDUCTION OF RS. 4,71,244. H ERE THE SUBMISSION OF LD. COUNSEL OF THE ASSESSEE IS THAT IN A NY CASE, SHARE PREMIUM HAS TO BE CONSIDERED AS 'ISSUED SHARE CAPITAL'. THERE IS A FORCE IN SUCH CONTENTION THAT THE AMOUNT OUTSTANDING ON ACCOUNT OF SHARE PREMIUM HAS TO BE TREATED AS ISSUED SHARE CAPITAL. SECTION 78 OF THE COMPANIES ACT, 1956 DEALS WITH THE SUBJECT 'APPLICATION OF PREMIUMS RECEIVED ON ISSUE OF SHARES'. SAID SECTION READS AS UNDER: '(1) WHERE A COMPANY ISSUES SHARE AT A PREMIUM, WHETHER FOR CASH OR OTHERWISE, A SUM EQUAL TO THE AGGREGATE AMOUNT OR VALUE OF THE PREMIUMS ON THOSE SHARES SHALL BE TRANSFERRE D TO AN ACCOUNT, TO BE CALLED 'THE SHARE PREMIUM ACCOUNT', AND TH E PROVISIONS OF THIS ACT RELATING TO THE REDUCTION OF THE SHARE CAPITAL OF A COMPANY SHALL, EXCEPT AS PROVIDED IN THIS S ECTION, APPLY AS IF THE SHARE PREMIUM ACCOUNT WERE PAID-UP SHARE CAPITAL OF THE COMPANY. (2) THE SHARE PREMIUM ACCOUNT MAY, NOTWITHSTANDING ANY THING IN SUB-SECTION (1), BE APPLIED BY THE COMPANY (A)IN PAYING UP UN-ISSUED SHARES OF THE COMPANY TO BE ISSUED TO MEMBERS OF THE COMPANY AS FULLY PAID BONUS SHARES; (B)IN WRITING OFF THE PRELIMINARY EXPENSES OF THE COMP ANY; (C)IN WRITING OFF THE EXPENSES OF, OR THE COMMISSION PAI D OR DISCOUNT ALLOWED ON, ANY ISSUE OF SHARES OR DEBENTURES OF THE COMPANY; OR (D)IN PROVIDING FOR THE PREMIUM PAYABLE ON THE REDE MPTION OF ANY REDEEMABLE PREFERENCE SHARES OR OF ANY DEBENTURES OF THE COMPANY. (3) WHERE A COMPANY HAS, BEFORE THE COMMENCEMENT OF TH IS ACT, ISSUED ANY SHARES AT A PREMIUM, THIS SECTION SHALL APPL Y AS IF THE SHARES HAD BEEN ISSUED AFTER THE COMMENCEMENT OF THIS ACT : ITA NO.1856 & 2011/AHD/1999 16 PROVIDED THAT ANY PART OF THE PREMIUMS WHICH HAS BEEN SO APPLIED THAT IT DOES NOT AT THE COMMENCEMENT OF THIS A CT FORM AN IDENTIFIABLE PART OF THE COMPANYS RESERVES WIT HIN THE MEANING OF SCHEDULE VI, SHALL BE DISREGARDED IN DETERMINING THE SUM TO BE INCLUDED IN THE SHARE PREMIU M ACCOUNT.' (EMPHASIS SUPPLIED) A PERUSAL OF ABOVE-MENTIONED SECTION WILL REVEAL THAT ANY SHARE PREMIUM COLLECTED BY A COMPANY SHALL BE TREATED AS IF THE SAME IS PAID-UP SHARE CAPITAL OF THE COMPANY AND IT IS ALSO REQUIRED TO BE RETAINED IN A SEPARATE ACCOUNT. THE SAID AMOUNT CANNOT BE UTILIZED FOR ANY PURPOSE, OTHER THAN THE ONE SPECIFIED IN SUB-SECTION (2). IF AMOUNT LYING IN SEP ARATE PREMIUM ACCOUNT IS USED FOR ANY OTHER PURPOSES, IT WOULD TANTAMOUNT TO REDUCTION IN SHARE CAPITAL WHICH WILL AT TRACT THE PROVISIONS OF SECTIONS 100 TO 105 OF THE COMPANIES ACT . 8. ACCORDING TO SUB-SECTION (2) THE SHARE PREMIUM ACCOUNT MAY BE APPLIED FOR THE FOLLOWING PURPOSES: (1)THE PAYING UP OF FULLY PAID BONUS SHARES TO BE ISSUE D BY THE COMPANY TO ITS MEMBERS; (2)THE WRITING OFF OF PRELIMINARY EXPENSES OF THE COM PANY; (3)THE WRITING OFF OF THE EXPENSES OF, OR UNDERWRITI NG COMMISSION PAID OR DISCOUNT ALLOWED ON, ANY ISSUE OF SHAR ES OR DEBENTURES OF THE COMPANY; (4)THE PROVIDING OF A PREMIUM PAYABLE BY THE COMPANY ON REDEMPTION OF REDEEMABLE SHARES OR REDEMPTION OF DEBENTURES OF THE COMPANY. THUS THE EFFECT OF THIS SECTION IS TO CREATE A NEW CLASS OF CA PITAL OF A COMPANY WHICH IS NOT DISTRIBUTABLE AS INCOME ANY MOR E THAN ANY OTHER CAPITAL ASSET. ON A WINDING UP THE SURPLUS MON IES IN THE SHARE PREMIUM ACCOUNT WILL BE RETURNED TO THE SHARE HOLDERS AS CAPITAL AND SO LONG AS THE COMPANY IS A GOING CONCERN, T HE SAME MONIES CAN NEVER BE RETURNED TO THE SHAREHOLDERS EX CEPT THROUGH THE MEDIUM OF REDUCTION PETITION OR, IN OTHE R WORDS, EXCEPT UNDER EXACTLY THE SAME CONDITIONS AS THOSE UNDER WH ICH ANY OTHER CAPITAL ASSET CAN REACH THE SHAREHOLDERS HAND. HOWEVER, THE SAME ANALOGY WILL NOT APPLY TO THE OTHER AMOUNTS STAND CREDITED UNDER THE HEAD 'RESERVE AND SURPLUS' I.E ., (I) ITA NO.1856 & 2011/AHD/1999 17 INVESTMENT ALLOWANCE (UTILIZED) RESERVE RS. 8,21,849, ( II) 'GENERAL RESERVE' RS. 6,43,25,301 AND THE SUM (III) 'TRANSFERRED FROM PROFIT AND LOSS A/C' RS. 1,46,00,000 ( TOTAL = RS. 7,97,46,150 ALL OTHER SUMS STANDING TO THE CREDIT OF RESERVE AND SURPLUS A/C). THEREFORE, WE HOLD THAT CIT(A) WA S WRONG IN CONCLUDING THAT ENTIRE SUM OF RS. 18,87,35,238 (RS. 4,00 ,71,000 AS SHARE CAPITAL AND AMOUNT OF RS. 14,86,64,238 AS RESERV E AND SURPLUS) WAS 'ISSUED SHARE CAPITAL' WITHIN THE MEANING OF EXPLANATION (B ) TO SECTION 35D(3). THEREFORE, WE MODIFY HIS ORDER AND HOLD THAT A SUM OF RS. 7,97,46,150 AS COMPUTE D ABOVE, WAS NOT 'ISSUED SHARE CAPITAL' WITHIN THE MEANIN G OF EXPLANATION (B) TO SECTION 35D(3) OF THE ACT. THERE FORE, ISSUED SHARE CAPITAL OF THE ASSESSEE CAN ONLY BE CONSIDERED TO BE A SUM OF RS. 10,88,97,000 (RS. 4,00,71,000 BEING SHA RE CAPITAL PLUS RS. 6,88,26,000 AMOUNT OUTSTANDING AS SHAR E PREMIUM ACCOUNT) 2.5 PER CENT OF RS. 10,88,97,000 IS OF RS. 27,22,425 AND THUS THE EXPENDITURE INCURRED BY ASSESSEE HAVE TO BE RESTRICTED TO THAT SUM AND THEREFORE, THE ASSESSEE I S ENTITLED TO MAXIMUM 10 PER CENT OF THE SUM OF RS. 27, 22,425 WHICH COMES TO RS. 2,72,242. THUS, THE ADDITION MADE BY ASSESSING OFFICER DESERVES TO BE UPHELD TO THE EXTENT OF RS. 1,99,002 (RS. 4,71,244RS. 2,72,242). THEREFORE, THE ORDER OF CIT(A) IS MODIFIED ACCORDINGLY AND WE DIRECT ASSESSING OFFI CER TO RESTRICT THE ADDITION TO THE EXTENT OF RS. 1,99,002. T HE APPEAL FILED BY THE REVENUE IS, THEREFORE, PARTLY ALLOWED. IN THE ABSENCE OF ANY CONTRARY DECISION BEING POINT ED OUT TO US, WE FOLLOWING THE ABOVE DECISION OF THE TRIBUNAL DIRECT THE AO TO RE- COMPUTE THE DEDUCTION ALLOWABLE TO THE ASSESSEE UND ER SECTION 35D BY INCLUDING THE SHARE PREMIUM AMOUNT RECEIVED BY THE ASSESSEE DURING THE YEAR ALONG WITH THE SHARE CAPITAL RECEIVED DURI NG THE YEAR FOR THE PURPOSES OF TAKING AMOUNT OF ISSUED CAPITAL. THUS, THE GROUND OF THE APPEAL OF THE ASSESSEE IS ALLOWED AS ABOVE. FOLLOWING THE SAME, WE ALLOW THIS GROUND OF THE APP EAL OF THE ASSESSEE. 33. GROUND NO.12 IS AGAINST THE ORDER OF THE CIT(A) IN HOLDING THAT THE LEVY OF INTEREST UNDER SECTION 234A & 234B OF THE I T ACT IS CONSEQUENTIAL. ITA NO.1856 & 2011/AHD/1999 18 34. BOTH THE PARTIES AGREED THAT FACTS AND ISSUES I NVOLVED IN THIS GROUND IS SIMILAR TO THAT OF ASSTT.YEAR 1995-1996. IN A.Y.199 5-96 IN ITA NO.2405, 2435/AHD/1998, WE HAVE HELD AS UNDER: 48. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT FOR MARINE DIVIS ION NETTING WAS DONE AS PER THE RETROSPECTIVE AMENDMENT BROUGHT BY FINANCE ACT, 2005 W.E.F. 1.4.1992 (5 TH PROVISO TO SECTION 80HHC(3)). IN OUR CONSIDERED VIEW, TO THE EXTENT OF DISALLOWANCE UPHE LD IN MARINE DIVISION, NO INTEREST WOULD BE CHARGEABLE. IN THI S CONNECTION, OUR VIEW FINDS SUPPORT FROM THE DECISION OF THE CHENNAI BENCH OF THE TRIBUNAL IN THE CASE OF ABDUL WAHID, ITA NO.182 & 1 83 OF 2010 ORDER DATED 26.11.2010 WHEREIN IT WAS HELD THAT INTEREST UNDER SECTIONS 234A, 234B AND 234C AROSE DUE TO RESTRICTION OF DED UCTION U/S.80HHC, AS A RESULT OF SETTING OFF THE BUSINESS LOSS AGAINST 90% OF EXPORT INCENTIVES AS PER THE FIFTY PROVISO TO SECTI ON 80HHC(3) WHICH WAS INTRODUCED BY AN AMENDMENT BROUGHT IN THE YEAR 2005 W.E.F. 1.4.1992. THE CIT(A) HAS ACCEPTED THE PLEA OF THE ASSESSEE THAT THE PROVISION IN QUESTION WAS BROUGHT FROM 1.4.1992 WHI CH THE ASSESSEE COULD NOT FORESEE AT THE TIME OF FILING THE RETURN OF INCOME AND ON THE CONTRARY THERE WERE SEVERAL HIGH COURT AND ITAT DEC ISIONS SUPPORTING THE ASSESSEES VIEW THAT BUSINESS LOSS C OULD BE ADJUSTED AGAINST 90% EXPORT INCENTIVES FOR WORKING OUT THE D EDUCTION US/.80HHC. RESPECTFULLY FOLLOWING THE ABOVE CITED ORDER, WE ALLOW THIS GROUND OF THE APPEAL OF THE ASSESSEE, AS STATE D ABOVE. ITA NO.1856 & 2011/AHD/1999 19 FOLLOWING THE SAME, WE ALLOW THIS GROUND OF THE APP EAL OF THE ASSESSEE, IN THE MANNER AS ABOVE. 35. IN THE RESULT, THE APPEAL OF THE REVENUE AND TH AT OF THE ASSESSEE BOTH ARE PARTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON THE DATE MENTIONE D HEREINABOVE. SD/- SD/- ( ' #$ ' #$ ' #$ ' #$ /KUL BHARAT /JUDICIAL MEMBER . .. . . . . . /N.S. SAINI /ACCOUNTANT MEMBER C OPY OF THE ORDER FORWARDED TO: 1) : APPELLANT 2) : RESPONDENT 3) : CIT(A) 4) : CIT CONCERNED 5) : DR, ITAT. BY ORDER DR/AR, ITAT, AHMEDABAD