Perfect Equipments Pvt. Ltd., Ahmedabad V. The ACIT., Circle-5, Ahmedabad

ITA 2181/AHD/2006

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 6637 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 5 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-04-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 24-03-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 12-10-2006
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: M C
• Assessee Lawyers: M K PATEL
• Keywords: Set aside
• Section: 80HHC; 80IA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH C AHMEDABAD BEFORE SHRI N.S.SAINI, ACCOUNTANT MEMBER AND SHRI MAHAVIR SINGH, JUDICIAL MEMBER ITA NO.2181/AHD/2006 ASSESSMENT YEAR: 2003-04 DATE OF HEARING:24.3.10 DRAFTED:24.3.10 PERFECT EQUIPMENTS PRIVATE LIMITED, C- 1/503,GIDC INDUSTRIAL ESTATE, ODHAV, AHMEDABAD-382 415 PAN NO.AAACP9264E V/S . ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-5, AHMEDABAD (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI M.K. PATEL, AR RESPONDENT BY:- SHRI M.C. PANDIT, SR-DR O R D E R PER MAHAVIR SINGH JUDICIAL MEMBER:- THIS APPEAL BY THE ASSESSEE IS ARISING OUT OF THE ORDER OF COMMISSIONER OF INCOME-TAX (APPEALS)-XI, AHMEDABAD IN APPEAL NO. CI T(A)-XI/209/2005-06 DATED 10-08-2006. THE ASSESSMENT WAS FRAMED BY THE ACIT, CIRCLE-5, AHMEDABAD U/S.143(3) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) VIDE HIS ORDER DATED 06-02-2006 FOR ASSESSMENT YEAR 2003-04. 2. THE FIRST ISSUE IN THIS APPEAL OF THE ASSESSEE I S AGAINST THE ORDER OF CIT(A) CONFIRMING THE ACTION OF THE ASSESSING OFFICER BY D ENYING DEDUCTION CLAIMED BY THE ASSESSEE ON 80IA OF THE ACT AS WELL AS U/S.80HHC O F THE ACT RELYING ON THE PROVISION OF SEC. 80-IA(9) OF THE ACT. FOR THIS, A SSESSEE HAS RAISED THE FOLLOWING GROUND NO.1.1 TO 1.3 :- 1.1 THE LEARNED CIT(A) HAS ERRED IN LAW IN HOLDING THAT DEDUCTION UNDER 1SECTION 80HHC IS ALLOWABLE BY CALCULATING PROFIT OF THE BUSINESS UNDER EXPLANATION (BAA) TO SECTION 80HHC AFTER REDUCING T HE SAME BY DEDUCTION ALLOWED UNDER SECTION 80-IA. ITA NO.2181/AHD/2006 A.Y. 2003-04 PERFECT EQUIPMENTS P. LTD. V. ACIT, CIR-5, ABD PAGE 2 1.2. IT IS SUBMITTED THAT SECTION 80HHC IS A COMPLE TE CODE IN ITSELF AND CONTAINS A NON-OBSTAINATE FORMULA IN SECTION 80HHC( 3) UNDER WHICH PROFITS OF THE BUSINESS IS REQUIRED TO BE COMPUTED ON RATHER PRESUMPTIVE BASIS AND FURTHER PROVISIONS OF SECTION 80IA DO NOT CONTROL T HE DEDUCTION ADMISSIBLE UNDER SECTION 80HHC. 1.3 IT IS, THEREFORE, SUBMITTED THAT THE DEDUCTION UNDER SECTION 80HHC BE HELD ALLOWABLE WITHOUT REDUCING PROFITS OF THE BUSINESS UNDER THE EXPLANATION (BAA) THERETO BY THE DEDUCTION ALLOWED UNDER SECTIO N 80IA. 3. AT THE OUTSET, THE LD. COUNSEL FOR THE ASSESSE E FAIRLY STATED THAT THE ISSUE IS SQUARELY COVERED AGAINST THE ASSESSEE AND IN FAVOUR OF THE REVENUE BY THE DECISION OF SPECIAL BENCH, DELHI, OF THIS TRIBUNAL IN THE CA SE OF ACIT V. HINDUSTAN MINT & AGRO PRODUCTS (P) LTD. (2009) 119 ITD 107 (DEL) (SB) WHEREIN, IT WAS HELD : THAT IN VIEW OF THE PROVISIONS OF S. 80-IA(9) DEDU CTION UNDER S. 80HHC IS TO BE ALLOWED ON PROFITS AND GAINS AS REDUCED BY THE DEDU CTION CLAIMED AND ALLOWED UNDER S. 80-IB/80-IA. RESPECTFULLY FOLLOWING THE SA ID DECISION HON'BLE SPECIAL BENCH OF THE TRIBUNAL RESPECTFULLY FOLLOWING THE DECISION OF SPECIAL BENC H OF DELHI TRIBUNAL, WE SET ASIDE THE ORDER OF THE CIT(A) AND RESTORE BACK TO THE ORD ER OF THE AO. THEREFORE, THIS GROUND OF APPEAL OF THE ASSESSEE IS DISMISSED. 4. THE NEXT ISSUE IN THIS APPEAL OF THE ASSESSEE IS AS REGARDS TO THE ORDER OF CIT(A) CONFIRMING THE EXCLUSION OF GROSS INTEREST F OR COMPUTATION OF DEDUCTION U/S.80- IA OF THE ACT. FOR THIS, ASSESSEE HAS RAISED THE FO LLOWING GROUND NO.2.1 :- 2.1 THE LEARNED CIT(A) ERRED BOTH IN LAW AND ON FA CTS IN CONFIRMING THAT GROSS INTEREST INCOME OF RS.5,14,356 (INCLUDING RS.4,852 IN GOODS ACCOUNT) IS NOT ELIGIBLE PROFITS UNDER SECTION 80IA IN FACTS AND CI RCUMSTANCES OF THE CASE AND PARTICULARLY WHEN THE APPELLANT HAS INCURRED INTERE ST EXPENSES OF RS.6,11,850 WHICH EXCEEDS THE AFORESAID INTEREST INCOME OF RS.5 ,14,356 EARNED DURING THE PREVIOUS YEAR. 5. AS REGARDS TO THE INTEREST INCOME ON TRADE DEBTO RS, THE FACTS ARE THAT THE ASSESSEE-COMPANY IS ENGAGED IN MANUFACTURING TEXTIL E MACHINERY AND ITS PARTS AND RECEIVED HUGE ADVANCES AGAINST THE ORDERS, WHICH AR E A LONG DELIVERY ITEM AND IS TO BE REFUNDED IF THE ORDER IS CANCELLED. THE LD. COUN SEL STATED THAT THE ISSUE IS AS REGARDS TO INTEREST RECEIVED FROM OUTSTANDING PAYME NTS RECEIVABLE FROM THE PARTY ON ACCOUNT OF SALE EFFECTED BY THE ASSESSEE AS PER THE RATE AND TERMS, WHICH ALSO INCLUDES DUE DATE OF PAYMENT. THE REVENUE HAS NOT DISPUTED THAT THIS INTEREST IS NOT ITA NO.2181/AHD/2006 A.Y. 2003-04 PERFECT EQUIPMENTS P. LTD. V. ACIT, CIR-5, ABD PAGE 3 FROM TRADE DEBTORS AND ACCORDINGLY THIS ISSUE IS CO VERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF NIRMA INDUSTRIES V. DCIT (2006) 283 ITR 402 (GUJ), WHEREIN THE HON'BLE GUJ ARAT HIGH COURT HAS HELD AS UNDER:- 33. HOWEVER, THE PARTIES HAVING MADE ELABORATE SUB MISSIONS, THE MATTER MAY BE EXAMINED FROM A SLIGHTLY DIFFERENT ANGLE. WH EN THE ASSESSEE ENTERS INTO A CONTRACT FOR SALE OF ITS PRODUCTS IT COULD E ITHER STIPULATE (A) THAT INTEREST AT THE SPECIFIED RATE WOULD BE CHARGED ON THE UNPAI D SALE PRICE AND ADDED TO THE OUTSTANDING TILL THE POINT OF TIME OF REALIZATI ON, OR (B) THAT IN THE CASE OF DELAY THE PAYMENT FOR SALE OF PRODUCTS WORTH RS.100 TO CARRY THE SALE PRICE OF RS.102 FOR FIRST MONTHS DELAY, RS.106 FOR THE THIR D MONTHS DELAY AND SO ON. IF THE CONTENTION OF THE REVENUE IS ACCEPTED, MERELY B ECAUSE THE ASSESSEE HAS DESCRIBED THE ADDITIONAL SALE PROCEEDS AS INTEREST I THE CASE OF A CONTRACT AS PER ILLUSTRATION (A) ABOVE, SUCH PAYMENT WOULD NOT BE PROFITS DERIVED FROM THE INDUSTRIAL UNDERTAKING, BUT IN THE CASE OF ILLUSTRA TION (B) ABOVE, IF THE PAYMENT IS DESCRIBED AS SALE PRICE IT WOULD BE PROFITS DERI VED FROM THE INDUSTRIAL UNDERTAKING, THIS CAN NEVER BE BECAUSE IN SUM AND S UBSTANCE THESE ARE ONLY TOW MODES OF REALIZING SALE CONSIDERATION, THE OBJE CT BEING TO REALIZE THE SALE PROCEEDS AT THE EARLIEST AND WITHOUT DELAY. THE PU RCHASER PAYS A HIGHER SALE PRICE IF IT DELAYS PAYMENT OF THE SALE PROCEEDS. I N OTHER WORDS, THIS IS A CONVERSE SITUATION TO OFFERING OF CASH DISCOUNT. T HUS, IN PRINCIPLE, IN REALITY, THE TRANSACTION REMAINS THE SAME AND THERE IS NO DI STINCTION S TO THE SOURCE. IT IS INCORRECT TO STATE THAT THE SOURCE FOR INTERE ST IS THE OUTSTANDING SALE PROCEEDS. IT IS NOT THE ASSESSEES BUSINESS TO LEN D FUNDS AND EARN INTEREST. THE DISTINCTION DRAWN BY THE REVENUE IS ARTIFICIAL IN NATURE AND IS NEITHER I CONSONANCE WITH LAW NOR COMMERCIAL PRACTICE. THE FACT REGARDING THE INTEREST RECEIPTS ON DELAYED PAYMENT FROM CUSTOMERS IS NOT DISPUTED BY THE REVENUE. AS THE ISSUE IS SQUARELY C OVERED IN FAVOUR OF THE ASSESSEE BY THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CAS E OF NIRMA INDUSTRIES (SUPRA), RESPECTFULLY FOLLOWING THE SAME, WE ALLOW THIS ISSU E OF THE ASSESSEES APPEAL. ACCORDINGLY, THIS GROUND OF THE ASSESSEESS APPEAL IS ALLOWED. 6. AS REGARDS TO THE INTEREST ON FDRS AND BANK INTE REST, THE LD. COUNSEL FOR THE ASSESSEE CONCEDED THE POSITION AND STATED THAT THIS ISSUE IS AGAINST THE ASSESSEE AND IN FAVOUR OF THE REVENUE. THE ASSESSING OFFICE R IS DIRECTED TO EXCLUDE THE GROSS INTEREST OF FDRS AND BANK WHILE COMPUTING DEDUCTION U/S.80-IA OF THE ACT. 7. THE NEXT ISSUE IN THIS APPEAL OF ASSESSEE IS AGA INST THE ORDER OF ASSESSING OFFICER IN LEVYING ADDITIONAL INTEREST U/S.234B OF THE ACT. ITA NO.2181/AHD/2006 A.Y. 2003-04 PERFECT EQUIPMENTS P. LTD. V. ACIT, CIR-5, ABD PAGE 4 8. AT THE OUTSET, LD. COUNSEL FOR THE ASSESSEE STAT ED THAT THE ISSUE IS IN CONSEQUENTIAL IN NATURE AND WE DISMISS THE SAME. 9. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 09/04/2010 SD/- SD/- (N.S.SAINI) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD, DATED :09/04/2010 *DKP COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(APPEALS)- XI, AHMEDABAD 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, /TRUE COPY/ DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD