ACIT, CHENNAI V. M/s. Pentamedia Graphics Ltd., CHENNAI

ITA 2215/CHNY/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61157 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 5 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-06-2012
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 05-06-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 31-12-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DR SIBENDU MOHARANA IRS
• Assessee Lawyers: G VARDINI; PUSHYA SITARAMAN
• Keywords: Business income; Depreciation; Business expenditure
• Section: 143(3); 10B; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI BEFORE DR. O.K.NARAYANAN, VICE-PRESIDENT AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER ITA NOS.1818, 1834 & 1835(MDS)/2010 ASSESSMENT YEARS : 2001-02, 2005-06 & 2006-07 M/S.PENTAMEDIA GRAPHICS LTD., 1-FIRST MAIN ROAD, UNITED INDIA COLONY, KODAMBAKKAM, CHENNAI 600 024. PAN AAACP1647B. VS. THE ASSISTANT COMMISSIONER OF INCOME-TAX, COMPANY CIRCLE V(2), CHENNAI. (APPELLANT) (RESPONDENT) AND ITA NOS.2023, 2214 & 2215(MDS)/2010 ASSESSMENT YEARS : 2001-02, 2005-06 & 2006-07 THE ASSISTANT COMMISSIONER M/S.PENTAMED IA GRAPHICS OF INCOME-TAX, VS. LTD ., 1-FIRST MAIN ROAD, COMPANY CIRCLE V(2), UNITED INDIA COLONY, CHENNAI. CHENNAI-600 024. (APPELLANT) (RESPONDENT) ASSESSEE BY : MS.PUSHYA SITARAMAN, SR.ADV OCATE & MS. G.VARDINI, A DVOCATE. DEPARTMENT BY : DR.SIBENDU MOHARANA, IRS, C IT. DATE OF HEARING : 5 TH JUNE, 2012 DATE OF PRONOUNCEMENT : 5 TH JUNE, 2012 - - ITA 1818, 1834,ETC. OF 2010 2 O R D E R PER DR.O.K.NARAYANAN, VICE PRESIDENT THIS IS A BUNCH OF SIX APPEALS. THE ASSESSEE HAS FILED THREE APPEALS AND THE REVENUE HAS ALSO FILED THREE APPEALS. THESE CROSS APPEALS RELATE TO THE ASSESSMENT YEARS 2001-02, 2005-06 AND 2006-07. THE APPEALS ARISE OUT OF THE ORDERS PASSED BY THE COMMISSIONER OF INCOME-TAX(APPEALS)-V AT CHENNAI, DATED 15-9-2010, 22-9-2010 AND 29-9-2010. THE APPEALS ARISE OUT OF THE ASSESSMENTS COMPLETED UNDE R SECTION 143(3) OF THE INCOME-TAX ACT, 1961. 2. SMT. PUSHYA SITARAMAN, THE LEARNED SENIOR ADVOCATE ALONGWITH SMT. G.VARDINI, ADVOCATE, APPEAR ED FOR THE ASSESSEE AND ARGUED THE CASE. DR. SIBENDU MOHARANA , THE LEARNED COMMISSIONER OF INCOME-TAX, APPEARED FOR TH E REVENUE. 3. FIRST WE WILL CONSIDER THE APPEALS FILED BY THE ASSESSEE. - - ITA 1818, 1834,ETC. OF 2010 3 4. THE FIRST ISSUE RAISED IN THE APPEALS FILED BY THE ASSESSEE IS THE QUESTION OF TREATING THE INTEREST I NCOME, WHETHER AS BUSINESS INCOME OR AS INCOME FROM OTHER SOURCES. THIS ISSUE IS RAISED FOR ALL THE THREE ASSESSMENT YEARS 2001-0 2, 2005-06 AND 2006-07 UNDER APPEAL. THE LOWER AUTHORITIES HA VE RELIED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CA SE OF PANDIAN CHEMICALS LTD. VS CIT, 262 ITR 278, TO HOLD THAT INTEREST RECEIVED ON BANK DEPOSITS IS NOT INCOME DE RIVED FROM EXPORTS. THE LOWER AUTHORITIES HAVE ALSO OBSERVED THAT THE ASSESSEE HAD PARKED ITS EXCESS FUNDS IN BANK DEPOSI TS, AS STATED IN THE DIRECTORS REPORT. THE ASSESSEES CO NTENTION IS THAT THE DEPOSITS HAVE BEEN MADE TO OBTAIN WORKING CAPIT AL FACILITIES FROM THE BANKS AND, THEREFORE, INTEREST INCOME IS O NLY BUSINESS INCOME AND AN INCOME IS TO BE CLASSIFIED AFTER CONS IDERING ITS IMMEDIATE AND EFFECTIVE SOURCE. THE ASSESSEE HAS RE LIED ON THE DECISION OF THE HONBLE KERALA HIGH COURT IN THE CA SE OF K.RAVINDRANATHAN NAIR VS. DCIT, 262 ITR 669. - - ITA 1818, 1834,ETC. OF 2010 4 5. AFTER CONSIDERING THE RIVAL CONTENTIONS, WE FIN D THAT THE LOWER AUTHORITIES HAVE RIGHTLY RELIED ON THE JU DGMENT DELIVERED BY THE HONBLE SUPREME COURT IN THE CASE OF PANDIAN CHEMICALS LTD. VS. CIT, 262 ITR 278. THERE IS NO D IRECT NEXUS BETWEEN INTEREST INCOME AND INCOME DERIVED OUT OF E XPORTS. THEREFORE, THE LOWER AUTHORITIES ARE JUSTIFIED IN T REATING THE INTEREST INCOME AS INCOME FROM OTHER SOURCES. THIS COMMON GROUND IS ACCORDINGLY DISMISSED. 6. THE NEXT COMMON GROUND RAISED FOR ALL THE THREE YEARS IS REGARDING THE RENT RECEIVED BY THE ASSESSE E-COMPANY FROM ITS EMPLOYEES AGAINST ALLOTTING THEM DWELLING UNITS. THE ASSESSING OFFICER HAS TREATED SUCH RENT RECEIVED FR OM THE EMPLOYEE-TENANTS AS INCOME FROM OTHER SOURCES AND N OT AS INCOME FROM BUSINESS. 7. THE NATURE OF THE RECOVERY MADE FROM THE EMPLOYEES IS THAT THE RECOVERY GOES TO REDUCE THE S TAFF WELFARE EXPENSES IN THE HANDS OF THE ASSESSEE-COMPANY. THE RENT RECOVERY MADE FROM THE EMPLOYEES IS NOT AN INDEPEND ENT - - ITA 1818, 1834,ETC. OF 2010 5 INCOME OR A DIFFERENT SOURCE OF INCOME. THE ASSESS EE IS PROVIDING RESIDENTIAL QUARTERS TO THE EMPLOYEES AGA INST WHICH A NOMINAL RENT IS RECOVERED FROM THEM. THE RECOVERY ULTIMATELY REDUCES THE COST IN THE HANDS OF THE ASSESSEE. THE REFORE, THE RECOVERY IS IN THE NATURE OF BUSINESS INCOME. THIS IS BECAUSE IT REDUCES THE BUSINESS EXPENDITURE. THE LOWER AUTHOR ITIES ARE NOT JUSTIFIED IN TREATING IT AS INCOME FROM OTHER SOURC ES. THE ABOVE PROPOSITION HAS BEEN UPHELD BY THE HONBLE MADRAS H IGH COURT IN THE CASE OF CIT VS. M.A. SATHAR (P) LTD., 226 IT R 910. THE HONBLE COURT WAS FOLLOWING THE EARLIER DECISION OF THEIR LORDSHIPS RENDERED IN THE CASE OF CIT VS. NEW INDIA MARITIME AGENCIES P. LTD., 207 ITR 392. THEREFORE, WE ACCEPT THE CONTEN TION OF THE ASSESSEE AND DIRECT THE ASSESSING AUTHORITY TO TREA T THE RENT RECOVERIES AS BUSINESS INCOME IN THE HANDS OF THE A SSESSEE- COMPANY. 8. APART FROM THE ABOVE COMMON ISSUES, ANOTHER ISS UE RAISED FOR THE ASSESSMENT YEAR 2001-02 IN ITA NO.1818(MDS)/2010 IS REGARDING THE RECOVERY OF PAY FOR NOTICE PERIOD AND OTHER RECOVERIES FROM EMPLOYEES FOR CERT AIN FACILITIES - - ITA 1818, 1834,ETC. OF 2010 6 LIKE TELEPHONE CALLS AND SIMILAR UTILITIES. WE ARE OF THE CONSIDERED VIEW THAT THESE RECOVERIES ARE IN THE NA TURE OF BUSINESS INCOME FOR THE SAME REASONS EXPLAINED IN T HE EARLIER PARAGRAPH, WHILE DEALING WITH THE ISSUE OF RENT REC OVERIES. THEREFORE, THE RECOVERY OF PAY FOR THE NOTICE PERIO D AND THE OTHER RECOVERIES MADE FROM EMPLOYEES TOWARDS TELEPHONE CA LLS AND SIMILAR UTILITIES ARE TO BE TREATED AS BUSINESS INC OME IN THE HANDS OF THE ASSESSEE. 9. THE THREE APPEALS FILED BY THE ASSESSEE ARE PAR TLY SUCCESSFUL. 10. NEXT WE WILL CONSIDER THE APPEALS FILED BY THE REVENUE IN ITA NOS.2023, 2214 AND 2215(MDS)/2010. 11. THE FIRST ISSUE RAISED FOR THE ASSESSMENT YEAR 2001-02 IN ITA NO.2023(MDS)/2010 IS THAT THE COMMIS SIONER OF INCOME-TAX(APPEALS) HAS ERRED IN HOLDING THE SUMS O F ` 6,16,210/- AND ` 70,693/- AS BUSINESS INCOME. THESE AMOUNTS REPRESENTED THE VARIOUS RECOVERIES MADE FROM THE EM PLOYEES - - ITA 1818, 1834,ETC. OF 2010 7 AGAINST TELEPHONE CALLS AND SIMILAR UTILITIES. IT ALSO INCLUDED THE AMOUNTS RECOVERED FROM OUTGOING EMPLOYEES TOWARDS N OTICE PERIOD PAY. WHILE CONSIDERING THE APPEALS FILED BY THE ASSESSEE, WE HAVE ALREADY HELD THAT THESE RECOVERIES GO TO RE DUCE THE EXPENSES IN THE HANDS OF THE ASSESSEE AND ACCORDING LY PARTAKE THE CHARACTER OF BUSINESS INCOME. WE FIND, THEREFO RE, THAT THE COMMISSIONER OF INCOME-TAX(APPEALS) IS JUSTIFIED IN HOLDING SO. THE RELEVANT GROUNDS ARE ACCORDINGLY DISMISSED. 12. THE SECOND GROUND RAISED FOR THE ASSESSMENT YE AR 2001-02 IS THAT THE COMMISSIONER OF INCOME-TAX(APPE ALS) HAS ERRED IN DIRECTING THE ASSESSING OFFICER TO DEDUCT THE EXPENDITURE INCURRED IN FOREIGN EXCHANGE FROM TOTAL TURNOVER. IN VIEW OF THE DECISION OF THE SPECIAL BENCH OF THE INCOME-TAX APP ELLATE TRIBUNAL, CHENNAI, IN THE CASE OF ITO VS. SAK SOFT LTD., 313 ITR(AT) 353 (CHENNAI) (SB), THE FINDING OF THE COMM ISSIONER OF INCOME-TAX(APPEALS) IS IN ACCORDANCE WITH LAW. THI S ISSUE IS ALSO DECIDED AGAINST THE REVENUE. - - ITA 1818, 1834,ETC. OF 2010 8 13. THE THIRD GROUND RAISED BY THE REVENUE FOR THE ASSESSMENT YEAR 2001-02 IS THAT THE COMMISSIONER OF INCOME- TAX(APPEALS) HAS ERRED IN DIRECTING THE ASSESSING O FFICER TO ALLOW FULL DEDUCTION OF PROFITS FROM BUSINESS, AS THE EXP ORT SALES ARE MORE THAN 75% OF TOTAL SALES. IT IS THE CASE OF TH E REVENUE THAT THE COMMISSIONER OF INCOME-TAX(APPEALS) HAS FAILED TO APPRECIATE THAT AFTER THE AMENDMENT TO SECTION 10B WITH EFFECT FROM 1-4-2001, THE ELIGIBLE DEDUCTION WOULD BE PROF IT PROPORTIONATE TO THE EXPORT TURNOVER UPON TOTAL TUR NOVER. THE COMMISSIONER OF INCOME-TAX(APPEALS) HAS RIGHTLY HEL D IN FAVOUR OF THE ASSESSEE BECAUSE THE PROVISION FOR FULL EXEM PTION WAS OMITTED FROM THE STATUTE BOOK ONLY WITH EFFECT FROM THE ASSESSMENT YEAR 2002-03. THEREFORE, THE PROVISION DOES NOT APPLY TO THE IMPUGNED ASSESSMENT YEAR 2001-02. THI S ISSUE IS ACCORDINGLY DECIDED AGAINST THE REVENUE. 14. THE APPEAL FILED BY THE REVENUE FOR THE ASSESS MENT YEAR 2001-02 IS LIABLE TO BE DISMISSED. - - ITA 1818, 1834,ETC. OF 2010 9 15. NEXT WE WILL CONSIDER THE APPEAL FILED BY THE REVENUE FOR THE ASSESSMENT YEAR 2006-07 IN ITA NO.2215(MDS)/2010. 16. THE FIRST ISSUE RAISED IN THE APPEAL IS THAT T HE COMMISSIONER OF INCOME-TAX(APPEALS) HAS ERRED IN DI RECTING THE ASSESSING OFFICER TO ALLOW DEPRECIATION OF ` 5,55,73,965/- AS PER THE CHART GIVEN BY THE ASSESSEE IN ITS WRITTEN REPR ESENTATION. IT IS THE CASE OF THE REVENUE THAT THE ASSESSEE HAS NOT P RODUCED ANY EVIDENCE BY ITSELF, BUT ONLY PROVIDED A WORKING OF THE DEPRECIATION, WHICH HAS BEEN ACCEPTED BY THE COMMIS SIONER OF INCOME-TAX(APPEALS) WITHOUT PROPER VERIFICATION. I T IS ALSO THE CASE OF THE REVENUE THAT THE COMMISSIONER OF INCOME - TAX(APPEALS) HAS VIOLATED RULE 46A. 17. AFTER CONSIDERING THE ISSUE IN GREAT DETAIL, W E FIND THAT THE MATTER NEEDS TO BE RE-EXAMINED BY THE ASSE SSING OFFICER IN THE LIGHT OF THE DETAILS AVAILABLE IN TH E HANDS OF THE ASSESSEE. THE ASSESSEE IS DIRECTED TO PRODUCE THE NECESSARY DETAILS, EVIDENCES AND COMPUTATION FORMATS BEFORE T HE - - ITA 1818, 1834,ETC. OF 2010 10 ASSESSING OFFICER IN SUPPORT OF ITS CLAIM OF DEPREC IATION. THE ASSESSING OFFICER IS DIRECTED TO VERIFY THOSE MATER IALS AND PASS ORDERS IN ACCORDANCE WITH LAW. THIS ISSUE IS REMIT TED BACK TO THE ASSESSING AUTHORITY. 18. THE SECOND ISSUE RAISED BY THE REVENUE IS THAT THE COMMISSIONER OF INCOME-TAX(APPEALS) HAS ERRED IN DI RECTING THE ASSESSING OFFICER TO EXCLUDE THE EXPENSES INCURRED IN FOREIGN CURRENCY FROM BOTH TOTAL AS WELL AS EXPORT TURNOVER BEFORE ALLOWING DEDUCTION UNDER SECTION 10B. THIS ISSUE I S DECIDED AGAINST THE REVENUE IN VIEW OF THE DECISION OF THE SPECIAL BENCH OF THE INCOME-TAX APPELLATE TRIBUNAL IN THE CASE OF ITO VS. SAK SOFT LTD., 313 ITR (AT) 353 (CHENNAI) (SB). 19. THE THIRD ISSUE RAISED BY THE REVENUE IS THAT THE COMMISSIONER OF INCOME-TAX(APPEALS) HAS ERRED IN AL LOWING THE ASSESSEES APPEAL AGAINST TREATMENT OF INTEREST INC OME AS INCOME FROM OTHER SOURCES HOLDING THAT THE INTEREST RECEIVED FROM MARGIN MONEY DEPOSITS HAS TO BE ASSESSED UNDER THE HEAD INCOME FROM BUSINESS AND THEREBY ELIGIBLE FOR EXEMP TION UNDER - - ITA 1818, 1834,ETC. OF 2010 11 SECTION 10B. THIS ISSUE HAS ALREADY BEEN CONSIDERE D BY US WHILE DEALING WITH THE CROSS APPEAL FILED BY THE AS SESSEE. RELYING ON THE JUDGMENT OF THE HONBLE SUPREME COUR T IN THE CASE OF PANDIAN CHEMICALS LTD. VS. CIT, 262 ITR 278 , WE HOLD THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E INTEREST INCOME CANNOT BE TREATED AS BUSINESS INCOME. THERE FORE, THE ORDER OF THE COMMISSIONER OF INCOME-TAX(APPEALS) ON THIS POINT IS SET ASIDE AND THE FINDING OF THE ASSESSING AUTHO RITY IS RESTORED. ACCORDINGLY, THE INTEREST INCOME SHALL BE TREATED A S INCOME FROM OTHER SOURCES. THIS ISSUE IS DECIDED IN FAVOUR OF THE REVENUE. 20. THE APPEAL FILED BY THE REVENUE FOR THE ASSESS MENT YEAR 2006-07 IS PARTLY ALLOWED. 21. NEXT WE WILL CONSIDER THE APPEAL FILED BY THE REVENUE FOR THE ASSESSMENT YEAR 2005-06 IN ITA NO.2214(MDS)/2010. 22. THE FIRST ISSUE RAISED BY THE REVENUE IS REGAR DING DEPRECIATION ALLOWANCE. FOLLOWING OUR DECISION FOR THE - - ITA 1818, 1834,ETC. OF 2010 12 ASSESSMENT YEAR 2006-07, THE ISSUE IS REMITTED BACK TO THE ASSESSING OFFICER FOR ADJUDICATING THE ISSUE AFTER EXAMINING THE RELEVANT MATERIALS AFRESH. THE ISSUE IS REMANDED BA CK TO THE ASSESSING OFFICER. 23. THE SECOND ISSUE RAISED BY THE REVENUE REGARDI NG THE EXPENSES INCURRED IN FOREIGN CURRENCY WITH REFE RENCE TO TOTAL AS WELL AS EXPORT TURNOVER IS DECIDED AGAINST THE R EVENUE IN VIEW OF THE DECISION OF THE SPECIAL BENCH OF THE IN COME-TAX APPELLATE TRIBUNAL IN THE CASE OF ITO VS. SAK SOFT LTD., 313 ITR (AT) 353 (CHENNAI)(SB). 24. THE APPEAL FILED BY THE REVENUE FOR THE ASSESS MENT YEAR 2005-06 IS PARTLY SUCCESSFUL. 25. IN RESULT, THE THREE APPEALS FILED BY THE ASSE SSEE ARE PARTLY ALLOWED. THE APPEAL FILED BY THE REVENU E FOR THE ASSESSMENT YEAR 2001-02 IS DISMISSED. THE APPEALS FILED BY THE REVENUE FOR THE ASSESSMENT YEARS 2005-06 AND 2006-0 7 ARE PARTLY ALLOWED. - - ITA 1818, 1834,ETC. OF 2010 13 ORDERS PRONOUNCED IN THE OPEN COURT AT THE TIME O F HEARING ON TUESDAY, THE 5 TH OF JUNE, 2012 AT CHENNAI. SD/- SD/- (VIKAS AWASTHY) (DR. O.K.NARAYANAN) JUDICIAL MEMBER VICE-PRESIDENT CHENNAI, DATED, THE 5 TH JUNE, 2012. V.A.P. COPY TO: 1. ASSESSEE 2. DEPARTMENT 3. CIT 4. CIT(A) 5. DR 6. GF.