Southern /Sulphates & Chemicals (P) Ltd., CHENNAI V. DCIT, CHENNAI

ITA 227/CHNY/1996

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 64288 (ITAT-CHENNAI)
• Duration Of Justice: 16 year(s) 7 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-09-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 1988-1989
• Appeal Filed On: 07-02-1996
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: GURU BHASHYAM JT
• Assessee Lawyers: S BALAJI
• Keywords: Business income
• Section: 80HHC

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : CHENNAI [BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND SHRI SATBEER SINGH GODARA, JUDICIAL MEMBER] I.T.A.NOS.227 TO 230/MDS/1996 ASSESSMENT YEARS : 1988-89 TO 1991-92 M/S SOUTHERN SULPHATES & CHEMICALS (P) LTD NO.72 HARRINGTON ROAD CHETPET CHENNAI 600 031 VS THE DY. CIT SPL. RANGE II CHENNAI (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI S. BALAJI, ADVOCATE RESPONDENT BY : SHRI GURU BHASHYAM, JT. CIT DATE OF HEARING : 17-09-2012 DATE OF PRONOUNCEMENT : 18-09-2012 O R D E R PER BENCH: THESE ARE THE APPEALS FILED BY THE ASS ESSEE AGAINST THE CONSOLIDATED ORDER OF THE CIT(A)-VII, MADRAS, DATED 28.11.1995, PASSED IN ASSESSMENT YEARS 1988-89 TO 1991-92. 2. THE ABOVE APPEALS OF THE ASSESSEE WERE DISMISSED BY THE TRIBUNAL VIDE ITS CONSOLIDATED ORDER DATED 20.10.20 04 ON THE GROUND OF NON-APPEARANCE BY THE ASSESSEE ON THE DATE FIXED F OR HEARING BY THE TRIBUNAL. I.T.A.NOS.227 TO 230/96 :- 2 -: 3. THEREAFTER THE ASSESSEE FILED M.P.NOS.79 TO 82/MDS /2005. THE SAID MISCELLANEOUS PETITIONS WERE ALSO DISMISSE D BY THE TRIBUNAL ON THE GROUND THAT NO MATERIAL EVIDENCE IN SUPPORT OF THE SUBMISSIONS WERE FILED BY THE ASSESSEE FOR FAILURE TO APPEAR O N THE DATE OF HEARING OF THE APPEALS. 4. AGAINST THIS DISMISSAL OF THE MISCELLANEOUS PETITIO NS, THE ASSESSEE FILED WRIT PETITIONS BEFORE THE HON'BLE MA DRAS HIGH COURT. IN THE WRIT PETITION NOS.414 TO 416 AND 427 OF 2006, V IDE ORDER DATED 19.11.2009, THE HON'BLE HIGH COURT HAS SET ASIDE TH E ORDER OF THE TRIBUNAL PASSED IN THE MISCELLANEOUS PETITIONS AND DIRECTED THE TRIBUNAL TO PASS THE ORDER ON MERITS IN THE APPEALS OF THE ASSESSEE AND ALSO OBSERVED THAT AS THE MATTERS ARE PENDING F ROM THE YEAR 2006, THE TRIBUNAL SHOULD DISPOSE OF THE APPEALS WITHIN A PERIOD OF EIGHT WEEKS FROM THE DATE OF RECEIPT OF COPY OF THE ORDER . HENCE, THESE APPEALS BEFORE US. 5. THE A.R OF THE ASSESSEE SUBMITTED THAT THE FIRST IS SUE INVOLVED IN ALL THE APPEALS WAS THAT THE CIT(A) ERR ED IN CONFIRMING THE ORDER OF THE ASSESSING OFFICER DISALLOWING BANK INT EREST ON THE GROUND THAT THE FUNDS HAVE BEEN DIVERTED TO SISTER CONCERN S. HE FURTHER SUBMITTED THAT THE ONLY OTHER ISSUE INVOLVED IN ALL THE APPEALS UNDER CONSIDERATION WAS THAT THE CIT(A) ERRED IN CONFIRMI NG THE ORDER OF THE I.T.A.NOS.227 TO 230/96 :- 3 -: ASSESSING OFFICER IN NOT ALLOWING DEDUCTION U/S 80 HHC OF INTEREST INCOME FROM SHORT TERM FIXED DEPOSITS TEMPORARILY K EPT WITH BANKS PENDING UTILIZATION OF FUNDS BY THE ASSESSEE. 6. HE SUBMITTED WITH REGARD TO THE FIRST ISSUE, THE FA CTS ARE THAT THE ASSESSING OFFICER FOUND THAT DURING THE RELEVAN T ACCOUNTING PERIODS, THE ASSESSEE HAD LENT SIZEABLE AMOUNTS OF MONEY TO GOMUKHI CHARMA KENDRA WHICH IS A SISTER CONCERN OF THE ASS ESSEE. NO INTEREST WAS CHARGED ON THE FUNDS LENT. THE ASSESSEE HAD B ORROWED HUGE FUNDS FROM BANKS AND OTHER CONCERNS FOR THE PURPOSE OF ITS BUSINESS AT SUBSTANTIAL RATE OF INTEREST. SINCE IT HAD NOT CHA RGED ANY INTEREST ON THE FUNDS LENT OUT OF FUNDS BORROWED, THE ASSESSING OFFICER COMPUTED INTEREST PAYABLE @ 18% ON THE OUTSTANDING LOAN AMOU NTS AND MADE DISALLOWANCE OF INTEREST OF ` 1,24,422/- IN ASSESSMENT YEAR 1988-89, ` 11,94,967/- IN ASSESSMENT YEAR 1989-90, ` 3,58,846/- IN ASSESSMENT YEAR 1990-91 AND ` 8,23,354/- IN ASSESSMENT YEAR 1991-92. 7. THE A.R OF THE ASSESSEE SUBMITTED THAT THE ASSESS EE ARGUED BEFORE THE LOWER AUTHORITIES THAT THE AC CUMULATED FUNDS DID NOT CARRY ANY INTEREST HENCE, THE DISALLOWANCE IN Q UESTION SHOULD NOT HAVE BEEN MADE FOR THE RELEVANT YEARS. HE SUBMITTE D THAT THE CIT(A), AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, CONFIRMED THE ACTION OF THE ASSESSING OFFICER ON THE GROUND THAT THE DIVERSION OF I.T.A.NOS.227 TO 230/96 :- 4 -: INTEREST BEARING FUNDS TO THE SISTER CONCERN WAS NO T FOR THE BUSINESS OF THE ASSESSEE. 8. THE A.R, HOWEVER, SUBMITTED THAT SINCE THE ASSESSIN G OFFICER, AFTER MAKING THE DISALLOWANCE OF INTEREST EXPENDITURE, HAS CONSIDERED THE ENHANCED INCOME TO THAT EXTENT FOR T HE PURPOSE OF ALLOWING DEDUCTION U/S 80HHC, THERE WAS NO PREJUDI CE CAUSED TO THE ASSESSEE AND HENCE, HE WAS NOT SERIOUSLY CONTESTING THE GROUND OF APPEAL IN ALL THE ASSESSMENT YEARS. 9. IN VIEW OF THE SUBMISSION OF THE A.R OF THE ASS ESSEE, WE DISMISS THIS GROUND OF APPEAL OF THE ASSESSEE FOR ALL THE ASSESSMENT YEARS FOR LACK OF PROSECUTION. 10. ON THE SECOND ISSUE, THE A.R OF THE ASSESSEE SU BMITTED THAT THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE R ECEIVED INTEREST INCOME FROM FIXED DEPOSITS KEPT IN DIFFERENT BANKS/ FINANCIAL INSTITUTIONS AND THE ASSESSING OFFICER FOUND THAT THE INVESTED S URPLUS FUNDS IN FIXED DEPOSITS EARNED INTEREST INCOME, THEREFORE, HE TREATED THE ENTIRE INCOME AS INCOME FROM OTHER SOURCES AND ASSESSED TH E SAME TO TAX WITHOUT CONSIDERING THE SAME AS BUSINESS INCOME FOR THE PURPOSES OF SECTION 80HHC. I.T.A.NOS.227 TO 230/96 :- 5 -: 11. THE ASSESSEE VEHEMENTLY ARGUED BEFORE THE LOWER AUTHORITIES THAT IN VIEW OF THE DECISION IN THE CAS E OF POOMPUHAR SHIPPING CO. LTD VS ITO (1991) 39 TTJ (MADRAS)206, SNAM PROGETTI SPA VS ADDL. CIT, 132 ITR 70 AND CIT VS BUCKAU WOLF NEW INDIA ENGG. WORKS , 187 ITR 464, INTEREST INCOME WAS ASSESSABLE AS BUSINESS INCOME OF THE RELEVANT YEARS AND SHOULD BE CONSIDER ED WHILE CALCULATING EXPORT PROFITS U/S 80HHC FOR THE SAID YEARS. THE CIT(A) CONFIRMED THE ACTION OF THE ASSESSING OFFICER BY OB SERVING THAT WHILE CONDUCTING EXPORT BUSINESS, THE ASSESSEE INVESTED ITS SURPLUS FUNDS IN FIXED DEPOSITS WITH BANKS AND OTHER INSTITUTIONS TO EARN INTEREST INCOME WHICH ACTION OF THE ASSESSEE ITSELF SHOWS NON-COND UCT OF ANY BUSINESS WITH REGARD TO THE SAID INCOME WHICH HAD TO BE ASSE SSED UNDER THE HEAD INCOME FROM OTHER SOURCES. 12. THE A.R OF THE ASSESSEE SUBMITTED THAT THE ISSUE N OW STANDS COVERED BY THE DECISION OF HON'BLE SUPREME C OURT IN THE CASE OF ACG ASSOCIATED CAPSULES PVT. LTD VS CIT, [2012]3 43 ITR 89(SC) WHERE IT HAS BEEN HELD THAT 90% OF NOT THE GROSS IN TEREST BUT ONLY NET INTEREST WHICH HAD BEEN INCLUDED IN THE PROFITS OF BUSINESS OF THE ASSESSEE AS COMPUTED UNDER THE HEAD PROFITS AND G AINS OF BUSINESS OR PROFESSION WAS TO BE DEDUCTED UNDER CLAUSE(1) OF EXPLANATION (BAA) OF SECTION 80HHC, FOR DETERMINING THE PROFITS OF THE BUSINESS. I.T.A.NOS.227 TO 230/96 :- 6 -: HE SUBMITTED THAT IT IS ADMITTED BY BOTH THE LOWER AUTHORITIES THAT THE INTEREST INCOME FROM FIXED DEPOSITS WAS EARNED OUT OF SURPLUS BUSINESS FUNDS OF THE ASSESSEE. THUS, THE INCOME WAS EARNE D BY THE ASSESSEE OUT OF BUSINESS FUNDS AND THEREFORE, WAS PART OF BU SINESS INCOME OF THE ASSESSEE AND THEREFORE, ONLY 90% OF THE NET IN TEREST INCOME SHOULD BE EXCLUDED FOR COMPUTING BUSINESS PROFITS F OR CALCULATING DEDUCTION U/S 80HHC. 13. THE DR, ON THE OTHER HAND, SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES. 14. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERUSIN G THE ORDERS OF THE LOWER AUTHORITIES AND MATERIALS AVAIL ABLE ON RECORD, WE FIND THAT IN THE INSTANT CASE, THE UNDISPUTED FACTS ARE THAT THE ASSESSEE EARNED INTEREST INCOME ON FIXED DEPOSITS B Y KEEPING ITS SURPLUS BUSINESS FUNDS NOT TEMPORARILY REQUIRED IN FIXED DEPOSITS WITH BANK. THE ASSESSEE CLAIMED DEDUCTION U/S 80HHC O N SUCH INTEREST INCOME EARNED FROM BANKS WHICH WAS TREATED BY THE A SSESSING OFFICER AS INCOME FROM OTHER SOURCES AND DISALLOWED DEDUCTI ON U/S 80HHC ON THE GROUND THAT IT WAS NOT INCOME DERIVED FROM THE BUSINESS OF EXPORT OF THE ASSESSEE. THIS WAS CONFIRMED IN APPEAL BY THE CIT(A). I.T.A.NOS.227 TO 230/96 :- 7 -: 15. THUS, IT IS NOT THE CASE OF THE REVENUE THAT THE I NTEREST INCOME WAS NOT EARNED BY EXPLOITING TEMPORARILY BUS INESS FUNDS OF THE ASSESSEE. IT IS AN ESTABLISHED POSITION OF LAW TH AT INCOME EARNED ON EXPLOITATION OF BUSINESS ASSET IS BUSINESS INCOME O F THE ASSESSEE. THE ABOVE VIEW WAS HELD BY THE HON'BLE CALCUTTA HIGH CO URT IN THE CASE OF SNAM PROGETTI SPA VS ADDL. CIT (SUPRA) AND THE MADR AS BENCH OF THE TRIBUNAL IN THE CASE OF POOMPUHAR SHIPPING CO. LTD VS ITO (SUPRA). THEREFORE, IN OUR CONSIDERED OPINION, SUCH INTERES T INCOME EARNED BY THE ASSESSEE WAS ITS BUSINESS INCOME. THEREFORE, IN VIEW OF THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE O F ACG ASSOCIATED CAPSULES PVT. LTD VS CIT(SUPRA), ONLY 90% OF THE NE T INTEREST INCOME INCLUDED IN THE BUSINESS PROFIT OF THE ASSESSEE SH OULD BE EXCLUDED WHILE COMPUTING THE DEDUCTION U/S 80HHC OF THE ACT . WE, THEREFORE, SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES AND D IRECT THE ASSESSING OFFICER TO DEDUCT 90% OF THE NET INTEREST INCOME IN CLUDED IN THE BUSINESS PROFIT OF THE ASSESSEE WHILE COMPUTING DE DUCTION U/S 80HHC OF THE ACT. THE GROUND OF APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. I.T.A.NOS.227 TO 230/96 :- 8 -: 16. IN THE RESULT, ALL THE APPEALS FILED BY THE ASSESS EE ARE PARTLY ALLOWED. ORDER PRONOUNCED ON TUESDAY, THE 18 TH OF SEPTEMBER, 2012, AT CHENNAI. SD/- SD/- (SATBEER SINGH GODARA) JUDICIAL MEMBER (N.S.SAINI) ACCOUNTANT MEMBER DATED: 18 TH SEPTEMBER, 2012 RD COPY TO: APPELLANT/RESPONDENT/CIT(A)/CIT/DR