M/s. MORGAN STANLEY INDIA SECURITIES P. LTD., MUMBAI V. ACIT - 1(2), MUMBAI

ITA 2374/MUM/2007

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 62255 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 1 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-04-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Next Hearing Date: 19-04-2012
• Assessment Year: 2003-2004
• Appeal Filed On: 26-03-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PARATHASARTHI NAIK
• Assessee Lawyers: ARVIND SONDE
• Keywords: Business income
• Section: 6; 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH I MUMBAI BEFORE SHRI RAJENDRA SINGH, ACCOUNTANT MEMBER & SHRI VIVEK VARMA, JUDICIAL MEMBER I.T.A.NOS. 2373 & 2374/MUM/2007 ASSESSMENT YEARS: 2002-03 & 2003-04 MORGAN STANLEY INDIA SECURITIES PVT.LTD., 19 TH FLOOR, B WING, TOWER 2, ONE INDIABULLS CENTRE, JUPITER MILLS COMPOUND, 841, SENAPATI BAPAT MARG, ELEPHENSTONE ROAD, MUMBAI 400 013. PAN: AAACM4048B VS. ASST. COMMISSIONER OF I.T. 1 (2), MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI ARVIND SONDE. RESPONDENT BY : SHRI PARATHASARTHI NAIK. DATE OF HEARING: 19-04-2012. DATE OF PRONOUNCEMENT: 27-04-2012. O R D E R VIVEK VARMA, JM: THESE APPEALS FILED BY THE ASSESSEE ARISE FROM THE SEPARATE ORDERS OF THE CIT(A) I, MUMBAI, BOTH ORDERS DATED 06.02.2007. 2. THE ASSESSEE COMPANY IS IN THE BUSINESS OF PROVI DING VARIOUS BACK OFFICE SUPPORT SERVICES TO VARIOUS OVERSEAS CO MPANIES AND SUPPORT SERVICES AND PROVIDING BUSINESS PREMISES WI TH FACILITIES TO OTHER GROUP ENTITIES. ITA NOS.2373 & 2374 OF 2007 2 3. IN THE YEARS UNDER CONSIDERATION, THE AO MADE CE RTAIN ADDITIONS WHICH WERE APPEALED AGAINST BY THE ASSESSEE BEFORE THE CIT(A), WHO SUSTAINED THE ADDITION APPEALED AGAINST ON THE BAS IS OF THE VIEW TAKEN BY HIS PREDECESSOR IN THE PRECEDING YEAR, I.E. ASSE SSMENT YEAR 2001- 02. AT THE TIME OF HEARING BEFORE US, THE AR APPEA RING BEFORE US PLACED THE COPY OF ORDER PASSED BY THE COORDINATE B ENCH AT MUMBAI IN ITA NO.5072/MUM/2005 AND 6774/MUM/2008 FOR THE ASSE SSMENT YEARS 2001-02 AND 2004-05 IN THE CASE OF THE ASSESS EE ITSELF. ALONG WITH THE ORDER OF THE COORDINATE BENCH, AS MENTIONE D ABOVE, THE ASSESSEE, FOR THE CONVENIENCE OF THE BENCH PLACED A SYNOPSIS IN THE TABULAR FORM, WHEREIN THE AR SUBMITTED THAT EACH OF THE GROUND AS TAKEN IN THE GROUNDS OF APPEAL AND DEALT WITH BY TH E COMPANYS OWN DECISION IN THE ASSESSMENT YEARS 2001-02 AND 2004-0 5, WHICH COVERS GROUNDS RAISED IN THE GROUNDS OF APPEAL FOR THE YEA R UNDER CONSIDERATION. 4. GROUND NO. 1 IN BOTH APPEALS RELATE TO DISALLOWA NCE OF RS. 2,20,05,632 AND RS. 1,23,61,826 BY THE AO, AGAINST THE DISALLOWANCE MADE BY THE ASSESSEE AT RS. 2,13,58,387 AND RS. 1,2 0,76,367 UNDER SECTION 14A FOR THE TWO YEARS UNDER CONSIDERATION, MAKING ADDITION OF RS. 6,47,559 AND RS. 2,85,559 RESPECTIVELY. 5. THE AR POINTED OUT THAT THE ASSESSEE ITSELF HAD COMPUTED THE DISALLOWANCE OF RS. 2,13,58,387 AND RS. 1,20,76,367 , RESPECTIVELY, AND HAD ADDED IT BACK, BY TAKING INTO ACCOUNT THE AVERA GE OF OPENING AND CLOSING OF APPLICATION OF FUNDS WHICH IS IN LINE WI TH THE FORMULA ITA NOS.2373 & 2374 OF 2007 3 PRESCRIBED UNDER RULE 8D OF THE INCOME TAX RULES, M UCH PRIOR TO THE FORMULA COMING INTO THE RULES BOOKS. THE AR SUBMIT TED IN THE SOF APPENDED WITH FORM NO. 35, FOR BOTH THE YEARS, THAT THE AO, IN FACT APPLIED AVERAGES INTEREST RATE METHOD, ACCORDING TO WHICH ALSO, THE DISALLOWANCE WOULD COME TO RS. 2,13,58,387 AND RS. 1,20,76,367. THE AR POINTED OUT THAT IN THE ORDER PASSED BY THE COOR DINATE BENCH OF MUMBAI ITAT IN THE ASSESSEES OWN CASE, THE COORDIN ATE BENCH HELD AS UNDER: 7. ON A PROPER CONSIDERATION OF THE FACTS AND THE RIVAL CONTENTIONS, WE ARE OF THE VIEW THAT NO STRONG GROUNDS HAVE BEEN AD VANCED BY THE DEPARTMENTAL AUTHORITIES TO DISCARD THE METHOD ADOP TED BY THE ASSESSEE IN DISALLOWING THE INTEREST UNDER SECTION 14A OF TH E ACT. THERE CAN BE NO DISPUTE THAT SINCE THE AMOUNT OF INTEREST DEBITE D TO THE PROFIT AND LOSS ACCOUNT IS ON NET BASIS, THE DISALLOWANCE OF I NTEREST SHOULD ALSO BE MADE ONLY WITH REFERENCE TO THE NET INTEREST, AS WAS DONE BY THE ASSESSEE. THERE IS ALSO MERIT IN THE ARGUMENT PUT F ORTH ON BEHALF OF THE ASSESSEE THAT IT IS NOT PROPER TO TAKE INTO CONSIDE RATION ONLY THE VALUE OF INVESTMENTS AND ASSETS AS ON 31.03.2001 SINCE INTER EST IS PAID ON FUNDS UTILIZED DURING THE ENTIRE PERIOD BETWEEN 31.03.200 0 AND 31.03.2001 AND THE MORE APPROPRIATE METHOD IS TO AVERAGE THE F UNDS POSITION AS ON THESE TWO DATES AND APPLY SECTION 14A WITH REFERENC E TO THE AVERAGE VALUE. THE LEARNED COUNSEL FOR THE ASSESSEE IS ALSO RIGHT IN HIS SUBMISSION THAT RULE 8D OF THE INCOME TAX RULES DOE S RECOGNIZE THE AVERAGING METHOD. REFERENCE MAY BE MADE TO SUB-RULE (2) OF THE SAID RULE, WHICH SPEAKS OF AVERAGE VALUE OF THE INVESTME NT. WE THEREFORE HOLD THAT THE DISALLOWANCE OF THE INTEREST AS MADE BY THE ASSESSEE IS ADEQUATE AND APPROPRIATE AND NO FURTHER DISALLOWANC E IS CALLED FOR. THE GROUND IS THUS ALLOWED. THE AR, THEREFORE, SUBMITTED THAT NOT ONLY THE DISA LLOWANCE MADE BY THE ASSESSEE ITSELF WAS IN LINE WITH THE NEWLY INSE RTED RULE 8D (WHICH CAME IN THE RULE BOOK MUCH LATER), BUT IS ALSO COVE RED BY THE DECISION IN ITS OWN CASE, WHEREIN THE COORDINATE BENCH HELD THE DISALLOWANCE TO BE ADEQUATE. ITA NOS.2373 & 2374 OF 2007 4 6. THE DR , ON THE OTHER HAND, SUPPORTED THE ORDERS PASSED BY THE REVENUE AUTHORITIES. 7. WE HAVE HEARD THE SUBMISSIONS OF BOTH THE SIDES AND HAVE ALSO PERUSED THE ORDER OF THE COORDINATE BENCH AND WE AG REE WITH THE SUBMISSIONS MADE BY THE AR THAT THE DISALLOWANCE HA S BEEN MADE IN A PROPER MANNER BY THE ASSESSEE AND EVEN IF THE METHO D ADOPTED BY THE AO IS TO BE ADOPTED, EVEN THEN, THERE CANNOT BE A MA JOR DIFFERENCE IN THE DISALLOWANCE, IN FACT, THE COMPUTATION MADE IN THE SOF IN ACCORDANCE WITH THE AO'S METHOD ALSO, WE SEE THAT T HE DISALLOWANCE IS COMING AT EXACTLY THE SAME FIGURE. THE DR, WAS NOT ABLE TO JUSTIFY THE DISALLOWANCE MADE ON THIS ISSUE IN EITHER OF THE YE ARS, AT RS. 2,20,05,632 AND RS. 1,23,61826, MORE OVER, THE METH OD ADOPTED BY THE ASSESSEE COMPANY HAS FOUND ITS ACCEPTANCE EVEN BY THE HON'BLE COORDINATE BENCH (AS EXTRACTED IN PRE PARA). WE, T HEREFORE, ARE NOT INCLINED TO SUSTAIN THE DISALLOWANCE OF RS. 2,20,05 ,632 AND RS. 1,23,61,826, IN THE TWO YEARS BEFORE US AND SUSTAIN ING THE ADDITIONS OF RS. 6,47,245 AND RS. 2,85,559. WE DELETE THE SAME. THE ASSESSEES FIRST GROUND OF APPEAL IN BOTH YEARS UNDER CONSIDER ATION ARE ALLOWED. 8. GROUND NO. 2 IS AGAINST THE ADDITION OF RS. 2,94 ,174/- MADE BY THE AO ON ADHOC BASIS. 8.1 THIS GROUND IS NOT PRESSED BY THE AR, THEREFORE , IT IS DISMISSED. 9. GROUND NO. 3 IS AGAINST THE ORDER OF THE REVENUE AUTHORITIES, WHEREIN THE PROFITS OF ALL THE BUSINESS ACTIVITIES WERE CONSIDERED BY THE AO FOR THE COMPUTATION OF DEDUCTION U/S 80HHE, INSTE AD OF ONLY BACK ITA NOS.2373 & 2374 OF 2007 5 OFFICE SUPPORT SERVICES. THE ASSESSING OFFICER, WH ILE COMPUTING THE DEDUCTION CAME TO THE CONCLUSION THAT SINCE THERE I S NEGATIVE PROFIT OF BUSINESS, DEDUCTION AS CLAIMED BY THE ASSESSEE CANN OT BE ALLOWED. THE CIT(A), ALSO SUSTAINED THE DISALLOWANCE, AS WAS DONE BY HIS PREDECESSOR IN THE ASSESSMENT YEAR 2001-02. BEING AGGRIEVED, THE ASSESSEE IS NOW BEFORE THE ITAT. 10. BEFORE US, THE AR POINTED OUT, THAT THE ISSUE W AS IMPUGNED IN ASSESSMENT YEAR 2001-02 BEFORE THE CO-ORDINATE BENC H, WHICH HELD AS UNDER: 15. WE HAVE CAREFULLY CONSIDERED THE PROVISIONS OF SECTION 8OHHE AND THE RIVAL ARGUMENTS. IN SUB-SECTION (1), IT IS PROVIDED THAT THE ASSESSEE SHALL BE ALLOWED A DEDUCTION OF THE PROFIT S FROM THE ELIGIBLE BUSINESS. SUCH DEDUCTION IS TO BE ALLOWED IN COMPUT ING THE TOTAL INCOME OF THE ASSESSEE. SUB-SECTION (3) HAS BEEN EN ACTED ONLY FOR THE PURPOSES OF SUB-SECTION (1). SUB-SECTION (1) REQUIR ES THAT THE PROFITS WHICH ARE ELIGIBLE FOR THE DEDUCTION SHOULD BE DERI VED BY THE ASSESSEE FROM THE ELIGIBLE BUSINESS. WHAT ARE THE PROFITS DE RIVED FROM THE ELIGIBLE BUSINESS IS EXPLAINED IN SUBSECTION (3). I T SAYS THAT THE PROFITS DERIVED FROM THE ELIGIBLE BUSINESS SHALL BE THE AM OUNT WHICH BEARS TO THE PROFITS OF THE BUSINESS, THE SAME PROPORTION AS THE EXPORT TURNOVER BEARS TO THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE ASSESSEE. EXPLANATION (D) BELOW THE SECTION DEFINES THE EXPRE SSION PROFITS OF THE BUSINESS AS MEANING THE PROFITS OF THE BUSINESS AS COMPUTED UNDER THE HEAD PROFITS AND GAINS OF BUSINESS AS REDUCED BY, INTER ALIA, 90% OF THE RECEIPTS BY WAY OF BROKERAGE, COMMISSION, ETC. WHICH ARE INCLUDED IN SUCH PROFITS. THE WORKING OF THE ASSESSING OFFIC ER, WHICH WE HAVE EXTRACTED EARLIER, IS PREMISED ON THE ASSUMPTION TH AT THE EXPRESSION PROFITS OF THE BUSINESS APPEARING IN SUB-SECTION (3) READ WITH EXPLANATION (D) MEANS PROFITS OF ALL THE BUSINESSES CARRIED ON BY THE ASSESSEE. THE ASSESSING OFFICER HAS TAKEN THE BUSIN ESS INCOME AT RS.5,42,52,035/-. THIS FIGURE OF PROFIT REPRESENTS PROFITS OF THE VARIOUS BUSINESSES CARRIED ON BY THE ASSESSEE INCLUDING THE PROFITS ON EXPORT OF COMPUTER SOFTWARE (ELIGIBLE BUSINESS). FROM THIS FI GURE OF PROFIT THE ASSESSING OFFICER. HAS REDUCED 90% OF THE COMMISSIO N, BROKERAGE, ETC. AS ALSO INTEREST ON FIXED DEPOSITS WHICH HE HAS CON SIDERED TO BE INCOME FROM OTHER SOURCES AND HAS ARRIVED AT A NEGATIVE FI GURE OF RS.1,16,14,O62/-. SINCE THERE IS A NEGATIVE FIGURE, HE HAS STATED THAT THE ASSESSEE IS NOT ELIGIBLE TO ANY DEDUCTION UNDER SEC TION 8OHHE OF THE ACT. IN PAGE 4 OF THE ASSESSMENT ORDER UNDER THE HE ADING DEDUCTION ITA NOS.2373 & 2374 OF 2007 6 UNDER SECTION 8OHHE OF THE INCOME TAX ACT, 1961, T HE ASSESSING OFFICER HAS COMMENTED UPON THE WORKING OF THE ASSES SEE. HE HAS NOTED TWO FEATURES IN THE ASSESSEES WORKING. THE FIRST I S THAT THE ASSESSEE HAS TAKEN THE TOTAL TURNOVER OF THE BUSINESS AS REPRESE NTING THE TURNOVER OF ONLY THE BACK OFFICE SUPPORT SERVICES. THE SECOND F EATURE NOTICED BY THE ASSESSING OFFICER IS THAT THE ASSESSEES FIGURE OF PROFIT OF RS. 80,46,765/- IS THE PROFIT OF ONLY THE BUSINESS OF B ACK OFFICE SUPPORT SERVICES. AFTER NOTICING THESE TWO FEATURES THE ASS ESSING OFFICER HAS COMMENTED THAT THE ASSESSEE BELIEVES THAT SINCE IT IS ENGAGED IN DIFFERENT LINES OF BUSINESS, WHICH ARE NOT ELIGIBLE TO A DEDUCTION UNDER SECTION 8OHHE OF THE INCOME TAX ACT, 1961, THE TOTA L PROFIT AND THE TOTAL TURNOVER FOR THE PURPOSE OF DEDUCTION SHOULD BE RESTRICTED TO THE ELIGIBLE BUSINESS I.E. THE BACK OFFICE SUPPORT SERV ICES IN VIEW OF THE FOLLOWING JUDICIAL PRONOUNCEMENTS: (I) CIT VS. K K DOSHI, 245 ITR 849 (BORN) (II) ACIT VS. SMT. SUBHADRA RAVI KARUNAKARAN, 66 LT D 53 (COCH.). THEREAFTER THE ASSESSING OFFICER HAS PROCEEDED TO O BSERVE THAT THE PROFITS OF THE BUSINESS HAVE TO BE WORKED OUT ON TH E BASIS OF EXPLANATION (D) BELOW SECTION 8OHHE AND IN THIS VIE W OF THE MATTER HAS PROCEEDED TO TAKE THE FIGURE OF PROFITS OF ALL THE BUSINESSES CARRIED ON BY THE ASSESSEE, WHICH HAS BEEN EXPLAINED EARLIE R. SINCE AFTER APPLYING EXPLANATION (D) AND DEDUCTING THE SUM OF R S.16,L1,78,266I- FROM THE PROFITS OF ALL THE BUSINESSES CARRIED ON B Y THE ASSESSEE THE ASSESSING OFFICER ARRIVED AT A NEGATIVE FIGURE OF R S.1,16,14,O62/-, HE REJECTED THE ASSESSEES CLAIM FOR THE DEDUCTION AT THAT POINT ITSELF. HE DID NOT THEREFORE CONSIDER IT NECESSARY TO EXAMINE THE ASSESSEES OTHER CONTENTION THAT THE TOTAL TURNOVER OF ONLY THE ELIG IBLE BUSINESS SHOULD BE TAKEN NOTE OF FOR THE PURPOSE OF APPLYING THE FO RMULA LAID DOWN IN SUB-SECTION (3). 16. THE CONTROVERSY BEFORE US THEREFORE IS LIMITED TO THE QUESTION AS TO WHETHER, WHILE APPLYING SUB-SECTION (3) AND THE FOR MULA PRESCRIBED THEREIN, THE EXPRESSION PROFITS OF THE BUSINESS SH OULD MEAN ONLY THE PROFITS OF THE ELIGIBLE BUSINESS OR THE PROFITS OF ALL THE BUSINESSES CARDED ON BY THE ASSESSEE. WHEREAS THE FIGURE OF RS .15,42,52,035/- ADOPTED BY THE ASSESSING OFFICER REPRESENTS THE AGG REGATE PROFITS OF ALL THE BUSINESSES CARRIED ON BY THE ASSESSEE, THE FIGU RE OF RS.8O,46,765/- WHICH FORMS THE BASIS OF THE ASSESSEES COMPUTATION REPRESENTS ONLY THE PROFITS OF THE ELIGIBLE BUSINESS (BACK OFFICE S UPPORT SERVICES). THE TASK BEFORE US IS TO EXAMINE WHICH OF THE TWO VIEWS IS CORRECT. 17. ACCORDING TO US, THE VIEW CANVASSED ON BEHALF O F THE ASSESSEE IS TO BE PREFERRED OVER THE VIEW PUT FORTH ON BEHALF OF T HE INCOME TAX DEPARTMENT. AS ALREADY NOTED, SUB-SECTION (3) EXIST S ONLY FOR THE PURPOSES OF SUB-SECTION (1) AND IT SAYS THAT PROFIT S DERIVED FROM THE BUSINESS REFERRED TO IN SUB-SECTION (1), WHICH IS T HE ELIGIBLE BUSINESS, SHALL BE THE AMOUNT WHICH BEARS TO THE PROFITS OF B USINESS, THE SAME PROPORTION AS THE EXPORT TURNOVER BEARS TO THE TOTA L TURNOVER OF THE BUSINESS CARRIED ON BY THE ASSESSEE. IF REGARD IS H AD TO BE USE OF THE DEFINITE ARTICLE THE, IT SEEMS TO US THAT THE EXP RESSION PROFITS OF THE BUSINESS APPEARING IN SUBSECTION (3) REFERS ONLY T O THE PROFITS OF THE ITA NOS.2373 & 2374 OF 2007 7 ELIGIBLE BUSINESS WHICH IS REFERRED TO IN SUB-SECTI ON (1). IN OTHER WORDS, IT IS ONLY THE PROFITS OF THE BUSINESS OF BACK OFFI CE SUPPORT SERVICES WHICH HAVE TO BE SPLIT IN THE SAME PROPORTION AS TH E EXPORT TURNOVER IN THE SAID BUSINESS BEARS TO THE TOTAL TURNOVER IN TH E SAID BUSINESS. EXPLANATION (D), WHICH DEFINES THE EXPRESSION PROF ITS OF THE BUSINESS REFERS TO THE PROFITS OF THE BUSINESS AS COMPUTED U NDER THE HEAD PROFITS AND GAINS OF BUSINESS. UNDER THE INCOME TAX ACT, H AVING REGARD TO THE PROVISIONS OF CHAPTER IV READ WITH SECTION 70 A ND SECTION 71, IT SEEMS TO US THAT IN THE CASE OF AN ASSESSEE CARRYIN G ON MORE THAN ONE BUSINESS, EACH BUSINESS IS CONSIDERED AS A SEPARATE SOURCE FALLING UNDER THE HEAD PROFITS AND GAINS OF BUSINESS. THE NET R ESULT OF THE COMPUTATION IN RESPECT OF ANY SOURCE OF BUSINESS, I F IT IS A LOSS, CAN BE ADJUSTED AGAINST THE INCOME FROM ANY OTHER BUSINESS AS PROVIDED IN SECTION 70(1) THEREFORE, WHEN EXPLANATION (D) PROVI DES THAT THE EXPRESSION PROFITS OF THE BUSINESS MEANS THE PROF ITS OF THE BUSINESS AS COMPUTED UNDER THE HEAD PROFITS AND GAINS OF BU SINESS, IT MEANS THE PROFITS OF THE ELIGIBLE BUSINESS AS COMPUTED UN DER THE AFORESAID HEAD. IN OTHER WORDS, EXPLANATION (D) DOES NOT EXPA ND THE MEANING OF THE EXPRESSION PROFITS OF THE BUSINESS TO INCLUDE PROFITS OF ALL THE BUSINESSES CARRIED ON BY THE ASSESSEE. HAVING SAID IN SUB-SECTION (3) THAT THE PROFITS OF THE BUSINESS MEANS THE PROFITS OF THE ELIGIBLE BUSINESS REFERRED TO IN SUB-SECTION (1), IT IS INCONCEIVABLE THAT BY EXPLANATION (D) THE EXPRESSION PROFITS OF THE BUSINESS WOULD HAVE BEEN DEFINED TO INCLUDE THE PROFITS OF ALL THE BUSINESSES CARRIED O N BY THE ASSESSEE. THE EXPLANATION CAN ONLY EXPLAIN THE EXPRESSION PROFIT S OF THE BUSINESS APPEARING IN SUB-SECTION (3), BUT IT CANNOT EXPAND THE MEANING OF THE EXPRESSION. EXPLANATION (D) IS CONTROLLED BY SUBSEC TION (3) AND WHAT IT SAYS IS ONLY DESCRIPTIVE OF WHAT THE PROFITS OF THE BUSINESS ARE. IT ONLY SAYS THAT THE PROFITS OF THE BUSINESS, WHICH MEANS THE ELIGIBLE BUSINESS, ARE THE PROFITS AS COMPUTED IN THE ASSESSMENT ORDER UNDER THE HEAD PROFITS AND GAINS OF BUSINESS. IT HAS POSSIBLY BE EN ENACTED TO CLARIFY OR EXPLAIN THAT THE PROFITS OF THE ELIGIBLE BUSINES S IS NOT WHAT THE BOOKS OF ACCOUNT OF THE ASSESSEE SHOW AND IT CAN ONLY BE WHAT THE ASSESSMENT ORDER SHOWS. IT IS ALSO SIGNIFICANT THAT SUB-SECTIO N (3) AS WELL AS EXPLANATION (D) REFER ONLY TO PROFITS OF THE BUSIN ESS AND NOT THE PROFITS OF ALL THE BUSINESSES CARRIED ON BY THE ASS ESSEE. THIS REASONING ALSO TAKES CARE OF THE ARGUMENT OF THE LEARNED CIT DR BASED ON SECTION 80IA(5). IN THIS VIEW OF THE MATTER WE ARE UNABLE T O ACCEPT THE CONTENTION ADVANCED ON BEHALF OF THE DEPARTMENT. 18. OUR VIEW IS IN CONFORMITY WITH THE VIEW TAKEN B Y A COORDINATE BENCH IN MUMBAI IN THE CASE OF DATAMATICS LTD. VS. ACIT (2007) 111 1TJ (MUM) 55. PARAGRAPHS 35 AND 36 OF THIS ORDER DE AL WITH THE QUESTION. THESE PARAGRAPHS ARE AS UNDER: - 35. IT IS THE CASE OF THE ASSESSEE THAT ASSESSEE C OMPANY IS EXPORTING THE COMPUTER SOFTWARE MANUFACTURED IN SEE PZ UNIT ASSESSEE IS KEEPING SEPARATE ACCOUNT THE ENTIRE ACT IVITY OF THE ASSESSEE IN THIS ZONE IS INDEPENDENT FROM ASSESSEE S OTHER BUSINESS. THERE IS NO OVERLAPPING AND MINGLING OF T HE SERVICES ITA NOS.2373 & 2374 OF 2007 8 OR ANY LINK BETWEEN THE MANUFACTURING ACTIVITIES OF BOTH. BOTH ARE EXCLUSIVE OF EACH OTHER. 36. AS RIGHTLY CONTENDED BY THE LEARNED COUNSEL, SE CTION 801- IHC SPEAKS OF DEDUCTION IN RESPECT OF PROFITS DERIV ED BY THE ASSESSEE FROM EXPORT OF SUCH GOODS OR MERCHANDISE; WHEREAS SECTION 801-IHE SPEAKS OF SUCH BUSINESS. SUCH BUSI NESS ONLY COULD MEAN THE BUSINESS OF EXPORT OF COMPUTER SOFTW ARE. THE SCOPE OF CONSIDERATION HAS BEEN NARROWED DOWN. IN O THER WORDS, WHETHER THE ASSESSEE DERIVES INCOME FROM ANY OTHER BUSINESS OR NOT, IS NOT A CRITERIA AND IT IS WHOLLY EXTRANEOUS WHILE GRANTING DEDUCTION UNDER SECTION 8OHHE, WHICH IS EXCLUSIVELY FOR COMPUTING DEDUCTION IN RESPECT OF P ROFIT FROM EXPORT OF COMPUTER SOFTWARE ETC. FOR THE REASONS ST ATED HEREINABOVE, WE ALLOW THE CLAIM OF THE ASSESSEE ON THIS GROUND. IN COMING TO THE ABOVE CONCLUSION THE TRIBUNAL HAS REFERRED TO TWO JUDGMENTS OF THE MADRAS HIGH COURT, IN THE CASE OF CIT VS. RATHORE BROTHERS (2002) 254 ITR 656 (MAD) AND IN THE CASE O F CIT VS. MADRAS MOTORS / M M FORGINGS LTD. (2002) 257 ITR 60 (MAD). THESE TWO JUDGMENTS WERE CONCERNED WITH SECTION 8OHHC OF THE ACT. HOWEVER, THERE WAS SIMILARITY BETWEEN SECTION 8OHHC AND SECT ION 8OHHE IN THE SENSE THAT WHILE WORKING OUT THE ELIGIBLE PROFI TS ON THE BASIS OF THE RATIO BETWEEN THE EXPORT TURNOVER AND THE TOTAL TUR NOVER, IT WAS HELD BY THE MADRAS HIGH COURT THAT IT IS ONLY THE PROFITS O F THE EXPORT BUSINESS THAT HAVE TO BE SO APPORTIONED AND THE PROFITS OF B USINESSES WHICH DID NOT QUALIFY FOR THE DEDUCTION, WHICH WERE ALSO CARR IED ON BY THE ASSESSEE, CANNOT BE HELD ELIGIBLE FOR THE DEDUCTION . THE RATIO LAID DOWN IN THESE JUDGMENTS WAS CONSIDERED APPLICABLE TO THE PROVISIONS OF SECTION 8OHHE ALSO. 19. THE RESULT OF THE ABOVE DISCUSSION IS THAT THE DEPARTMENTAL AUTHORITIES WERE NOT CORRECT IN TAKING THE PROFITS OF THE ELIGIBLE BUSINESS AT 15,42,52,035/-. THEY OUGHT TO HAVE TAKEN THE FIG URE AT 80,46,765/- AS CONTENDED FOR BY THE ASSESSEE, WHICH FIGURE REPRESE NTS THE PROFITS OF THE BACK OFFICE SUPPORT SERVICES, WHICH IN OTHER WORDS ARE THE PROFITS OF THE ELIGIBLE BUSINESS. 20. WE ARE NOT AT PRESENT CONCERNED WITH THE CONTRO VERSY AS TO WHAT WOULD BE THE EXPORT TURNOVER AND THE TOTAL TURNOVER FOR PURPOSES OF SUB-SECTION (3) OF SECTION 8OHHE OF THE ACT. THAT I S A MATTER WHICH THE ASSESSING OFFICER, WHILE GIVING EFFECT TO OUR O RDER, HAS TO ADJUDICATE UPON IN ACCORDANCE WITH LAW AND AFTER GI VING ADEQUATE OPPORTUNITY TO THE ASSESSEE. THE ASSESSING OFFICER HAS NOT EXPRESSED ANY OPINION ON THIS POINT BECAUSE ACCORDING TO HIS CALCULATION THE FIGURE OF BUSINESS PROFITS WAS NEGATIVE AND, THEREF ORE, EVEN AT THE THRESHOLD THE ASSESSEES CLAIM COULD NOT BE ENTERTA INED. THE GROUND TAKEN BY THE ASSESSEE BEFORE US IS ALSO (GROUND NO: 4) THAT THE ASSESSING OFFICER OUGHT TO HAVE TAKEN ONLY THE PROF ITS OF THE BACK OFFICE SUPPORT SERVICES FOR COMPUTING THE DEDUCTION UNDER SECTION 80HHE OF THE ACT. WHAT WOULD BE THE EXPORT TURNOVER AND THE TOTAL ITA NOS.2373 & 2374 OF 2007 9 TURNOVER IS NOT THE SUBJECT MATTER OF THE PRESENT A PPEAL. THE GROUND AS TAKEN BY THE ASSESSEE IS ALLOWED. 11. WE HAVE GONE THROUGH THE RIVAL CONTENTIONS AND THE PROVISIONS OF SECTION 80HHE AND ALSO THE DECISION TAKEN BY THE HON'BLE COORDINATE BENCH IN THE ASSESSEES OWN CASE. WE FI ND THAT THE COORDINATE BENCH HAS TAKEN A VERY DEFINITE AND PREC ISE VIEW ON THE IMPUGNED ISSUE, WHICH HAS TO BE FOLLOWED IN THE YEA R UNDER CONSIDERATION. RESPECTFULLY FOLLOWING THE DECISION, WE ALLOW THE DEDUCTION U/S 80HHE AS CLAIMED BY THE ASSESSEE AT R S. 19,40,897 IN ASSESSMENT YEAR 2002-03 AND RS. 6,15,105 IN ASSESSM ENT YEAR 2003- 04. 12. GROUND NO. 4.1 IS AGAINST THE DECISION OF THE A .O. AND SUSTAINED BY THE LD. CIT(A), WHEREIN THE A.O. HAD REDUCED 90% OF VARIOUS BUSINESS RECEIPTS FROM THE BUSINESS PROFITS FOR THE PURPOSE OF COMPUTING DEDUCTION U/S 80HHE. 13. THE AR SUBMITTED THAT THE AO AND THE CIT(A) HAD MADE THE ADDITION ON THE ACCOUNT OF DISALLOWANCE MADE IN THE PRECEDING YEAR AND SUSTAINED BY THE CIT(A). IN THE PRECEDING YEAR , THE ACTION OF THE REVENUE AUTHORITIES WERE REVERSED BY THE COORDINATE BENCH, WHEREIN THE HON'BLE BENCH, WHILE ALLOWING THE DEDUCTION U/S 80HHE FURTHER HELD THAT THE ASSESSING OFFICER OUGHT TO HAVE REDUC ED 90% OF NET RECEIPTS AND NOT FROM GROSS RECEIPTS. SINCE, THE D EDUCTION U/S 80HHE HAS BEEN ALLOWED BY US IN THE CURRENT YEAR, WE HOLD THAT THE PROFITS OF BACK OFFICE SUPPORT SERVICE SHOULD BE TAKEN. IN AN Y CASE, THE ISSUE IS ITA NOS.2373 & 2374 OF 2007 10 OF ACADEMIC IMPORTANCE, RESPECTFULLY FOLLOWING THE DECISION, WE TOO HOLD THAT THOUGH THE PRIMARY ISSUE OF ALLOWANCE OF DEDUCTION IS IN THE ASSESSEES FAVOR, THE IMPUGNED ISSUE TOO GOES IN FA VOUR OF THE ASSESSEE, FOR BOTH YEARS UNDER CONSIDERATION, THOUG H ONLY ACADEMICALLY. 14. GROUND NO. 4.2, SIMILARLY IS DECIDED IN FAVOUR OF THE ASSESSEE THOUGH ONLY ACADEMICALLY, WE ALSO FIND FAVOUR OF TH E SAME IN THE DECISION OF HON'BLE SUPREME COURT OF IN THE CASE OF ACG ASSOCIATED CAPSULES PVT. LTD. V/S. CIT (CA NO.1914 OF 2012), W HEREIN THE HON'BLE APEX COURT TOO HAS HELD THAT ONLY THE NET RECEIPTS SHOULD BE CONSIDERED. 15. FOLLOWING THE DECISION OF THE CO-ORDINATE BENCH IN THE ASSESSEES OWN CASE AND ALSO THE DECISION RENDERED BY THE HON'BLE APEX COURT, WE ALLOW THE GROUNDS NO. 4.1 AND 4.2 IN FAVOR OF THE ASSESSEE IN BOTH YEARS, THOUGH THESE HAVE ONLY ACAD EMIC INTEREST, AS WE HAVE ALREADY ALLOWED THE CLAIM OF DEDUCTION U/S 80HHC. 16. GROUND NO. 5 IS RAISED ONLY IN ASSESSMENT YEAR 2002-03, AGAINST THE LEVY OF INTEREST U/S 234D AMOUNTING TO RS. 4,40 ,853/-. THE AO HAS LEVIED THE INTEREST BUT HAS NOT MADE ANY COMMENTS O N THE REASONS FOR THE LEVY OF INTEREST. THE ASSESSEE CARRIED THE MATT ER BEFORE THE CIT(A), WHO REJECTED THE ARGUMENT OF THE ASSESSEE THAT THE SUBSTANTIVE PROVISION U/S 234D WAS INSERTED W.E.F. 01-06-2003 A ND SINCE THE REFUND WAS GRANTED ON 15-02-2003, MUCH BEFORE THE I NSERTION OF THE SECTION, INTEREST U/S 234D WAS NOT LEVIABLE. ITA NOS.2373 & 2374 OF 2007 11 17. WE HAVE GONE THROUGH THE DETAILS IN THE SYNOPSI S FILED BY THE AR AND THE CASE LAWS DISCUSSED THEREIN AND ALSO THAT THE IMPUGNED ISSUE WAS DELETED BY THE CIT(A) IN THE PRECEDING YE AR, WHICH WAS NOT CONTESTED BY THE REVENUE BEFORE THE ITAT, ACCORDING LY, THE A.R. SUBMITTED THAT IN THE YEAR UNDER CONSIDERATION, THE INTEREST IS NOT EXIGIBLE, AS THE SUBSTANTIVE LAW IS TO BE GENERALLY FOLLOWED PROSPECTIVELY UNLESS SPECIFIED. WE, THEREFORE, ALLO W THE GROUND AND DELETE THE INTEREST, LEVIED BY THE AO U/S 234D. 18. IN THE RESULT, THE APPEALS FILED BY THE ASSESSE E FOR ASSESSMENT YEARS 2002-03 AND 2003-04 ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF APRIL, 2012. SD/- SD/- (RAJENDRA SINGH) (VIVEK VARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI: 27/04/2012. P/-*