The Jt Cit Sr-1, Ahmedabad V. M/S Adani Exports Ltd, Ahmedabad

ITA 2442/AHD/2000

• Counselvise Citation: 244220514 RSA 2000
• Duration Of Justice: 13 year(s) 3 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-03-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 20-01-2014
• Assessment Year: 1997-1998
• Appeal Filed On: 24-11-2000
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: O P VAISHNAV
• Keywords: Business income; Depreciation; Revenue expenditure
• Section: 32; 80HHC

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.2442/AHD/2000 WITH CO NO.98/AHD/2003 [ASSTT.YEAR : 1997-1998] JT. CIT, SPL.RANGE-1 AHMEDABAD. /VS. ADANI EXPORTS LTD. MITHAKHALI SIX ROADS 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 : 14 TH MARCH, 2014 5 / O R D E R PER N.S. SAINI, ACCOUNTANT MEMEBR: THIS APPEAL IS BY THE REVENUE AND CO BY THE ASSESSEE AGAINST THE ORDER OF THE CIT(A) V, AHMEDABAD DATED 6.9.2000. BOTH THESE APPEALS ARE D ISPOSED OF BY THIS COMMON ORDER. ITA NO.2442/AHD/2000 WITH CO NO.98/AHD/2003 2 2. FIRST WE TAKE UP THE REVENUES APPEAL. 3. THE GROUND NO.1 OF THE APPEAL IS DIRECTED AGAINS T THE ORDER OF THE CIT(A) DELETING THE DISALLOWANCE OF THE CLAIM OF DE PRECIATION OF RS.58,36,359/- ON TRUCKS. 4. BRIEF FACTS OF THE CASE ARE THAT THE AO OBSERVED THAT THE ASSESSEE HAS CLAIMED DEPRECIATION ON TRUCKS AT THE HIGHER RATE O F 40%. HE OBSERVED THAT IN THE LAST YEARS ORDER THIS CLAIM OF DEPRECIATION WAS RESTRICTED TO 25%. THE AO FOUND THAT THE TRUCKS WERE NOT GIVEN FOR HIRE BY THE ASSESSEE-COMPANY, BUT IN FACT WERE GIVEN ON LEASE FOR WHICH LEASE REN T HAS BEEN RECEIVED. THE AO OBSERVED THAT THE BUSINESS OF THE ASSESSEE WAS O F LEASING OF TRUCKS AND NOT OF GIVING THE TRUCKS ON HIRE. THE AO WAS OF T HE VIEW THAT THE DEPRECIATION AT RATE OF 40% WAS ALLOWABLE ONLY FOR TRUCKS USED IN THE BUSINESS OF GIVING THEM ON HIRE. THE AO FURTHER O BSERVED THAT THE LD.CIT(A)-V, AHMEDABAD FOR THE ASSESSMENT YEAR 1996 -97 HAS ALLOWED THE DEPRECIATION TO THE ASSESSEE AT THE RATE OF 40% ON TRUCKS GIVEN ON LEASE, AND SINCE DEPARTMENT HAS NOT ACCEPTED THE DECISION OF T HE LEARNED CIT(A)-V, AND SECOND APPEAL HAS BEEN PREFERRED BEFORE THE TRIBUNA L, THE DEPRECIATION AT THE RATE OF 40% CANNOT BE ALLOWED ON THE TRUCKS GIVEN O N LEASE BY THE ASSESSEE AND RESTRICTED TO 25%, WHICH RESULTED IN DISALLOWAN CE OF DEPRECIATION AT RS.58,36,359/-. IN THE FIRST APPEAL, THE LEARNED CI T(A) ALLOWED THE APPEAL OF THE ASSESSEE ON THE GROUND THAT HIS PREDECESSOR VID E APPELLATE ORDER DTD. 30.9.1998 FOR A.Y.1995-96 HAS ALLOWED THE CLAIM FOR DEPRECIATION AT THE RATE OF 40% ON TRUCKS GIVEN ON LEASE BY THE ASSESSEE. ITA NO.2442/AHD/2000 WITH CO NO.98/AHD/2003 3 5. BOTH THE PARTIES AGREED THAT THE FACTS AND ISSUE INVOLVED IN THIS GROUND OF APPEAL ARE SIMILAR TO THAT FOR A.Y.1995-96. 6. WE FIND THAT IN THE A.Y.1995-96 IN ITA NO.2405 & 2435/AHD/1998, THE TRIBUNAL HAS HELD AS UNDER: 12. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND MATERIAL AVAILABLE ON RECORD. IN THE INSTANT CASE, THE FACTS OF THE CASE ARE THAT THE ASSESSEE C LAIMED HIGHER DEPRECIATION AT THE RATE OF 40% ON TRUCKS GIVEN BY IT ON LEASE. THE AO DISALLOWED THE CLAIM FOR HIGHER DEPRECIATION 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 L ESS THAN 180 DAYS BY THE ASSESSEE, HE ALLOWED DEPRECIATION AT THE RAT E 12.5% IN PLACE OF 20% CLAIMED BY THE ASSESSEE, AND THEREBY MADE DISAL LOWANCE OF RS.15,49,241/- FOR THE REASON THAT THE TRUCKS WERE NOT USED BY THE ASSESSEE FOR THE BUSINESS OF HIRE. ON APPEAL, THE CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE FOR THE REASON THAT THE TRUCK S WERE GIVEN ON LEASE BY THE ASSESSEE WHICH WAS ONE OF THE BUSINESS OF THE ASSESSEE. BEING AGGRIEVED THE REVENUE IS APPEAL BEFORE US. W E 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 READING OF SECTION 2(13) AND (24) OF THE ACT THE INCOME DERIVED FROM LEA SING OF THE TRUCKS WOULD BE BUSINESS INCOME, OR INCOME DERIVED IN THE COURSE OF BUSINESS, AND HAD BEEN SO ASSESSED. HENCE, IT FULFI LLED THE REQUIREMENT OF SECTION 32 OF THE ACT, THAT THE ASSET MUST BE USED IN THE COURSE OF BUSINESS. THE ASSESSEE DID USE THE VEHI CLES IN THE COURSE OF ITS LEASING BUSINESS. THE FACT THAT THE TR UCKS THEMSELVES 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 V EHICLE, ALONG WITH ITS KEYS, WAS -DELIVERED TO THE ASSESSEE UPON WHICH, THE LEASE AGREEMENT WAS ENTERED INTO BY THE ASSESSEE WITH THE ITA NO.2442/AHD/2000 WITH CO NO.98/AHD/2003 4 CUSTOMER. THE FACT THAT AT THE END OF THE LEASE PERIOD, THE OWNERSHIP OF THE VEHICLE WAS TRANSFERRED TO THE LESSEE AT A NOMINAL VALUE DID NOT MAKE THE ASSESSEE IN EFFECT A FINA NCIER. NO INFERENCE COULD BE DRAWN FROM THE REGISTRATION CERTIFICA TE AS TO OWNERSHIP OF THE LEGAL TITLE OF THE VEHICLE. IF THE L ESSEE WAS IN FACT THE OWNER, HE WOULD HAVE CLAIMED DEPRECIATION ON THE VEHICLES, WHICH, AS SPECIFICALLY RECORDED IN THE ORDER OF THE TRIBUNAL, WAS 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 LESSEE. THIS REAFFIRMED THE POSITION THAT THE ASSESSEE WAS IN FACT THE OWNER OF THE VEHICLE, IN SO FAR AS SECTION 32 OF THE 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 BUSIN ESS, SATISFYING BOTH REQUIREMENTS OF SECTION 32 OF THE ACT AND , HENCE, WAS ENTITLED TO CLAIM DEPRECIATION IN RESPECT OF ADDITI ONS MADE TO THE TRUCKS, WHICH WERE LEASED OUT. (V) THAT FOR PURPOSES OF THE ASSESSEES CLAIM TO THE HIGHER RATE OF DEPRECIATION, THE INTERPRETATION OF THE TERM PUR POSES OF BUSINESS, USED IN THE -SECOND PROVISO TO SECTION 32(1) OF THE ACT WOULD NOT BE ANY DIFFERENT FROM THAT ASCRIBED TO I T UNDER SECTION 32(1) OF THE ACT. THEREFORE, THE ASSESSEE FULFILLE D EVEN THE REQUIREMENTS FOR A CLAIM OF A HIGHER RATE OF DEPR ECIATION AND WAS -ENTITLED THERETO. WE FIND THAT THE ORDER OF THE CIT(A) IS SUPPORTED B Y THE ORDER OF THE HONBLE SUPREME COURT IN THE CASE OF ICDS LTD. (SUP RA). WE, THEREFORE, DO NOT FIND ANY GOOD REASON TO INTERFERE WITH THE ORDER OF THE CIT(A) ON THIS ISSUE, AND ACCORDINGLY, THE GROU ND NO.2 OF THE APPEAL OF THE REVENUE IS DISMISSED. 7. FOLLOWING THE SAME, THIS GROUND OF THE APPEAL OF THE REVENUE IS DISMISSED. ITA NO.2442/AHD/2000 WITH CO NO.98/AHD/2003 5 8. THE GROUND NO.2 OF THE REVENUES APPEAL IS DIREC TED AGAINST THE ORDER OF THE CIT(A) IN DIRECTING THE AO TO ALLOW DEDUCTIO N UNDER SECTION 80HHC TO THE MARINE DIVISION. 9. THE GROUND NO.4 OF THE ASSESSEES CO IS DIRECTED AGAINST THE ORDER OF THE CIT(A) IN ALLOWING DEDUCTION UNDER SECTION 80HH C IN RESPECT OF MARINE DIVISION OF RS.36,36,83,837/- INSTEAD OF RS.57,98,2 4,512/- CLAIMED BY THE ASSESSEE. 10. THE BRIEF FACTS OF THE CASE ARE THAT THE AO FOU ND THAT THE ASSESSEE- COMPANY HAS RECEIVED INCENTIVE FROM THE CENTRAL GOV ERNMENT UNDER VARIOUS SCHEMES PROPOUNDED BY IT, BY WAY OF EXPORT INCENTIV ES. HOWEVER, THE ASSESSEE-COMPANY HAS NOT DEDUCTED THERE FROM A HUGE LOSS, THOUGH, IT HAD INCURRED FOR THE PURPOSE OF CARRYING OUT THE BUSINE SS OF MARINE DIVISION, WHICH WERE TO THE TUNE OF RS.21,61,40,875/- AND THE ASSESSEE HAS CLAIMED DEDUCTION UNDER SECTION 80HHC FOR THE ENTIRE EXPORT INCENTIVES AT RS.57,98,24,512/- UNDER SECTION 80HHC. THE AO, HOW EVER, OBSERVED THAT SINCE THE ASSESSEE HAS INCURRED LOSS FROM EXPORT OF TRADING GOODS IN MARINE DIVISION BY RS.21,61,40,875/-, THEREFORE, IT WAS NO T ENTITLED TO ANY DEDUCTION UNDER SECTION 80HHC OF THE ACT. ON APPEAL FILED BY THE ASSESSEE, THE LEARNED CIT(A) HELD THAT THE ASSESSEE WAS ENTITLED TO DEDUCTION UNDER SECTION 80HHC AFTER DEDUCTING THE AMOUNT OF LOSS FROM 90% O F THE EXPORT INCENTIVES RECEIVED BY THE ASSESSEE. THEREFORE, TH E LEARNED CIT(A) ALLOWED DEDUCTION UNDER SECTION 80HHC TO THE ASSESSEE TO RS .36,36,83,837/- AGAINST THE CLAIM OF RS.57,98,24,512/- MADE BY THE ASSESSEE . ITA NO.2442/AHD/2000 WITH CO NO.98/AHD/2003 6 11. BOTH THE PARTIES AGREED THAT THE FACTS AND ISSU E INVOLVED ARE SIMILAR TO THE FACTS IN A.Y.1994-95, WHEREIN WE HELD AS UNDER: 36. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE ORDERS OF LOWER AUTHORITIES AND THE MATERIAL AVAILABLE ON R ECORD. THE UNDISPUTED FACTS ARE THAT THE ASSESSEE IN ITS MARINE DIVI SION SUFFERED LOSS OF RS 13,50,71,719/- ON EXPORT OF TRADIN G GOODS AND EARNED EXPORT INCENTIVES OF RS 13,70,45,917/-. TH E ASSESSEE CLAIMED DEDUCTION U/S 80HHC OF RS 13,70,45,917/- ON THE GROUND THAT IN RESPECT 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 GROUN D THAT THERE WAS LOSS ON EXPORT OF TRADING GOODS AND ON THE GR OUND THAT THE REQUIRED CERTIFICATE OF THE AUDITOR WAS NOT FURNISHED ALONG WITH RETURN OF INCOME. 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 IGNORING T HE LOSS AS THE ASSESSEE HAD EXPORT INCENTIVES OF RS 13,70,95,917/-, THE ASSESSEE WAS ELIGIBLE FOR DEDUCTION 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 TRADI NG 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 NO T ENTITLED TO ANY DEDUCTION U/S 80HHC IN RESPECT OF MARINE DIVISION. 40. ON THE OTHER HAND, THE LD. AR OF THE ASSESSEE SUPPOR TED THE ORDER OF THE LD. CIT AND SUBMITTED THAT AS THE ASS ESSEE ISSUED A DISCLAIMER CERTIFICATE IN RESPECT OF EXPORT TURN OVER 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 DE CISION OF THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF MMTC VS. JCI T (2007) 112 TTJ 15 (DELHI). ITA NO.2442/AHD/2000 WITH CO NO.98/AHD/2003 7 41. WE FIND THAT THE HONBLE SUPREME COURT IN THE CASE OF IPCA LABORATORY LIMITED VS. DCIT (2004) 135 TAXMANN 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 SUPPORTI NG MANUFACTURER, THE TURNOVER OF THE EXPORTER GETS REDU CED TO THE EXTENT DISCLAIMED. IT IS SUBMITTED THAT AS THE TU RNOVER, WHICH IS DISCLAIMED, IS REDUCED IT CANNOT THEN BE TAKEN IN TO CONSIDERATION FOR THE PURPOSES OF COMPUTING PROFITS UNDER SUB-SECTION 3(C)( II). IN OUR VIEW THIS IS AN ARGUMENT W HICH 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 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. TH E 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 EX PORT HOUSE. IN COMPUTING TOTAL INCOME, THE ENTIRE TURNOVER IS TAKEN INTO ACCOUNT EVEN THOUGH THERE IS A DISCLAIMER. T HUS EVEN THOUGH THE DISCLAIMER IS MADE THE TAXABLE INCOME O F RS. 4.39 CRORES HAS BEEN ARRIVED AT BY THE APPELLANTS A FTER TAKING INTO ACCOUNT THE ENTIRE TURNOVER FROM EXPORT O F TRADING GOODS. IN ARRIVING AT THE FIGURE OF RS. 4.39 CRORES ADMITTEDLY THE LOSS OF RS. 6.86 CRORES HAS BEEN TAKEN IN TO ACCOUNT. EVEN AFTER DISCLAIMER THE TURNOVER HAS REMAINED THE TURNOVER OF THE EXPORT HOUSE, I.E., THE APPELLANT S. 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 13,50,71,7 19/- SUFFERED ON EXPORT OF TRADING GOODS CANNOT BE IGNORED ON THE GROUND THAT A DISCLAIMER CERTIFICATE WAS ISSUED IN RESPECT OF RELEVANT EXPORT TURNOVER TO THE SUPPORTING MANUFACTUR ER. ITA NO.2442/AHD/2000 WITH CO NO.98/AHD/2003 8 42. FURTHER, WE FIND THAT THE HONBLE DELHI HIGH COU RT 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: '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, THEREFOR E, MODIFY THE ORDER OF THE LD. CIT(A) TO THE ABOVE EXT ENT. THUS, THE GROUND OF APPEAL OF REVENUE IS PARTLY ALLO WED. RESPECTFULLY FOLLOWING THE ABOVE ORDER OF THE A.Y.1 994-95, WE DIRECT THE AO TO ALLOW DEDUCTION UNDER SECTION 80HHC FOR R S.22,33,190/- I.E. (90% OF EXPORT INCENTIVE OF RS.13,58,18,560/- MINUS LOSS IN ITA NO.2442/AHD/2000 WITH CO NO.98/AHD/2003 9 TRADING ACTIVITY IN MARINE DIVISION RS.13,34,85,370 /-). THUS, THIS GROUND OF THE REVENUE IS PARTLY ALLOWED. 12. RESPECTFULLY FOLLOWING THE SAME, WE CONFIRM THE ORDER OF THE CIT(A) AND DISMISS THE GROUND OF THE APPEAL OF THE REVENUE AS WELL AS THAT OF THE ASSESSEE IN THE CO. 13. THE GROUND NO.3 OF THE REVENUES APPEAL IS DIRE CTED AGAINST THE ORDER OF THE CIT(A) IN DIRECTING TO INCLUDE NET INTEREST INSTEAD OF GROSS INTEREST COST WHILE COMPUTING DEDUCTION UNDER SECTION 80HHC. 14. BRIEF FACTS OF THE CASE ARE THAT THE AO OBSERVE D THAT WHILE WORKING OUT THE TOTAL INDIRECT COST IN GENERAL DIVISION, TH E ASSESSEE HAS TAKEN NET INTEREST AT RS.6,34,52,815/-. HE OBSERVED THAT THE ACTUAL INTEREST INCURRED AND DEBITED TO THE PROFIT AND LOSS ACCOUNT IN THE G ENERAL DIVISION WAS AT RS.17,55,76,759/-. THE AO FURTHER OBSERVED THAT TH E INTEREST INCOME COMPRISED OF INTEREST ON FDRS., BONDS AND INTER-COR PORATION DEPOSITS IN THE FORM OF INVESTMENT MADE BY THE ASSESSEE-COMPANY. A CCORDING TO HIM, THERE WAS NO DIRECT NEXUS BETWEEN THIS INTEREST EXPENDITU RE AND THE INTEREST INCOME FROM VARIOUS SOURCES, WHICH WERE ASSESSABLE UNDER THE HEAD INCOME FROM OTHER SOURCES. THEREFORE, IT WAS HE LD BY HIM THAT THE TOTAL INTEREST EXPENDITURE WILL HAVE TO BE INCLUDED IN DI RECT COST. ON APPEAL, THE CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE. 15. BOTH THE PARTIES AGREED BEFORE US THAT THE FACT S AND ISSUED INVOLVED ARE SIMILAR TO THAT FOR A.Y.1995-967. WE FIND THAT IN T HE ASSESSEES OWN CASE FOR A.Y. 1995-1996 IN ITA NO.2405 AND 2435/AHD/1998, WH EREIN WE HAVE HELD AS UNDER: ITA NO.2442/AHD/2000 WITH CO NO.98/AHD/2003 10 23. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED TH E 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 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. 16. FOLLOWING THE SAME, WE DISMISS THIS GROUND OF T HE REVENUE. 17. THE GROUND NO.4 OF THE REVENUES APPEAL IS AGAI NST THE ORDER OF THE CIT(A) IN DIRECTING THE AO TO CONSIDER THE CLAIM FO R EXPENSES OF RS.236.24 LACS DEBITED IN A.Y.1998-99 BUT RELATES TO THIS YEA R. 18. BRIEF FACTS OF THE CASE ARE THAT THE AO OBSERVE D THAT THE ASSESSEE- COMPANY IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTIN G, AND HENCE, DISALLOWED THE CLAIM FOR PREVIOUS EXPENDITURE AMOUN TING TO RS.18,43,709/-. ITA NO.2442/AHD/2000 WITH CO NO.98/AHD/2003 11 THE AO OBSERVED THAT DURING THE ASSESSMENT PROCEEDI NGS, IT WAS ALTERNATIVELY CLAIMED THAT IF THIS CLAIM IS DISALLO WED ON THIS GROUND THE ASSESSEE SHOULD GIVEN DEDUCTION FOR EXPENDITURE OF RS.2,36,24,721/-, WHICH RELATES TO THIS YEAR, BUT WHICH HAVE BEEN DEBITED I N THE PROFIT &LOSS ACCOUNT FOR THE SUBSEQUENT YEAR. IT WAS ALSO CLAIMED THAT THE SAID AMOUNT OF RS.2,36,24,721/- SHOULD ALSO BE CONSIDERED BY WAY O F DEDUCTION IN THE COMPUTATION U/S.115JA. THE AO HAS NOT ACCEPTED THI S ALTERNATIVE CLAIM STATING THAT THE SAME HAS BEEN CLAIMED IN A.Y.1998- 99 AND THAT THE CLAIM HAS NOT BEEN WITHDRAWN. 19. THE LEARNED CIT(A) HELD THAT THE ASSESSEE WAS F OLLOWING MERCANTILE SYSTEM OF ACCOUNTING, AND THEREFORE, THE CLAIM FOR EARLIER YEARS EXPENSES IN THIS YEAR COULD NOT BE ALLOWED. HOWEVER, AS FAR AS THE CLAIM OF EXPENDITURE OF RS.2,36,24,721/- DEBITED IN THE BOOKS FOR A.Y.19 98-99, WHICH RELATES TO THIS YEAR, HE AGREED WITH THE SUBMISSIONS OF THE LE ARNED AR OF THE ASSESSEE THIS CLAIM WAS ADMISSIBLE IN TERMS OF HONBLE SUPRE ME COURT DECISION IN THE CASE OF CALCUTTA COMPANY LTD., 37 ITR 1. ACCORDIN GLY, IT WAS HELD THAT CLAIM WAS ADMISSIBLE IN THIS YEAR. THE LEARNED CIT (A) FURTHER OBSERVED THAT THE AS THE ASSESSEE AGREED TO WITHDRAW THIS CLAIM F ROM A.Y.1998-99, THE GROUND RAISED BY THE AO FOR NOT ACCEPTING THE SAME DOES NOT SURVIVE. HE HELD THAT AS THE EXPENSES RELATED TO THE YEAR 1996- 97, AND THE GROUND FOR NOT ACCEPTING THE SAME IN THE COMPUTATION FOR SECTION 1 15JA DOES NOT SURVIVE, THE SAME IS ALSO TO BE CONSIDERED FOR THE SAID SECT ION, AND DIRECTED THE AO TO ACCORDING CONSIDER THE SAME. 20. WE FIND THAT THE LEARNED DR COULD NOT POINT OUT THE PREJUDICE CAUSED TO THE REVENUE BY THE ABOVE ORDER OF THE CIT(A). W E FIND THAT THE LEARNED ITA NO.2442/AHD/2000 WITH CO NO.98/AHD/2003 12 CIT(A) HAS DIRECTED THE AO TO ALLOW THE CLAIM FOR D EDUCTION OF PRIOR PERIOD EXPENSES OF RS.2,36,24,721/- IN THE YEAR UNDER CONS IDERATION AND TO WITHDRAW THE CLAIM FOR DEDUCTION OF THE SAID AMOUNT IN THE ASSTT.YEAR 1998- 99. THEREFORE, WE DO NOT FIND ANY MERIT IN THE GRO UND OF THE APPEAL OF THE REVENUE, ACCORDINGLY THE SAME IS HEREBY DISMISSED. 21. NOW WE TAKE UP THE CO OF THE ASSESSEE. 22. THE REMAINING GROUNDS OF THE CO FOR ADJUDICATIO N ARE AS UNDER: 1. IN LAW AND IN THE FACTS AS WELL AS CIRCUMSTANCE S OF THE RESPONDENTS CASE, THE LD.CIT(A) HAS GROSSLY ERRED IN HOLDING THAT THE GROUND REGARDING THE ORDER BEING BAD IN LAW IS GENE RAL IN NATURE, WHEN HE OUGHT TO HAVE ADJUDICATED UPON THE SAME AND CANCELLED THE ASSESSMENT ORDER. THIS HONBLE TRIBUNAL, MAY, THEREFORE, BE PLEASED TO SO HOLD AND DIRECT THE CANCELLATION OF THE ASSESSMENT ORDER . 2. IN LAW AND IN THE FACTS AS WELL AS CIRCUMSTANCES OF THE RESPONDENTS CASE, THE LD.CIT(A) HAS GROSSLY ERRED IN HOLDING THAT THE DISALLOWANCE OF RS.60,000/- BEING THE EXPENDITURE F OR INCREASE IN AUTHORISED SHARE CAPITAL WHEN THE SAME OUGHT TO HAV E BEEN ALLOWED AS EXPENDITURE FOR INCREASING THE WORKING CAPITAL. THIS HONBLE TRIBUNAL, MAY, THEREFORE, BE PLEASED TO SO HOLD AND DIRECT THE CANCELLATION OF THE ASSESSMENT ORDER. 3. IN LAW AND IN THE FACTS AS WELL AS CIRCUMSTANCES OF THE RESPONDENTS CASE, THE LD.CIT(A) HAS GROSSLY ERRED IN UPHOLDING THAT THE DISALLOWANCE OF RS.3,10,281/- AS ENTERTAINMENT EXPENSES WHEN THE SAME OUGHT TO HAVE DELETED THE SAME. THIS HONBLE TRIBUNAL, MAY, THEREFORE, BE PLEASED TO SO HOLD AND DIRECT THE CANCELLATION OF THE ASSESSMENT ORDER. ITA NO.2442/AHD/2000 WITH CO NO.98/AHD/2003 13 23. AT THE TIME OF HEARING, THE LEARNED COUNSEL FOR THE ASSESSEE HAS NOT PRESSED THE ABOVE GROUNDS OF THE CO, WHICH ARE ACCO RDINGLY DISMISSED, AS NOT PRESSED. 24. IN THE RESULT, THE APPEAL OF THE REVENUE AND TH E CO OF THE ASSESSEE ARE DISMISSED. 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