Samrakshana Electricals Limited, Hyderabad V. DCIT, Hyderabad

ITA 253/HYD/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 66304 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 7 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-09-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 20-07-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 18-02-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AMISHA S GUPT
• Assessee Lawyers: V SIVA KUMAR
• Keywords: Business income; Depreciation; Cost of acquisition
• Section: 80HHC; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO. 253/HYD/2010 ASSESSMENT YEAR: 2004-05 SAMRAKSHANA ELECTRICALS LTD., APPELLANT HYDERABAD (PAN AAECS4268D/SA-008) VS. DY. COMMISSIONER OF INCOME-TAX, RESPONDE NT CIRCLE 3(1), HYDERABAD. APPELLANT BY : SHRI V. SIVAKUMAR RESPONDENT BY : SMT. AMISHA S. GUPT DATE OF HEARING : 24/07/2012 DATE OF PRONOUNCEMENT : 21/09/ 2012 ORDER PER ASHA VIJAYARAGHAVAN, J.M.: THIS APPEAL IS FILED BY THE ASSESSEE DIRECTED AGAI NST THE ORDER OF THE CIT(A), TIRUPATI, DATED 27/11/2009 FOR THE ASSESSMENT YEAR 2004-05. 2. BRIEFLY, THE FACTS OF THE CASE ARE THAT THE AS SESSEE IS A LIMITED COMPANY ENGAGED IN THE BUSINESS OF MANUFAC TURING AND SELLING CIRCUIT BREAKERS, ELECTRICAL TRANSFORME RS ETC., IT FILED RETURN OF INCOME FOR ASST. YEAR 2004-05 ON 1. 11.2004 DECLARING TOTAL INCOME OF RS. 1,81,37,200/- REGULAR ASSESSMENT WAS COMPLETED U/S 14393) ON 20.11.2006 O N TOTAL INCOME OF RS 1,81,75,077/- WHILE COMPUTING TO TAL INCOME THE ASSESSING OFFICER RECOMPUTED DEPRECIATIO N ALLOWABLE ON PRINTERS SCANNERS ETC HOLDING THAT THE SE DO NOT 2 ITA NO. 253/HYD/10 SAMRAKSHANA ELECTRICALS LTD. FORM PART OF COMPUTERS BUT WERE TO BE TREATED AS OF FICE EQUIPMENT. HE ALSO RECOMPUTED DEDUCTION CLAIMED BY ASSESSEE U/S 80HHC BY INCLUDING EXCISE DUTY AND SAL ES TAX AS PART OF TURNOVER AND ALSO BY TREATING AN AMOUNT OF RS., 16,68,459/- AS OTHER INCOME AND EXCLUDING 90% THERE OF UNDER CLAUSE (BAA) OF EXPLANATION BELOW SEC 80HHC, IN APPEAL THE CIT(A) UPHELD THE ASSESSMENT. 3. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 4. GROUND NO. 1 IS GENERAL IN NATURE. 5. GROUND NO. 2 IS DIRECTED AGAINST THE ACTION OF T HE CIT(A) IN CONFIRMING THE ACTION OF THE AO IN NOT EX CLUDING EXCISE DUTY AND SALES TAX FROM TOTAL TURNOVER FOR T HE PURPOSE OF COMPUTING DEDUCTION U/S 80 HHC. 6. WE HAVE HEARD THE ARGUMENTS OF THE PARTIES AND PERUSED THE RECORD. WE FIND THAT THE ISSUE IS NO-LONGER RES- INTEGRA. THE HON'BLE SUPREME COURT IN THE CASES OF CIT VS. LAKSHMI MACHINE WORKS, [2007] 290 ITR 667 AND CIT VS. CATAP HARMA (INDIA) P. LTD., [2007] 292 ITR 641 (SC) HELD THAT THE SALE S TAX AND EXCISE DUTY ARE TO BE EXCLUDED FROM THE TOTAL TURNOVER FOR THE PURPOSE OF COMPUTING DEDUCTION U/S 80 HHC OF THE ACT. 7. MOREOVER, THE ISSUE IS SQUARELY COVERED IN FAVO UR OF THE ASSESSEE BY THE DECISION OF ITAT B BENCH, HYDERAB AD IN ASSESSEES OWN CASE FOR ASSESSMENT YEARS 1997-98 & 1998-99 IN ITA NOS. 824 & 825/HYD/2002 VIDE ORDER DATED 29 TH JANUARY, 2003. WE THEREFORE DIRECT THE AO TO EXCLUDE THE SALES TAX AND EXCISE DUTY FROM THE TOTAL TURNOVER WHILE COMPUTING THE RELIEF U/S 80HHC.THUS, THE GROUND NO. 2 OF THE ASSESSEES APPEAL IS ALLOWE D. 3 ITA NO. 253/HYD/10 SAMRAKSHANA ELECTRICALS LTD. 8. GROUND NO. 3 IS AS FOLLOWS:- CIT(A) ERRED IN LAW IN CONFIRMING THE ACTION OF THE AO IN CONSIDERING RS. 16,68,459/- AS OTHER INCOME WITH IN THE MEANING OF CLAUSE (BAA) TO EXPLANATION TO SECTI ON 80 HHC OF THE ACT AND NOT AS INCOME FROM BUSINESS F OR THE PURPOSE OF ALLOWING DEDUCTION U/S 80 HHC OF THE ACT. 9. BRIEFLY THE FACTS RELATING TO RAISE THIS GROUND ARE THAT WHILE COMPUTING DEDUCTION UNDER SEC 80HHC, THE ASSE SSING OFFICER EXCLUDED 90% OF THE UNDER MENTIONED ITEMS FROM THE PROFITS OF THE BUSINESS. I) INTEREST EARNED RS 5,58,689 II) SUNDRY BALANCES WRITTEN OFF RS 1,61,661 III) OTHER MISC. RECEIPTS RS 750 IV) FOREIGN EXCHANGE FLUCTUATION R S 9,47,359 TOTAL RS.16,68,459/- ========= 10. ON APPEAL, THE CIT(A) CONFIRMED THE ACTION O F THE AO. 11. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 12. AS REGARDS INTEREST EARNED OF RS 5,58,689/-, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT TH IS AMOUNT REPRESENTS INTEREST EARNED ON MARGIN MONEY D EPOSIT MADE WITH BANKS FOR OPENING LETTERS OF CREDIT AND O N DEPOSIT WITH A.P. STATE ELECTRICITY BOARD ETC., IN THE COUR SE OF OUR BUSINESS. THE SAID DEPOSITS WERE MADE BY WITHDRAWIN G MONEY FROM EACH CREDIT ACCOUNT WITH THE BANK AND AG AINST THIS DRAWAL OF AMOUNT FROM THE CASH CREDIT ACCOUNT THE ASSESSEE HAD PAID INTEREST @ 11.75% ON CC ACCOUNTS WHICH IS MUCH MORE THAN THE INTEREST EARNED WHEREAS THE A SSESSEE HAS EARNED ONLY 7% ON TERM DEPOSIT AND 3% OF INTERE ST ON CONSUMPTION DEPOSITS. THEREFORE, THE LEARNED COUNS EL FOR 4 ITA NO. 253/HYD/10 SAMRAKSHANA ELECTRICALS LTD. THE ASSESSEE SUBMITTED THAT INTEREST EARNED ON THES E DEPOSITS SHOULD BE SET OFF AGAINST THE INTEREST PAI D TO THE BANK AND THUS AS INTEREST INCURRED BEING MORE THAN INTEREST EARNED CONSIDERING 90% OF SUCH INTEREST AS OTHER IN COME AS PER EXPLANATION(BAA) TO SECTION 80HHC OF THE ACT IS NOT JUSTIFIED. 13. IN THIS CONNECTION THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE HONBLE ITAT B BENCH HAS DIREC TED THAT INTEREST INCOME HAS TO BE NETTED AGAINST THE INTERE ST PAYMENT AND IT IS ONLY THE NET RECEIPT IF ANY THAT HAS TO BE EXCLUDED FOR CONSIDERATION VIDE ORDER IN ITA 824 & 825/H/2002 DATED 29.1.2003 IN THE ASSESSEES OWN CA SE. SINCE SUCH NET INTEREST IS A NEGATIVE FIGURE FOR TH E ASST. YEAR IN QUESTION, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT NO AMOUNT REMAINS TO BE EXCLUDED UNDER CLAUSE (BAA) IT IS ALSO SUBMITTED THAT THE HONBLE SUPREME COURT HA S UPHELD THE PRINCIPLE OF NETTING IN ITS DECISION IN THE CAS E OF ACG ASSOCIATED CAPSULES 343 ITR 89 SC. 14. THE APEX COURT IN THE CASE OF ACG ASSOCIATED CA PSULES HAVE HELD THAT WHAT IS TO BE EXCLUDED UNDER EXPLANA TION (BAA) IS ONLY 90% OF INCOME AND NOT THE RECEIPTS. T HEREFORE 90% OF INTEREST INCOME AND NOT 90% OF GROSS INTERES T RECEIPTS SHOULD BE EXCLUDED. FROM THE INTEREST RECE IPTS, EXPENDITURE INCURRED FOR EARNING THAT INTEREST SHOU LD BE DEDUCTED. FOR DETERMINING THIS THE ISSUE IS REMITTE D BACK TO THE FILES OF THE AO. THE ASSESSEE SHALL PROVIDE THE NECESSARY PROOF TO THE AO FOR HAVING INCURRED EXPENDITURE IN EARNING THE INTEREST INCOME. WE DIRECT THE AO TO RE-COMPUTE THE RELIEF U/S 80 HHC IN THE LIGHT OF THE ABOVE OBSERVA TIONS. 5 ITA NO. 253/HYD/10 SAMRAKSHANA ELECTRICALS LTD. 15. IN RESPECT OF THE SUNDRY BALANCES WRITTEN OFF OF RS 1,61,661/-, AND THE SAME CONSIST THE FOLLOWING: A. CREDIT BALANCES IN SUPPLIERS ACCOUNT RS 1,46,408/- THIS AMOUNT WAS NOT PAID TO THE SUPPLIERS DUE TO REJECTION OF MATERIALS HENCE WRITTEN BACK SINCE THE SUPPLIERS HAVE NOT CLAIMED THE BALANCES. B. OTHER MISCELLANEOUS BALANCES IN PARTIES ACCOUNTS R AS 15,253/- THIS AMOUNT WAS NOT CLAIMED BY SUPPLIERS SINCE LONG. HENCE WRITTEN BACK. 16. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THESE BALANCES WERE PART OF THE LIABILITY FOR EXPEN SES FOR THE EARLIER YEARS WHICH WERE DEBITED THE P & L ACCOUNT AND THUS WAS REDUCED FROM THE PROFITS AND ONLY ON SUCH REDUCED AMOUNT DEDUCTION U/S 80HHC WAS ALLOWED. THEREFORE, IT IS SUBMITTED THAT THE ABOVE MENTIONED AMOUNTS REPRESEN TING THE REVERSAL OF THE EXPENSES CLAIMED IN THE EARLIER YEARS SHOULD BE HELD TO BE PART OF THE BUSINESS PROFITS O F THE ASSESSEE AND WILL NOT BE A RECEIPT IN THE NATURE RE FERRED TO IN EXPLANATION (BAA). THE LEARNED COUNSEL FOR THE ASSESSEE ASSESSEE RELIED ON THE DECISION IN THE CASE OF CIT VS ABDUL RAHMAN INDUSTRIES 293 ITR 475 MAD, WHEREIN IT WAS H ELD AS UNDER:- THAT THERE WERE CREDITS APPEARING IN THE BOOKS ON T HE BASIS OF PURCHASE OF ITEMS FROM VARIOUS SUPPLIERS A ND THESE SUPPLIERS WERE NOT PAID. THESE UNCLAIMED CRED IT BALANCES WERE BROUGHT TO THE PROFIT AND LOSS ACCOUN T AND HAD EMANATED FROM TRADING TRANSACTIONS ONLY. THERE WAS A FINDING GIVEN BY THE TRIBUNAL THAT THE TRANSACTIONS WERE CONNECTED OR CLOSELY LINKED WITH THE ASSESSEES BUSINESS ACTIVITIES. THE RECEIPTS HAD AR ISEN ONLY OUT OF ORDINARY TRADING TRANSACTIONS AND HENCE WERE RIGHTLY ASSESSED UNDER THE HEAD BUSINESS. TH E TRIBUNAL WAS RIGHT IN HOLDING THAT THE INCOME SHOUL D BE ASSESSED UNDER THE HEAD BUSINESS AND THAT ON THIS 6 ITA NO. 253/HYD/10 SAMRAKSHANA ELECTRICALS LTD. BASIS, THE ASSESSEE WAS ENTITLED TO THE BENEFIT U/S 80HHC OF THE ACT. IN VIEW OF THE ABOVE WE DIRECT THE AO NOT TO EXCLUD E THE SUM OF RS. 1,46,408/- BEING THE CREDIT BALANCES WRI TTEN BACK, WHILE COMPUTING RELIEF U/S 80HHC. 17. WE FIND THAT THE SUNDRY BALANCES WRITTEN OFF OF RS. 1,61,661/- HAVE TO BE REDUCED UNDER CLAUSE (BAA) TO EXPLANATION TO SECTION 80 HHC OF THE ACT. 18. AS REGARDS MISCELLANEOUS RECEIPTS OF RS 750, TH E LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THI S AMOUNT WAS RECEIVED TOWARDS COST OF SPARES AND LABOUR CHAR GES FROM THE PARTIES FOR CONDUCTING REPAIRS TO THEIR ELECTRI CAL MOTORS. HENCE THE RECEIPT CONSTITUTES PART OF THE BUSINESS INCOME AND SHOULD NOT BE EXCLUDED UNDER EXPLANATION (BAA) WHILE COMPUTING THE RELIEF U/S 80HHC. 19. AS REGARDS FOREIGN EXCHANGE FLUCTUATION OF RS 9,47,359/-, THE DETAILS ARE AS UNDER:- GAINS ON ACCOUNT OF IMPORT OF RAW MATERIALS RS 8,11,470 ON ACCOUNT OF EXPORT OF GOODS RS 2,66,186 ON ACCOUNT OF PACKING CREDIT IN FOREIGN CURRENCY (PCFC) PROVIDED BY SBI RS 78,650 ------------------- RS.11,56,306 LOSS: ON ACCOUNT OF IMPORT OF RAW MATERIAL RS. 27,477 ON ACCOUNT OF EXPORT OF GOODS RS 1,81,470 2,08,947 RS 9,47,359 ========== 7 ITA NO. 253/HYD/10 SAMRAKSHANA ELECTRICALS LTD. 20. THE LEARNED COUNSEL FOR THE ASSESSEE SHRI SIVAK UMAR SUBMITTED THAT THE ASSESSEE EARNED THE SAID AMOUNT OF RS 9,47,359/- DUE TO FLUCTUATIONS IN FOREIGN EXCHANGE AN ACCOUNT OF SALE PROCEEDS RECEIVABLE FROM EXPORT SAL ES IMPORT OF RAW MATERIALS ETC. THEREFORE, THE LEARNED COUNSE L FOR THE ASSESSEE SUBMITTED THAT SINCE THE SAID AMOUNT WAS E ARNED ON ACCOUNT OF SALES AND IMPORT OF RAW MATERIALS THE SAME CANNOT BE CONSIDERED AS OTHER INCOME AS PER CLAUSE (BAA) OF EXPLANATION TO SEC 80HHC. THE LEARNED COUNSEL FOR THE ASSESSEE RELIES ON THE DECISION IN THE CASE OF RENA ISSANCE JEWELLERY P. LTD VS ITO 101 ITD 380 MUM WHEREIN IT WAS HELD AS UNDER:- WE HAVE CONSIDERED THE RIVAL SUBMISSIONS IN THE LI GHT OF MATERIAL PLACED BEFORE US AND PRECEDENTS RELIED UPO N. WE FIND THAT THIS ISSUE IS COVERED BY THE DECISION OF THE T RIBUNAL RENDERED IN THE CASE OF K. UTTAMLAL EXPORTS LTD. V. DCIT IN ITA NOS. 38 & 39/MUM./1996, DATED 9-7-2003. IN THIS CAS E IT WAS HELD THAT EXCHANGE GAIN ARISING ON ACCOUNT OF CHANG E IN EXCHANGE RATE AFTER THE END OF ACCOUNTING YEAR CONS TITUTE PART OF EXPORT TURNOVER ELIGIBLE FOR DEDUCTION. NO CONTR ARY DECISION WAS BROUGHT BEFORE US. WE, THEREFORE, RESPECTFULLY FOLLOWING THE PRECEDENT, DECIDE THIS ISSUE IN FAVOUR OF THE A SSESSEE AND AGAINST THE REVENUE. 21. WE FIND THAT THE EXCHANGE FLUCTUATIONS IS IN RE SPECT OF IMPORT OF RAW MATERIALS, EXPORT OF GOODS AND PACKIN G CREDIT. THE LOSS OR GAIN ON ACCOUNT OF FOREIGN EXCHANGE FLU CTUATIONS REALLY FORM PART OF THE PURCHASE COST OR EXPORT REA LIZATION BUT HAVE BEEN MERELY SHOWN SEPARATELY. THESE ARE AL L IN THE REVENUE FIELD. HENCE THESE AMOUNTS CANNOT BE EXCLUD ED WHILE COMPUTING RELIEF U/S 80HHC. IN VIEW OF THE AB OVE , WE DIRECT THE AO TO INCLUDE THE AMOUNT OF RS. 9,47,359 /- TOWARDS FOREIGN EXCHANGE FLUCTUATION, WHILE COMPUT ING THE RELIEF UNDER SECTION 80 HHC. 8 ITA NO. 253/HYD/10 SAMRAKSHANA ELECTRICALS LTD. 22. GROUND NO. 4 READS AS UNDER:- THE CIT(A) ERRED IN LAW IN CONFIRMING THE ACTION OF THE AO IN DISALLOWING RS. 9,714/- OUT OF THE DEPRECIATI ON ON PRINTERS, SCANNERS ETC., HOLDING THAT SUCH ASSETS D O NOT FORM PART OF COMPUTERS AND THEREFORE NOT ELIGIBLE F OR DEPRECIATION AT 60% BUT FORM PART OF MACHINERY AND PLANT ELIGIBLE FOR DEPRECIATION AT 25% ONLY. 23. THE ASSESSEE CLAIMED DEPRECIATION AT 60% ON ADD ITIONS OF RS 89,370/- TO COMPUTERS. ASSESSING OFFICER H ELD THAT THE INKJET PRINTERS, DOT MATRIX PRINTERS SCANNER, E TC ARE IN THE NATURE OF OFFICE EQUIPMENT AND ALLOWED DEPRECIA TION AT 25%. THUS, HE REDUCED THE DEPRECIATION ALLOWABLE B Y RS. 9714/- . ON APPEAL, THE CIT(A) UPHELD THE ACTION OF THE AO. 24. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSE E SHRI SIVAKUMAR SUBMITTED THAT THE HONBLE ITAT CALCUTTA BENCH IN THE CASE OF ITO VZS SAMIRAN MAJUMDAR 98 ITD 119 CAL HELD THAT PRINTERS AND SCANNERS WERE INTEGRAL PART OF COMPUTER SYSTEM AND ARE TO BE TREATED AS COMPUTER. THE DECISION OF THE DELHI BENCH OF THE HONBLE ITAT IN THE CASE OF ASST. CIT VS AMADAUS INDIA (O) LTD 79 ITD 407 DE L IS ALSO IN FAVOUR OF THE ASSESSEE. IN THE CASE OF DCIT VS D ATACRAFT INDIA LTD 009 ITR (TRIB) 712 MUM THE HONBLE ITAT T OOK THE VIEW THAT ROUTER AND SWITCHES CAN BE CLASSIFIED AS A COMPUTER HARDWARE WHEN THEY ARE USED ALONG WITH A COMPUTER AND WHEN THEIR FUNCTIONS ARE INTEGRATED WI TH A COMPUTER.IN OTHER WORDS WHEN A DEVICE IS USED AS PART OF THE COMPUTER IN ITS FUNCTIONS THEN IT WOULD BE TERM ED A COMPUTER. 25. IN VIEW OF THE ABOVE SAID DECISIONS, WE DIRECT THE AO TO ALLOW DEPRECIATION AT 60% ON RS. 89,370/- BEING COS T OF 9 ITA NO. 253/HYD/10 SAMRAKSHANA ELECTRICALS LTD. PRINTERS ATTACHED TO COMPUTERS ETC AS CLAIMED BY TH E ASSESSEE. 26. IN THE RESULT, SUBJECT TO OUR DIRECTIONS FOR RECOMPUTATION RELIEF U/S 80HHC BASED ON VERIFICATIO N OF FACTS, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWE D. PRONOUNCED IN THE OPEN COURT ON 21/09/2012. SD/- SD/- (CHANDRA POOJARI) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED: 21 ST SEPTEMBER, 2012. KV COPY TO:- 1) SAMRAKSHNA ELECTRICALS LTD., 127, HYDERNAGAR, KUKATPALLY, HYDERABAD 2) DCIT, CIRCLE 3(1), HYDERABAD 3) THE CIT (A),TIRUPATHI 4) THE CIT-3, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDERABAD.