The ACIT,(OSD)-Range-4, Ahmedabad V. M/s. Mamta Machinery Pvt. Ltd., Ahmedabad

ITA 2567/AHD/2009

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 0417 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-11-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 10-11-2009
• Assessment Year: 2004-2005
• Appeal Filed On: 09-09-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M C PANDIT
• Assessee Lawyers: M J SHAH
• Keywords: Business income; Depreciation
• Section: 80HHC; 251; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH C AHMEDABAD BEFORE SHRI N.S.SAINI, ACCOUNTANT MEMBER AND SHRI MAHAVIR SINGH, JUDICIAL MEMBER ITA NO.2567/AHD/2009 ASSESSMENT YEAR: 2004-05 DATE OF HEARING:10.11.09 DRAFTED:12.11.09 ACIT (OSD)-1, RANGE-4, AHMEDABAD V/S . MAMTA MACHINERY PVT., LTD., 5/1/1A, PHASE I, GIDC, VATVA, AHMEDABAD PAN NO.AABCM841P (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI M.C. PANDIT, SR. DR RESPONDENT BY:- SHRI M.J.SHAH, AR O R D E R PER MAHAVIR SINGH JUDICIAL MEMBER:- THIS APPEAL BY THE REVENUE IS ARISING OUT OF THE O RDER OF COMMISSIONER OF INCOME-TAX (APPEALS)-VIII, AHMEDABAD IN APPEAL NO. CIT(A)-VIII/AC-4/77/08-09 DATED 19-05-009. THE ASSESSMENT WAS FRAMED BY THE D Y. COMMISSIONER OF INCOME- TAX, CIRCLE-4, AHMEDABAD U/S.143(3) OF THE INCOME-T AX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) VIDE HIS ORDER DATED 19-1 2-2006 FOR THE ASSESSMENT YEAR 2004-05. THE PENALTY UNDER DISPUTE WAS LEVIED BY A CIT (OSD)-I, RANGE-4, AHMEDABAD U/S.271(1)(C) OF THE ACT VIDE HIS ORDER D ATED 21-11-2008. 2. THE ONLY ISSUE IN THIS OF THE REVENUE IS AGAINST THE ORDER OF CIT(A) DELETING THE PENALTY LEVIED BY THE ASSESSING OFFICER U/S.271 (1)(C) OF THE ACT AMOUNTING TO RS.4,03,949/-. 3. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THR OUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE HAVE ALSO PERUSED THE CASE RECORD INCLUDING THE ASSESSMENT ORDER, THE ORDER OF CIT(A) AND THE PENAL TY ORDER. THE BRIEF FACTS OF THE ITA NO.2567/AHD/2009 A.Y. 2004-05 ACIT(OSD)-I, RNG-4, ABD V. M/S. MAMTA MACHINERY P . LTD. PAGE 2 CASE ARE THAT THE ASSESSEE IS A PRIVATE LIMITED COM PANY ENGAGED IN THE BUSINESS OF MANUFACTURING OF PLASTIC PROCESSING MACHINES AND FI LED ITS RETURN OF INCOME FOR THE RELEVANT PERIOD DECLARING TOTAL INCOME AT RS.78,53, 250/-. THE ASSESSMENT IN THIS CASE WAS COMPLETED U/S.143(3) OF THE ACT DETERMININ G TOTAL INCOME AT RS.1,24,22,490/- AND ASSESSING OFFICER WHILE COMPLE TING THE ASSESSMENT MADE THE FOLLOWING DISALLOWANCES:- I) DISALLOWANCE OF DEPRECIATION RS. 1,14,396/- II) DISALLOWANCE U/S.14A RS.12,84,860/- III) U/S. 80HHC RS.11,5,991/- THE ASSESSING OFFICER INITIATED THE PENALTY PROCEED INGS U/S.271(1) OF THE ACT IN RESPECT OF ABOVE DISALLOWANCE MADE BY HIM. THE ASSE SSEE PREFERRED THE QUANTUM APPEAL BEFORE CIT(A) AND CIT(A) DELETED THE DISALLO WANCE MADE U/S.80HHC OF THE ACT BUT UPHOLD THE ADDITION MADE ON ACCOUNT OF DISA LLOWANCE IN RESPECT OF DEPRECIATION U/S.14A OF THE ACT. THE REVENUE CAME IN APPEAL AGAINST THE DECISION OF CIT(A) IN REGARD TO DISALLOWANCE OF DEDUCTION U/ S.80HHC OF THE ACT AND THE TRIBUNAL CONFIRMED THE DECISION OF THE AO WITH REGA RD TO EXCLUSION OF OTHER INCOMES AMOUNTING TO RS.1,02,27,457/- FROM THE PROFIT OF EL IGIBLE DEDUCTION U/S.80HHC OF THE ACT. THE ASSESSING OFFICER LEVIED THE PENALTY U/S.2 71(1)(C) OF THE ACT IN RESPECT OF ADDITION ON ACCOUNT OF DEPRECIATION AND DISALLOWANC E U/S.80HHC OF THE ACT BY PASSING THE ORDER ON 31-03-2008, ON THESE TWO ASPEC TS NEITHER THE ASSESSEE NOR REVENUE IS BEFORE US. THE ONLY ISSUE BEFORE US IS T HAT THE ITAT HAS DIRECTED THE ASSESSING OFFICER FOR EXCLUSION OF OTHER OPERATING INCOME FROM THE BUSINESS INCOME, THE ITAT EXPLAINED THE ISSUE AS EXCLUSION OF OTHER OPERATING INCOME IN VIEW OF THE HONBLE APEX COURTS DECISION IN THE CASE OF CIT V. K. RAVINDRANATHAN NAIR (2007) 295 ITR 228 (SC), WHEREIN THE HON'BLE APEX COURT HA S HELD AS UNDER:- AT THE OUTSET, WE MAY STATE THAT, IN THE PRESENT C ASE, WE ARE DEALING WITH THE LAW AS IT STOOD DURING ASSESSMENT YEAR 1993-94. AT THAT TIME SECTION 80HHC(3) OF THE INCOME-TAX ACT CONSTITUTED A CODE B Y ITSELF. SUBSEQUENT AMENDMENTS HAVE IMPOSED RESTRICTIONS / QUALIFICATIO NS BY WHICH THE SAID PROVISION HAS CEASED TO BE A CODE BY ITSELF. IN TH E ABOVE FORMULA THERE EXISTED FOUR VARIABLES, NAMELY, BUSINESS PROFITS, EXPORT TURNOVER, TOTAL TURNOVER AND 90 PER CENT OF THE SUMS REFERRED TO IN CLAUSE ( BAA) TO THE SAID EXPLANATION . IN THE COMPUTATION OF DEDUCTION UNDER SECTION 80 HHC ALL FOUR VARIABLES HAD TO BE TAKEN INTO ACCOUNT. ALL FOUR VA RIABLES WERE REQUIRED TO BE GIVEN WEIGHTAGE. THE SUBSTITUTION OF SECTION 80HHC (3) SECURES PROFITS DERIVED FROM THE EXPORTS OF ELIGIBLE GOODS. THEREFO RE, IF ALL THE FOUR VARIABLES ARE KEPT IN MIND, IT BECOMES CLEAR THAT EVERY RECEI PT IS NOT INCOME AND EVERY ITA NO.2567/AHD/2009 A.Y. 2004-05 ACIT(OSD)-I, RNG-4, ABD V. M/S. MAMTA MACHINERY P . LTD. PAGE 3 INCOME WOULD NOT NECESSARILY INCLUDE ELEMENT OF EXP ORT TURNOVER. THIS ASPECT NEEDS TO BE KEPT IN MIND WHILE INTERPRETING CLAUSE BAA) TO THE SAID EXPLANATION. THE SAID CLAUSE STATED THAT 90 PER CENT, OF INCENT IVE PROFITS OR RECEIPTS BY WAY OF BROKERAGE, COMMISSION, INTEREST, RENT, CHARGES OR ANY OTHER RECEIPT OF LIKE NATURE INCLUDED IN BUSINESS PROFITS , HAD TO BE DEDUCTED FROM BUSINESS PROFITS COMPUTED IN TERMS OF SECTIONS 28 T O 44D OF THE INCOME-TAX ACT. INN OTHER WORDS, RECEIPTS CONSTITUTING INDEPE NDENT INCOME HAVING NO NEXUS WITH EXPORTS WERE REQUIRED TO BE REDUCED FROM BUSINESS PROFITS UNDER CLAUSE (BAA). A BARE READING OF CLAUSE (BAA)(1) IN DICATES THAT RECEIPTS BY WAY OF BROKERAGE, COMMISSION, INTEREST, RENT, CHARGES, ETC., FORMED PART OF GROSS TOTAL INCOME BEING BUSINESS PROFITS. BUT FOR THE P URPOSES OF WORKING OUT THE FORMULA AND IN ORDER TO AVOID DISTORTION OF ARRIVIN G AT THE EXPORT PROFITS, CLAUSE (BAA) STOOD INSERTED TO SAY THAT ALTHOUGH INCENTIVE PROFITS AND INDEPENDENT INCOMES CONSTITUTED PART OF GROSS TOTAL INCOME, TH EY HAD TO BE EXCLUDED FROM GROSS TOTAL INCOME BECAUSE SUCH RECEIPTS HAD NO NEX US WITH THE EXPORT TURNOVER. THEREFORE, IN THE ABOVE FORMULA, WE HAVE TO READ ALL THE FOUR VARIABLES. ON READING ALL THE VARIABLES IT BECOMES CLEAR THAT EVERY RECEIPT MAY NOT CONSTITUTE SALE PROCEEDS FROM EXPORTS. THAT, EV ERY RECEIPT IS NOT INCOME UNDER THE INCOME-TAX ACT AND EVERY INCOME MAY NOT B E ATTRIBUTABLE TO EXPORTS. THIS WAS THE REASON FOR THIS COURT TO HOLD THAT INDIRECT TAXES LIKE EXCISE DUTY WHICH ARE RECOVERED BY THE TAXPAYERS FO R AND ON BEHALF OF THE GOVERNMENT, SHALL NOT BE INCLUDED IN THE TOTAL TURN OVER IN THE ABOVE FORMULA ( SEE CIT V. LAKSHMI MACHINE WORKS (2007) 6 SCALE 168. IN THE PRESENT CASE, THE PROCESSING CHARGES WERE I NCLUDED IN THE GROSS TOTAL INCOME FROM CASHEW BUSINESS. THAT, EVEN ACCO RDING TO THE ASSESSEE THE SAID CHARGES CONSTITUTED AN IMPORTANT COMPONENT OF GROSS TOTAL INCOME FROM CASHEW BUSINESS. THE IS NOT DISPUTED. THEREFO RE, IN TERMS OF CLAUSE (BAA), 90 PER CENT OF THE INDEPENDENT INCOME HAD TO BE DEDUCTED FROM GROSS TOTAL INCOME TO ARRIVE AT THE BUSINESS PROFITS TO W HICH THE FRACTION HAD TO BE APPLIED. SINCE, THE PROCESSING CHARGES CONSTITUTED INDEPENDENT INCOME SIMILAR TO RENT, COMMISSION, ETC., WHICH FORMED PAR T OF THE GROSS TOTAL INCOME, THE SAME HAD TO BE REDUCED BY 90 PER CENT AS CONTEM PLATED IN CLAUSE (BAA) TO ARRIVE AT BUSINESS PROFITS. THEREFORE, THE SAID PROCESSING CHARGES WERE INCLUDIBLE IN THE TOTAL TURNOVER IN THE FORMULA UND ER SECTION 80HHC(3) OF THE INCOME-TAX ACT. 4. THE ASSESSING OFFICER AFTER CONSIDERING THE EXPL ANATION OF THE ASSESSEE LEVIED THE PENALTY VIDE PARA-4 OF HIS PENALTY ORDER AS UNDER:- 4. IT IS CLEAR FROM THE PRECEDING PARAGRAPHS THAT THE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS OF INCOME AND THEREBY CONCEA LED HIS INCOME. THUS I AM SATISFIED THAT THE ASSESSEE HAS FURNISHED INACCURAT E PARTICULARS OF INCOME IN RESPECT OF THE ASSESSEE DISCUSSED IN THE ASSESSMENT ORDER AND CONFIRMED BY THE JUDGMENT OF CIT(A) / ITAT AND IT IS A FIT CASE FOR LEVY OF PENALTY UNDER SECTION 271(1)(C)(C). PENALTY ORDER U/S.71(1)(C) I N RESPECT OF ADDITIONS ON ACCOUNT OF DEPRECIATION AND DISALLOWANCE U/S.14A WA S ALREADY PASSED BY THE ASSESSING OFFICER ON 31.03.2008. ITA NO.2567/AHD/2009 A.Y. 2004-05 ACIT(OSD)-I, RNG-4, ABD V. M/S. MAMTA MACHINERY P . LTD. PAGE 4 THE INCOME IN RESPECT OF WHICH INACCURATE PARTICULA RS HAVE BEEN FURNISHED (AND NO PENALTY U/S.271(1) HAS BEEN LEVIED SO FAR) IS WORKED OUT AS UNDER: 1. CLAIM OF DEDUCTION U/S./80HHC RS.11,25,991/- TAX ON THE INCOME (RS.11,25,991/-) IN RESPECT OF WH ICH INACCURATE PARTICULARS HAVE BEEN FURNISHED IS RS.4,03,949/-. 5. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT( A) AND CIT(A) DELETED THE PENALTY VIDE PARA-5.6-5.10 OF HIS APPELLATE ORDER AS UNDER:- 5.6 I HAVE CONSIDERED THE FACTS OF THE CASE AND TH E SUBMISSIONS OF THE LD. A.R. CAREFULLY. IT IS SEEN THAT A.O HAS LEVIED THE PENALTY ON THE DISALLOWANCE OF CLAIM MADE BY THE APPELLANT U/S.80HHC ON THE RECEIP TS AMOUNTING TO RS.1,02,27,471/- COMPRISING OF PACKING INCOME OF RS .7,58,803/-, SERVICE CHARGES OF RS.91,98,796/- AND ERECTION AND COMMISSI ON INCOME OF RS.2,69,808/-. 5.7. SECTION 271(1) OF THE ACT PROVIDES THAT IF TH E ASSESSING OFFICER, IN THE COURSE OF THE PROCEEDINGS UNDER THE ACT IS SATISFIE D THAT ANY PERSON HAS CONCEALED THE PARTICULARS OF HIS INCOME OR FURNISHE D INACCURATE PARTICULARS OF SUCH INCOME, HE MAY DIRECT THAT SUCH PERSON SHALL P AY BY WAY OF PENALTY A SUM WHICH SHALL NOT BE LESS THAN BUT WHICH SHALL NO T EXCEED THREE TIMES THE AMOUNT OF TAX SOUGHT TO BE EVADED BY REASONS OF THE CONCEALMENT OF PARTICULARS OF HIS INCOME. EXPLANATION-I TO SECTION STATES THAT WHERE IN RESPECT OF ANY FACTS MATERIAL TO THE COMPUTATION OF TOTAL I NCOME OF ANY PERSON UNDER THIS ACT, SUCH PERSON FAILS TO OFFER AN EXPLANATION OR OFFERS AN EXPLANATION WHICH IS FOUND BY THE A.O FALSE OR SUCH PERSON OFFE R AN EXPLANATION WHICH HE IS NOT ABLE TO SUBSTANTIATE AND FAILS TO PROVE THAT SUCH EXPLANATION IS BONA FIDE AND THAT ALL THE FACTS RELATING TO THE SAME AN D MATERIAL TO THE COMPUTATION OF THE TOTAL INCOME HAVE BEEN DISCLOSED BY HIM, THE N, THE AMOUNT ADDED OR DISALLOWED IN COMPUTING THE TOTAL INCOME OF SUCH PE RSON AS A RESULT THEREOF SHALL, FOR THE PURPOSES OF CLAUSE OF THIS SUB-SEC TION, BE DEEMED TO REPRESENT THE INCOME IN RESPECT OF WHICH PARTICULAR S HAVE BEEN CONCEALED. THE EFFECT OF THIS EXPLANATION IS THAT IF THE NECESSARY INGREDIENTS AS STATED HEREIN ARE SATISFIED THEN THE AMOUNT DISALLOWED IN COMPUTING TOTAL INCOME SHALL FOR THE PURPOSES OF CLAUSE OF THIS SECTION, BE DEEMED TO REPRESENT THE INCOME IN RESPECT OF WHICH PARTICULARS HAVE BEEN CO NCEALED. THE NECESSARY ELEMENTS FOR ATTRACTING THE EXPLANATION ARE THREE F OLD:- A) THE PERSON FAILS TO OFFER HIS EXPLANATION, OR B) HE OFFERS THE EXPLANATION WHICH IS FOUND BY THE A.O. TO BE FALSE, OR C) THE PERSON OFFERS EXPLANATION WHICH HE IS NOT AB LE TO SUBSTANTIATE AND FAILS TO PROVE THAT SUCH EXPLANATION IS BONA FI DE AND THAT ALL THE FACTS RELATING THE SAME HAVE BEEN DISCLOSED BY HIM. 5.8 IF THE CASE FALLS IN ANY THREE OF INGREDIENTS, THEN THE DEEMING PROVISION COMES INTO PLAY AND THE AMOUNT ADDED OR DISALLOWED IN COMPUTING THE TOTAL INCOME IS CONSIDERED AS THE INCOME IN RESPECT OF WH ICH PARTICULARS HAVE BEEN CONCEALED FOR THE PURPOSES OF CLAUSE OF SECTION 2 71(1)(C) AND THE PENALTY FOLLOWED. IF THE ASSESSEE SUCCESSFULLY COMES OUT O F THE ABOVE THREE ITA NO.2567/AHD/2009 A.Y. 2004-05 ACIT(OSD)-I, RNG-4, ABD V. M/S. MAMTA MACHINERY P . LTD. PAGE 5 CONSEQUENTS THEN HE CANNOT BE DEEMED TO HAVE CONCEA LED HIS PARTICULARS OF INCOME WITH REFERENCE TO THE AMOUNT ADDED OR DISALL OWED IN COMPUTATION OF TOTAL INCOME. 5.9 THE FACTS AND CIRCUMSTANCES OF THE CASE CLEARLY SHOW THAT THE DISALLOWANCE OF CLAIM FOR DEDUCTION U/S80HHC ON OPE RATING INCOME DISCLOSED AT RS.1,02,27,457/- DOES NOT HIT BY THE EXPLANATION AS REQUIRED ABOVE. THE A.O WHILE MAKING A DISALLOWANCE HAS HELD THAT SAME IS INADMISSIBLE IN THE GIVEN SET OF CIRCUMSTANCES, HOWEVER, THERE IS NOTHI NG IN THE ASSESSMENT ORDER AS WELL AS IN THE PENALTY ORDER TO SHOW THAT THE CL AIM FOR SUCH DEDUCTION WAS FABRICATED AND FALSE. FURTHER, IT IS A SETTLED POSI TION OF LAW THAT THE ADDITION CONFIRMED AT THE APPELLATE LEVEL DOES NOT, IPSO FAC TO LEAD TO THE CONCLUSION THAT THE APPELLANT IS GUILTY OF FILING INACCURATE P ARTICULARS FOR SUCH INCOME. IT MAY FURTHER BE SEEN THAT THE LD. CIT(A)-VIII, AHMED ABAD WHILE DECIDING THE ISSUE IN THE FAVOUR OF THE APPELLANT HAD OBSERVED T HAT:- 3. GROUND NO.4 RELATES TO THE ACTION OF THE A.O IN EXCLUDING OTHER OPERATING INCOME OF RS.1,02,27,457/- (COMPRISING OF PACKING INCOME OF RS.7,58,803/-, SERVICE CHARGES OF RS.91,98,796/- AN D ERECTION AND COMMISSIONING CHARGES OF RS.2,69,858/-) FORM BUSINE SS INCOME FOR THE PURPOSE OF CLAIM OF DEDUCTION U/S.S80HHC OF THE I.T . ACT. THIS ISSUE HAS BEEN DISCUSSED BY THE A.O AT PAGE-2 TO 6 IN PAR A 3.1 OF THE ASSESSMENT ORDER. THE ASSESSING OFFICER HAS HELD TH AT THESE INCOMES ARE NOT PROFIT DERIVED FROM EXPORT BUSINESS RELYING ON DECISION OF SC IN THE CASE OF STERLING FOOD AND PANDIAN CHEMICALS LTD . 3.1 THE A.R HAS POINTED OUT THAT FOR A.Y. 200-03 TH E HONBLE ITAT AHMEDABAD BENCH-A VIDE ORDER IN ITA NO.2056/AHD/200 5 DATED 31- 01-2006 HAS ALLOWED HE APPEAL OF THE APPELLANT BY H OLDING THAT THE ABOVE INCOMES ARE TO BE TREATED AS PART OF THE BUSI NESS PROFITS FOR THE PURPOSE OF COMPUTING INCOME DERIVED FROM EXPORT BY VIRTUE OF THE PROVISIONS OF SECTION 80HHC(3) OF THE I.T. ACT. TH E A.R HAS ALSO POINTED OUT THAT THERE IS NO ELEMENT OF PROFIT IN R ESPECT OF SERVICE CHARGES AS THE APPELLANT HAS DEPUTED ITS ENGINEERS TO HANDLE ANY TROUBLE SHOOTING PROBLEMS. THE APPELLANT USED TO RE COVER THE COST BY RAISING DEBIT NOTE. IN RESPECT OF INSTALLATION AND ERECTION INCOME AND PACKING INCOME AGAIN THERE WAS NO ELEMENT OF PROFIT AS THE COST WAS RECOVERED FROM THE CUSTOMERS. 3.2 I HAVE CONSIDERED THE SUBMISSIONS OF THE AUTHOR IZED REPRESENTATIVE CAREFULLY, I FIND THAT THIS ISSUE HA D COME UP IN APPEAL FOR EARLIER ASSESSMENT YEARS A.Y 2002-03 AND A.Y. 0 03-04, THE GROUND RELATING TO OTHER OPERATING INCOME HAS BEEN DISCUSS ED IN DETAIL AND DECIDED AGAINST THE APPELLANT BY CIT(A)-VIII FOR A. Y. 2002-03 VIDE ORDER DATED 12.08.2005, BUT THE HONBLE ITAT HAS HE LD IN FAVOUR OF THE APPELLANT FOR A.Y. 2002-03. HENCE FOLLOWING THE SAI D ORDER OF THE HONBLE ITAT, THIS GROUND IS ALLOWED. 5.10 THE AFORESAID WOULD SHOW THAT THE APPELLANT HA S BEEN ALLOWED SUCH CLAIM IN THE EARLIER YEARS. ITA NO.2567/AHD/2009 A.Y. 2004-05 ACIT(OSD)-I, RNG-4, ABD V. M/S. MAMTA MACHINERY P . LTD. PAGE 6 6. AND FINALLY RELYING ON THE DECISION OF HONBLE R AJASTHAN HIGH COURT IN THE CASE OF SHIV LAL TAK V. CIT (2001) 251 ITR 373 (RAJ) HAS HELD IN PARA-5.12-5.13 OF HIS APPELLATE ORDER:- 5.12 THEREFORE IN THESE CIRCUMSTANCES THE LEVY OF P ENALTY IN RESPECT OF DISALLOWANCE OF CLAIM CANNOT BE SUSTAINED. HONBLE RAJASTHAN HIGH COURT IN THE CASE OF SHIV LAL TAK VS. CIT REPORTED IN 251 IT R 373 HAS HELD THAT:- THE STATUE HAS CLEARLY DRAWN A DISTINCTION BETWEEN A DELIBERATE FALSE EXPLANATION FURNISHED BY THE ASSESSEE AND AN EXPLAN ATION, WHICH MAY NOT BE FALSE BUT IS NOT ACCEPTED BECAUSE THE ASSESS EE WAS NOT ABLE TO SUBSTANTIATE IT. WHILE THERE IS NO RELAXATION IN TH E RIGOUR OF THE EXPLANATION IN RAISING A PRESUMPTION AGAINST THE AS SESSEE IN THE FORMER CASE, IN THE LATTER CLASS OF CASES, THE STAT UTE ITSELF RELAXES ITS RIGOUR BY DIRECTING THAT WHERE IN RESPECT OF ANY AM OUNT, ADDED OR DISALLOWED AND ANY EXPLANATION IS OFFERED BY SUCH P ERSON WHICH IS NOT ACCEPTED BECAUSE THE ASSESSEE HAS FAILED TO SUBSTAN TIATE THE SAME, BUT SUCH EXPLANATION IS BONA FIDE AND ALL THE FACTS RELATING TO THE SAME AND MATERIAL TO THE COMPUTATION OF THE TOTAL INCOME HAVE BEEN DISCLOSED BY HIM, THE EXPLANATION SHALL NOT APPLY 5.13 THEREFORE, IN VIEW OF THE FOREGOING DISCUSSION S, THE PENALTY LEVIED BY THE A.O IS HEREBY DELETED. 7. BEFORE US LD. COUNSEL FOR THE ASSESSEE FILED COP Y OF TRIBUNALS ORDER IN ITA NO.2056/AHD/2005 DATE 31-01-2006 FOR ASSESSMENT YEAR 2002-03 AND ST ATED THAT THE TRIBUNAL HAS RELIED ON IN THE CASE OF DCIT V. MIRA INDUSTRIES (2003) 87 ITD 475 (AHD), WHEREIN THE TRIBUNAL HAS HELD:- THIS INTEREST IS EARNED ON THE SURPLUS MONEY WHICH WAS EARNED BY THE INDUSTRIAL UNDERTAKING AND TO AUGMENT THE INCOME OF THE UNDERTAKING. ASSESSEE SOLICITS THE DISTINCTION BETWEEN INITIAL F UND AND SURPLUS / IDLE FUNDS AND THE ARGUMENT IS THAT INITIAL FUNDS ARE DEPOSITE D WHEN THE UNDERTAKING HAD NOT YET SET ON AND THAT PROFIT ALONE COULD BE SAID TO HAVE NOT BEEN DERIVED FROM; IN SO FAR AS FUNDS GENERATED FROM WITHIN THE EARNINGS OF UNDERTAKING AFTER IT HAD STARTED THE INTEREST INCOME WOULD BE P ART AND PARCEL OF THE UNDERTAKING. THE FACT HOWEVER REMAINS THAT INCOME IS EARNED FROM DEPOSITS MADE AND NOT FROM INDUSTRIAL UNDERTAKING MANUFACTUR ING OR PRODUCING ARTICLES OR THINGS. THIS DISTINCTION MAY BE VALID FOR DETERM INING THE INCOME WHETHER FROM BUSINESS WHERE ONLY INCIDENTAL CONNECTION IS R EQUIRED TO BE ESTABLISHED AND DETERMINING WHETHER INCOME IS DERIVED FROM WHER E THE EFFECTIVE AND DIRECT SOURCE OF FIRST DEGREE ALONE IS TO BE ESTABL ISHED. HENCE, THE ASSESSEE WOULD NOT BE ENTITLED TO DEDUCTION ON SUCH INTEREST RECEIPTS. ITA NO.2567/AHD/2009 A.Y. 2004-05 ACIT(OSD)-I, RNG-4, ABD V. M/S. MAMTA MACHINERY P . LTD. PAGE 7 8. THE LD. COUNSEL FOR THE ASSESSEE STATED THAT THE CLAIM OF THE ASSESSEE IN ASSESSMENT YEAR 2002-03 WAS ALLOWED AS THE DECISION OF HONBLE APEX COURT IN THE CASE OF K. RAVINDRANATHAN NAIR (SUPRA) WAS NOT AVAILABLE AT THAT TIME, WHICH IS D ATED 13-11-2007. THE ASSESSEE HAS MADE CLAIM BASED ON TR IBUNALS DECISION WHICH IS DATED 31-01-2006. ACCORDINGLY, THERE IS CLEAR-CUT DEBATE IN THIS ISSUE TILL THE DECISION OF HONBLE APEX COURT IN THE CASE OF K. RAVINDRANATHAN NAIR (SUPRA), AND THE DEBATE WAS FINALLY SETTLED AFTER THE DECISION OF HONBLE A PEX COURT WAS AVAILABLE AS ON 13- 11-2007. IN VIEW OF THESE FACTS, WE ARE OF THE VIEW THAT THE CLAIM OF DEDUCTION U/S.80HHC OF THE ACT IN RESPECT OF OPERATING INCOME S WAS A DEBATABLE ISSUE AS THE ASSESSEE HAS MADE CLAIM IN VIEW OF THE DECISION OF THIS TRIBUNAL IN THE CASE OF MIRA INDUSTRIES (SUPRA). WE CONFIRM THE ORDER OF CIT(A) DELETING TH E PENALTY. THIS APPEAL OF THE REVENUE IS DISMISSED. 9. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 20/11/2009 SD/- SD/- (N.S.SAINI) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD, DATED :20/11/2009 *DKP COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(APPEALS)- VIII, AHMEDABAD 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, /TRUE COPY/ DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD