Amaltash Associates, Ahmedabad V. The Income tax Officer,Ward-7(4), Ahmedabad

ITA 2578/AHD/2010

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 9385 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-11-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2005-2006
• Appeal Filed On: 27-08-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: P M MEHTA
• Keywords: Capital expenditure
• Section: 80IB; 56

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH AHMEDABAD (BEFORE SHRI BBAVNESH SAINI, JUDICIAL MEMBER) ITA NO.2578/AHD/2010 A. Y.: 2005-06 AMALTASH ASSOCIATES, COMMERCE HOUSE, OPP. RAJVANSH TOWER, NR. JUDGES BUNGLOW, BODAKDEV, AHMEDABAD VS INCOME TAX OFFICER, WARD -7(4), 2 ND FLOOR, NAVJEEVAN TRUST BUILDING, OFF. ASHRAM ROAD, AHMEDABAD PA NO. AAKFA 5510B (APPELLANT) (RESPONDENT) APPELLANT BY SHRI P. M. MEHTA, AR RESPONDENT BY SMT. SHAILJA RAI, DR O R D E R PER BHAVNESH SAINI, JM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST ORDER OF THE CIT(A)- XVI, AHMEDABA D DATED 18-06-2010 FOR ASSESSMENT YEAR 2005-06. 2. THE LEARNED COUNSEL FOR THE ASSESSEE DID NOT PRE SS GROUND NO.1 (A) OF THE APPEAL. THIS GROUND IS ACCORDINGLY DISMISSED BEING NOT PRESSED. 3. GROUND NO.1 (B) AND 1(C) READS AS UNDER: 1. IN LAW AND IN FACTS AND CIRCUMSTANCES OF THE AP PELLANTS CASE, THE LEARNED CIT(A) HAS GROSSLY ERRED IN UPHOL DING DISALLOWANCE OF DEDUCTION U/S. 80 IB IN RESPECT OF INTEREST INCOME OF RS.2,38,967 CREDITED TO THE APPELLANTS PROFIT AND LOSS ACCOUNT. HE OUGHT TO HA VE APPRECIATED, INTER ALIA; ITA NO. 2578/AHD/2010 AMALTASH ASSOCIATES VS ITO W-7(4), AHMEDABAD 2 (B) THAT IN ANY CASE, ONCE THE APPELLANT HAD SHOWED THAT ALL THE INTEREST INCOME IN QUESTION WAS EARNED ON ADVANCES MADE OUT OF BORROWED FUNDS (A FACT ABOUT WHICH THE LEARNED CIT(A) HAS HIMSELF RECORDED SATISFACTION IN THE IMPUGNED APPELLATE ORDER), THE INTEREST INCOME IN QUESTION WAS REQUIRED TO BE SET OFF AGAINST INTEREST EXPENDITURE WHICH WAS CONSIDERABLY LARGER AND WHICH HAD BEEN TAKEN INTO ACCOUNT IN ARRIVING AT THE APPELLANTS INCOME ELIGIBLE TO THE DEDUCTION U/S. 80-IB; ( C) THAT, IN ANY CASE, EVEN IF IT WERE ASSUMED THA T THE INTEREST INCOME IN QUESTION WAS REQUIRED TO BE ASSE SSED UNDER THE HEAD INCOME FROM OTHER SOURCES, IT BEIN G THE ADMITTED POSITION THAT THE SAME HAD BEEN EARNED ON ADVANCES MADE OUT OF BORROWED FUNDS ON WHICH THE APPELLANT HAD PAID INTEREST, INTEREST EXPENDITURE W AS REQUIRED TO BE SET OFF AGAINST THE INTEREST INCOME, IN WHICH EVENT TOO, THE APPELLANTS INCOME ELIGIBLE TO DEDUCTION U/S. 80- IB WOULD CORRESPONDINGLY GO UP A ND SO ALSO THE QUANTUM OF DEDUCTION UNDER THAT PROVISI ON. 4. BRIEFLY, THE FACTS OF THE CASE ARE THAT THE AO O BSERVED THAT THE ASSESSEE HAS CLAIMED DEDUCTION U/S 80IB OF THE IT ACT IN RESPECT OF OTHER INCOME OF RS.2,38,967/-. HE ASKED THE ASSESSE D AS TO WHY THIS AMOUNT SHOULD NOT BE EXCLUDED FOR THE PURPOSE OF DE DUCTION U/S 80-IB OF THE IT ACT. THE CONTENTION OF THE ASSESSEE WAS T HAT INTEREST INCOME OF RS.2,38,967/- HAS BEEN EARNED OUT OF THE FUNDS BORR OWED FROM OVERDRAFT BANK ACCOUNT. THE ASSESSEE HAS INCURRED EXPENSES AN D INTEREST TO PARTNERS CAPITAL ACCOUNT WAS PAID. THERE WAS DIREC T NEXUS BETWEEN THE INTEREST EXPENDITURE AND INTEREST INCOME. IT WAS, T HEREFORE, REQUESTED THAT THE SAME IS REQUIRED TO BE NETTED OFF AGAINST EACH OTHER. THE AO DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE AND REJEC TED THE CLAIM OF THE ASSESSEE. THE LEARNED CIT(A) CONSIDERING THE SUBMIS SION OF THE ASSESSEE ALSO CONFIRMED THE ADDITION HOLDING THAT NETTING OF F IS NOT ALLOWABLE IN THE MATTER AS INCOME WAS EARNED FROM OTHER SOURC ES. ITA NO. 2578/AHD/2010 AMALTASH ASSOCIATES VS ITO W-7(4), AHMEDABAD 3 5. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED T HAT THE MATTER REQUIRES RECONSIDERATION AT THE LEVEL OF THE AO IN VIEW OF THE RECENT DECISION OF ITAT AHMEDABAD D BENCH IN THE CASE OF ITO VS GUJARAT PAGUTHAN ENERGY CORPORATION LTD. IN ITA NO.1953 AND 3458/AHD/2007 ALONG WITH CO NO.317/AHD/2007 (PAGE 6 OF THE PAPER BOOK) AND THE TRIBUNAL VIDE ORDER DATED 12-11-2010 DISMISSED THE DEPARTMENTAL APPEAL ON THE SIMILAR GROUND. HE HAS SUBMITTED THAT ONCE I NTEREST INCOME IS ASSESSED U/S 56 OF THE IT ACT, THE EXPENDITURE ADMI SSIBLE U/S 57 (III) OF THE IT ACT BEING THE EXPENDITURE WHOLLY AND EXCLUSI VELY INCURRED FOR THE PURPOSE OF EARNING THE INTEREST INCOME, EXCEPT CAPI TAL EXPENDITURE CAN BE ALLOWED AS DEDUCTION. HE REFERRED TO PARA 10 OF THE ORDER OF THE TRIBUNAL WHICH READS AS UNDER: 10. WE HAVE HEARD THE PARTIES AND CAREFULLY PERUSED THE MATERIAL ON RECORD. IN OUR CONSIDERED VIEW ONCE INTEREST INCOME IS HELD TO BE ASSESSABLE UNDER THE HEAD INCOME FROM OTHER SOURCES THEN IT CANNOT BE AS SUCH TREATED AS INCOME FROM BUSINESS AND, THEREFO RE, IT WILL NOT BE AVAILABLE FOR DEDUCTION UNDER SECTIO N 80IA. SIMILAR VIEW WAS ALSO TAKEN BY HON. PUNJAB & HARYANA HIGH COURT IN (2007) NAHAR EXPORTS LTD. VS. CIT 288 ITR 494 (P&H). HOWEVER, ONCE INTEREST INCOME IS ASSESSED U/S 56 THE EXPENDITURES ADMISSIB LE U/S 57(III) BEING EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF EARNING INTEREST INC OME EXCEPT CAPITAL EXPENDITURE CAN BE ALLOWED AS DEDUCTION. THE LD. CIT(A) HAS IN THIS REGARD OBSERV ED AS UNDER: (I) THE CLAIM OF ASSESSEE AGAINST EXCLUSION OF INTEREST INCOME FOR THE PURPOSE OF COMPUTING DEDUCTION U/S 80IA IS REJECTED. (II) HOWEVER, AS CLAIMED BY THE APPELLANT, THE NET INTEREST INCOME, IF ANY, SHOULD BE TAKEN TO THE HEAD INCOME FROM OTHER SOURCES I.E. AFTER ITA NO. 2578/AHD/2010 AMALTASH ASSOCIATES VS ITO W-7(4), AHMEDABAD 4 ALLOWING INTEREST EXPENDITURE. THE AO SHALL VERIFY THE INTEREST EXPENDITURE LINKED WITH THE EARNING OF INTEREST INCOME AND ALLOW SET OFF OF SUCH INTEREST EXPENDITURE. THE BALANCE, IF ANY SHOULD BE TREATED AS INCOME FROM OTHER SOURCES. THE DEDUCTION U/S 80IA SHOULD BE RECOMPUTED ACCORDINGLY. THE ASSESSEE IS DIRECTED TO FURNISH ALL DETAILS BEFORE THE AO TO ENABLE HIM TO RECOMPUTE THE TOTAL INCOME. THIS GROUND OF APPEAL IS TREATED AS PARTLY ALLOWED AS MENTIONED ABOVE. 4.1 GROUND NO.4.1 AND 4.2 ARE SIMILAR TO GROUND RELATING TO INTEREST INCOME AS DISCUSSED IN EARLIER PARAGRAPHS. THE AO WHILE COMPUTING DEDUCTION U/S 80IA HAS TREATED THE INTEREST INCOME OF RS.2,54,45,336/- RECEIVED BY THE APPELLANT FROM GSPL AS INCOME FROM OTHER SOURCES AND THE SAME HAS NOT BEEN SET OFF AGAINST THE INTEREST EXPENDITURE INCURRED BY THE APPELLANT FOR THE PURPOSE OF ITS BUSINESS. THIS HAS RESULTED IN REDUCING THE APPELLANTS INCOME UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. THIS ISSUE HAS ALSO BEEN CONSIDERED BY THE LD. CIT(A) IN APPELLANTS OWN CASE FOR ASST. YEAR 2004-05. THE LD. CIT(A) HAS DECIDED THE ISSUE IN FAVOUR OF THE APPELLANT. THE FACTS REMAINING THE SAME, FOLLOWING THE ORDER OF LD. CIT(A) FOR ASST. YEAR 2004-05, I DIRECTED THE AO TO ADJUST INTEREST EXPENDITURE WITH INTEREST INCOME AND NET INTEREST INCOME, IF ANY, SHOULD BE TREATED AS INCOME FROM OTHER SOURCES. THE APPELLANT SHOULD FURNISH THE COMPLETE DETAILS OF INTEREST EXPENDITURE AND INCOME TO ENABLE THE AO TO GIVE EFFECT TO THIS ORDER CORRECTLY. THIS GROUND IS TREATED AS PARTLY ALLOWED. IN VIEW OF THIS, WE CONFIRM THE ORDER OF LD. CIT(A) AND DISMISS THIS GROUND OF REVENUE. ITA NO. 2578/AHD/2010 AMALTASH ASSOCIATES VS ITO W-7(4), AHMEDABAD 5 6. THE LEARNED DR ALSO SUGGESTED THAT THE MATTER MA Y BE RESTORED TO THE FILE OF THE AO FOR DECIDING THE ISSUE AFRESH IN ACCORDANCE WITH LAW. 7. ON CONSIDERATION OF THE RIVAL SUBMISSIONS, I AM OF THE VIEW THAT THE MATTER REQUIRES RECONSIDERATION AT THE LEVEL OF THE AO ON LIMITED POINT WITH REGARD TO ALLOWABILITY OF THE EXPENDITURE U/S 57(III) OF THE IT ACT. HOWEVER, IT IS CLARIFIED THAT ONCE THE INCOME IS TR EATED AS INCOME FROM OTHER SOURCES, THE SAME CANNOT BE ALLOWED AS DEDUCT ION U/S 80- IB OF THE IT ACT. I ACCORDINGLY SET ASIDE THE ORDERS OF THE A UTHORITIES BELOW ON THIS POINT AND RESTORE THIS ISSUE TO THE FILE OF THE AO WITH DIRECTION TO RE- DECIDE THE ISSUE IN ACCORDANCE WITH LAW BY FOLLOWIN G THE ORDER OF THE TRIBUNAL IN THE CASE OF GUJARAT PAGUTHAN ENERGY COR PORATION LTD. (SUPRA). THE AO SHALL GIVE REASONABLE SUFFICIENT OP PORTUNITY OF BEING HEARD TO THE ASSESSEE. 8. IN THE RESULT, THIS GROUND OF APPEAL OF THE ASSE SSEE IS ALLOWED FOR STATISTICAL PURPOSES. 9. ON GROUND NO.2 OF THE APPEAL, THE ASSESSEE CHALL ENGED THE DISALLOWANCE OF RS.8,595/- ON ACCOUNT OF TELEPHONE EXPENSES. THE AO CONSIDERING THE PERSONAL USE OF TELEPHONE AND MOBIL E PHONE BY THE PARTNERS DISALLOWED ONE FIFTH OF THE EXPENDITURE. T HE LEARNED CIT(A) CONFIRMED THE ADDITION. ON CONSIDERATION OF THE ABO VE FACTS AND THE NATURE OF BUSINESS OF THE ASSESSEE, I AM OF THE VIE W THAT DISALLOWANCE IS EXCESSIVE IN NATURE. THE SAME IS RESTRICTED TO RS.4 ,000/- IN ALL AS AGAINST ADDITION OF RS.8,595/-. 10. IN THE RESULT, THIS GROUND OF APPEAL OF THE ASS ESSEE IS PARTLY ALLOWED. ITA NO. 2578/AHD/2010 AMALTASH ASSOCIATES VS ITO W-7(4), AHMEDABAD 6 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE I S PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 25-11-2010 SD/- (BHAVNESH SAINI) JUDICIAL MEMBER DATE : 25-11-2010 LAKSHMIKANT/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A)- CONCERNED 5. THE DR, ITAT, CONCERNED 6. GUARD FILE BY ORDER D Y. REGISTRAR, ITAT, AHMEDABAD