The DCIT, Circle-3(1), Visakhapatnam V. M/s Devi Sea Foods Ltd., Visakhapatnam

ITA 260/VIZ/2010

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 2822 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 5 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-09-2010
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 09-09-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 23-04-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D S SUNDER SINGH
• Keywords: Set aside
• Section: 80HHC

Judgement Text

ITA NO 260 OF 2010 DEVI SEA FOODS LTD VISAKHAPATNAM PAGE 1 OF 3 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI BR BASKARAN, ACCOUNTANT MEMBER ITA NO.260/VIZAG/2010 ASSESSMENT YEAR: 2004-05 DY.COMMISSIONER OF INCOME TAX, CIRCLE-3(1), VISAKHAPATNAM VS. DEVI SEA FOODS LTD., VISAKHAPATNAM (APPELLANT) (RESPONDENT) PAN NO: AABCD 0248B APPELLANT BY: SHRI D.S. SUNDER SINGH, DR RESPONDENT BY: SHRI G.V.N. HARI, CA ORDER PER SHRI B. R. BASKARAN, ACCOUNTANT MEMBER: THE APPEAL OF THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 28-01- 2010 PASSED BY LEARNED CIT (A), VISAKHAPATNAM AND I T RELATES TO THE ASSESSMENT YEAR 2004-05. 2. THE DEPARTMENT IS ASSAILING THE DECISION OF THE LEARNED CIT (A) IN DIRECTING THE ASSESSING OFFICER TO ADJUST THE INTER EST INCOME EARNED FROM FIXED DEPOSITS MAINTAINED WITH BANKS AND APSEB AGAI NST THE INTEREST EXPENDITURE FOR THE PURPOSE OF CALCULATION OF DEDUC TION U/S 80HHC OF THE ACT. 3. THE FACTS RELATING TO THE ISSUE ARE STATED IN BR IEF. THE ASSESSEE HAD EARNED INTEREST INCOME OF RS.20,47,922/- FROM FIXED DEPOSITS KEPT FOR BANK GUARANTEE AND LETTER OF CREDITS (LCS) AND FURTHER A SUM OF RS.1,13,966/- FROM APSEB DEPOSITS. WHILE CALCULATING THE DEDUCTIO N U/S 80HHC, THE ASSESSEE ADJUSTED INTEREST INCOME CITED ABOVE AGAIN ST THE INTEREST EXPENDITURE. THE ASSESSING OFFICER DID NOT ACCEPT T HE SAME AND ACCORDINGLY EXCLUDED THE 90% OF THE INTEREST INCOME FROM THE PR OFITS OF BUSINESS WHILE COMPUTING DEDUCTION U/S 80HHC. IN THE APPEAL FILED BY THE ASSESSEE, ITA NO 260 OF 2010 DEVI SEA FOODS LTD VISAKHAPATNAM PAGE 2 OF 3 LEARNED CIT(A) ACCEPTED THE CALCULATIONS MADE BY TH E ASSESSEE. AGGRIEVED THE REVENUE IS IN APPEAL BEFORE US. 4. THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED O N THE DECISION OF THE HON'BLE MADRAS HIGH COURT IN THE CASE OF AMBATT UR CLOTHING CO. LTD., VS. ASSISTANT COMMISSIONER OF INCOME TAX REPORTED I N 2009, 221 CTR (MAD.) 196 TO CONTEND THAT 90% OF THE GROSS INTERES T INCOME HAS TO BE EXCLUDED FROM THE PROFITS DERIVED FROM THE EXPORTS FOR THE PURPOSE OF CALCULATION OF DEDUCTION U/S 80HHC OF THE ACT AND A CCORDINGLY SUPPORTED THE ORDER OF THE A.O. ON THE CONTRARY, THE LEARNED AUTHORISED REPRESENTATIVE RELIED ON THE DECISION OF HON'BLE DE LHI HIGH COURT IN THE CASE OF CIT VS. SHRI RAM HONDA POWER EQUIPMENT LTD., (28 9 ITR 501), WHERE IN IT IS HELD THAT THE INTEREST INCOME HAVING BUSINESS CONNECTION HAS TO BE ADJUST AGAINST THE INTEREST EXPENDITURE FOR THE PUR POSE OF CALCULATION OF DEDUCTION U/S 80HHC OF THE ACT. HE FURTHER SUBMITT ED THAT THIS BENCH OF THE TRIBUNAL IS CONSISTENTLY FOLLOWING THE DECISION OF THE HON'BLE DELHI HIGH COURT CITED ABOVE. IN SUPPORT OF HIS SUBMISSIONS, TH E LEARNED A.R PLACED COPIES OF ORDERS PASSED BY THIS BENCH IN THE FOLLOW ING CASES. (A) A.C.I.T VS. LAVANYA ENTERPRISES (ITA NO.505/V/ 2004) (B) D.C.I.T VS. GUPTA ENTERPRISES (ITA NO.117 & 118 /V/2002) LEARNED A.R FURTHER SUBMITTED THAT IT IS A WELL SE TTLED PROPOSITION THAT THE VIEW IN FAVOUR OF THE ASSESSEE HAS TO BE ACCEPTED, WHEN THERE ARE TWO POSSIBLE VIEWS. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT THE FIXE D DEPOSITS WITH THE BANKS HAVE BEEN MADE IN CONNECTION WITH SECURING BANK GUA RANTEES AND LETTER OF CREDITS AND HENCE THERE IS A BUSINESS NEXUS FOR MAK ING THE SAID FIXED DEPOSITS. WITH REGARD TO ADJUSTMENT OF INTEREST INC OME AGAINST THE INTEREST EXPENDITURE, THE DECISIONS OF HON'BLE HIGH COURTS A RE CONTRADICTORY. HOWEVER, THIS BENCH IS CONSISTENTLY FOLLOWING THE V IEW OF THE HON'BLE DELHI HIGH COURT AND IS HOLDING THAT INTEREST INCOME HAVI NG NEXUS WITH THE BUSINESS ACTIVITIES HAS TO BE ADJUSTED AGAINST THE INTEREST EXPENDITURE AND ONLY NET INTEREST HAS TO BE EXCLUDED FROM THE PROFI TS OF BUSINESS FOR THE ITA NO 260 OF 2010 DEVI SEA FOODS LTD VISAKHAPATNAM PAGE 3 OF 3 PURPOSE OF CALCULATION OF DEDUCTION U/S 80HHC OF TH E ACT. THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. VEGETABLE PROD UCTS LTD., (88 ITR 192) HAS HELD THAT WHEN TWO VIEWS ARE POSSIBLE, ONE VIEW WHICH IS FAVOURABLE TO THE ASSESSEE HAS TO BE ACCEPTED. THE VIEW TAKEN BY THIS BENCH IS IN FAVOUR OF THE ASSESSEE. IN VIEW OF THE ABOVE, WE DO NOT FIN D ANY INFIRMITY IN THE DECISION OF THE LEARNED CIT (A) IN DIRECTING THE AS SESSING OFFICER TO ADJUST INTEREST EARNED ON FIXED DEPOSITS MAINTAINED WITH T HE BANK AGAINST THE OTHER INTEREST EXPENDITURE. SO FAR AS THE INTEREST EARNED ON APSEB DEPOSITS IS CONCERNED, BOTH THE PARTIES AGREED THAT THE SAID INTEREST IS ASSESSABLE UNDER THE HEAD INCOME FROM OTHER SOURCES AND HENCE THE GROSS INTEREST HAS TO BE EXCLUDED FOR THE PURPOSE OF CALCULATION O F DEDUCTION U/S 80HHC OF THE ACT. ACCORDINGLY WE SET ASIDE THE ORDER OF THE LEARNED CIT (A) AND RESTORE THE ORDER PASSED BY THE A.O IN RESPECT OF I NTEREST RECEIVED FROM APSEB DEPOSITS. 6. IN THE RESULT, THE APPEAL OF THE REVENUE IS PARTL Y ALLOWED. PRONOUNCED IN THE OPEN COURT ON 24 TH SEPTEMBER, 2010. SD/- SD/- (SUNIL KUMAR YADAV) (B R BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PVV/SPS VISAKHAPATNAM, DATE: 24-09-2010 COPY TO 1 THE DY. COMMISSIONER OF INCOME TAX, CIRCLE-3(1) V ISAKHAPATNAM 2 DEVI SEA FOODS LTD.,9-14-8/1 CBM COMPOUND, VISAKH APATNAM 3 4. THE CIT I, VISAKHAPATNAM THE CIT(A), VISAKHAPATNAM 5 THE DR, ITAT, VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM