ACIT Central Circle, V. Paliwal Export,

ITA 2677/DEL/2006

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 1029 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 2 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2009
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: G
• Next Hearing Date: 01-10-2009
• Assessment Year: 2000-2001
• Appeal Filed On: 10-08-2006
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SOBHAN KAR
• Keywords: Business income; Set aside
• Section: 80HHC; 80HH

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G : NEW DELHI BEFORE SHRI A.D.JAIN, JM AND SHRI R.C.SHARMA, AM ITA NOS.2677/DEL/2006, 2678/DEL/2006 & 2679/DEL/200 6 ASSESSMENT YEARS : 2000-01, 2001-02 & 2002-03 ASSTT.COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE, KARNAL. VS. M/S PALIWAL EXPORTS, PALIWAL NAGAR, PANIPAT. PAN NO.AABFP7540R. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SOBHAN KAR, SR.DR. RESPONDENT BY : SHRI SATISH GOEL, ADVOCATE. ORDER PER BENCH : THESE ARE THE APPEALS FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A) FOR AY 2000-01, 2001-02 & 2002-03. 2. AS COMMON GROUNDS ARE INVOLVED IN ALL THE YEARS, FOR THE SAKE OF CONVENIENCE, ALL THE APPEALS WERE HEARD TOGETHER AN D ARE NOW BEING DISPOSED OF BY THIS CONSOLIDATED ORDER. 3. FACTS IN BRIEF ARE THAT ASSESSEE IS ENGAGED IN T HE BUSINESS OF EXPORT OF HANDLOOMS. IT CLAIMED DEDUCTION U/S 80HHC IN RESPE CT OF ITS EXPORT INCOME. WHILE COMPUTING THE ELIGIBLE AMOUNT OF DEDUCTION U/ S 80HHC, THE AO EXCLUDED THE AMOUNT OF GROSS INTEREST INCOME BY CONSIDERING THE SAME AS NOT PROFIT OF BUSINESS. AS A BUSINESS NECESSITY, THE ASSESSEE HA D GOT FDR AND HAD EARNED INTEREST THEREON. IT HAD ALSO PAID INTEREST ON THE LOANS AVAILED FROM THE BANK FOR THE PURPOSE OF ITS EXPORT BUSINESS. THE CONTENTION OF THE ASSESSEE WAS THAT THE NET INTEREST INCOME/EXPENDITURE IS TO BE TAKEN INTO ACC OUNT SINCE BOTH ARE OF THE SAME NATURE. HOWEVER, THE AO DID NOT ACCEPT ASSESSEES CONTENTION AND TREATED THE INTEREST INCOME AS INCOME FROM OTHER SOURCES AND EX CLUDED THE SAME FROM ITA-2677, 2678 & 2679/D/2006 2 BUSINESS PROFITS WHILE COMPUTING DEDUCTION U/S 80HH C. BY FOLLOWING THE APPELLATE ORDER DATED 7.3.2001 IN ASSESSEES OWN CA SE FOR AY 1996-97 THE CIT(A) HELD THAT INTEREST OF FDR MADE FOR PROVIDING MARGIN MONEY IN EXPORT BUSINESS, WAS INCOME FROM BUSINESS, THEREFORE ASSESSEE IS ENT ITLED TO CLAIM DEDUCTION U/S 80HHC. AGGRIEVED BY THE SAME, THE REVENUE IS IN FU RTHER APPEAL BEFORE US. 4. THE LEARNED AR PLACED ON RECORD ORDER OF THE TRI BUNAL IN ASSESSEES OWN CASE FOR AY 1996-97, 1997-98, ORDER DATED 8.6.2007, WHEREIN IT WAS HELD THAT CIT(A) AFTER EXAMINING THE DETAILS OF THE DEPOSITS AS WELL AS BANK CERTIFICATE FILED BY THE ASSESSEE HAS RECORDED A SPECIFIC FINDING THA T THE BORROWED AMOUNT ON WHICH INTEREST WAS PAID WAS USED FOR MAKING FDR ON WHICH INTEREST WAS EARNED BY THE ASSESSEE, HENCE THERE WAS NEXUS BETWEEN THE TWO, TH EREFORE 90% OF THE NET INTEREST WAS EXCLUDIBLE FOR THE PURPOSE OF COMPUTING THE PRO FITS OF THE BUSINESS FOR THE PURPOSE OF SECTION 80HHC OF THE ACT. THE TRIBUNAL FURTHER OBSERVED THAT THIS FINDING RECORDED BY THE CIT(A) COULD NOT BE DISLODG ED BY THE LEARNED DR OF THE REVENUE, HENCE THE APPEAL OF THE REVENUE WAS DISMIS SED. VARIOUS OTHER DECISIONS OF THE TRIBUNAL WERE ALSO PLACED ON RECORD WHEREIN NET INTEREST INCOME WAS CONSIDERED FOR PURPOSE OF COMPUTING DEDUCTION U/S 8 0HHC IN PLACE OF GROSS INTEREST INCOME EARNED BY THE ASSESSEE. LEARNED AR ALSO RELIED ON THE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF AV RI CYCLE INDUSTRIES 206 CTR 346 AND SUBMITTED THAT AMOUNT OF INTEREST CANNOT BE REDUCED FROM THE INCOME FOR ARRIVING AT 80HHC DEDUCTION. AS THIS WAS THE LATES T DECISION OF HON'BLE JURISDICTIONAL HIGH COURT, IT WAS CONTENDED TO BE F OLLOWED. RELIANCE WAS ALSO PLACED BY THE LEARNED AR ON THE DECISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF SRI RAM HONDA POWER EQUIPMENT 289 ITR 475 WHIC H WAS FOLLOWED BY THE DELHI TRIBUNAL IN THE CASE OF LIBERTY SHOES, KARNAL IN ITA NO.2251/DEL/2006, ORDER DATED 20.6.2008, WHEREIN CLAIM OF THE ASSESSE E WAS ALLOWED BY HOLDING THAT IT WAS ONLY THE NET AMOUNT OF INTEREST AGAINST THE INTEREST PAID FOR WORKING OUT THE 80HHC DEDUCTION. ITA-2677, 2678 & 2679/D/2006 3 5. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND FOU ND THAT HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF AVRI CYCLE INDUSTRIES (SUPRA) HELD THAT PROFITS OF BUSINESS MEANS PROFITS AND GAINS OF BUSI NESS AS COMPUTED UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION, AS R EDUCED BY THE ITEMS PROVIDED FOR IN THE DEFINITION. IT WAS FURTHER HELD THAT WHILE COMPUTING THE BUSINESS INCOME ONCE THE AMOUNT OF INTEREST EARNED BY THE ASSESSEE WAS TAKEN AS PART OF BUSINESS INCOME ONLY AND THE SAME WAS NOT REDUCED THEREFROM FOR DEALING UNDER THE HEAD INCOME FROM OTHER SOURCES, THERE IS NO REASON FOR REDUCING THE SAME OUT OF INCOME FROM BUSINESS OR PROFESSION FOR THE PURPOSE OF CALCULATION OF DEDUCTION U/S 80HHC, AS AFTER INCLUDING THE SAME IN THE INCOME FR OM BUSINESS OR PROFESSION, THE REDUCTION AS ENVISAGED UNDER THAT PROVISION WOULD B E CARRIED OUT. 6. IT IS CLEAR FROM THE ABOVE DECISION THAT IF THE EXPORTER IS EARNING INTEREST INCOME AS BUSINESS INCOME AND NOT AS INCOME FROM OT HER SOURCES, THE SAME IS ELIGIBLE FOR CLAIM OF DEDUCTION U/S 80HHC. IN THE INSTANT CASE, THE CIT(A) WHILE FOLLOWING THE ORDER OF THE TRIBUNAL OF EARLIER YEAR WHEREIN FINDING WAS RECORDED TO THE EFFECT THAT FDRS WERE INEXTRICABLY LINKED WITH THE EXPORT BUSINESS, AFTER EXAMINING THE DETAILS OF BANK CERTIFICATE FILED BY THE ASSESSEE, A FINDING WAS RECORDED THAT BORROWED AMOUNTS ON WHICH INTEREST WA S PAID WAS USED FOR MAKING FDR ON WHICH INTEREST WAS EARNED BY THE ASSESSEE, H ENCE THERE WAS NEXUS BETWEEN THE TWO, THEREFORE 90% OF THE NET INTEREST WAS EXCL UDIBLE FOR THE PURPOSE OF COMPUTING THE PROFIT OF THE BUSINESS FOR THE PURPOS E OF SECTION 80HHC. IN THE INSTANT CASE, THE AO HAS GIVEN A CONTRARY OBSERVATI ON TO THE EFFECT THAT INTEREST INCOME SO EARNED WAS INCOME FROM OTHER SOURCES, THE REFORE NOT ELIGIBLE FOR CLAIM OF DEDUCTION U/S 80HHC. THE APPLICABILITY OF LATES T DECISION OF HON'BLE JURISDICTIONAL HIGH COURT DEPENDS UPON THE SPECIFIC FINDING RECORDED BY THE LOWER AUTHORITIES. AS THERE IS A CLEAR CONTRADICTION BET WEEN THESE TWO FINDINGS AS RECORDED BY AO AND CIT(A), WE SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES ON THIS POINT AND MATTER IS RESTORED BACK TO THE FILE OF THE AO FOR DECIDING THE ISSUE ITA-2677, 2678 & 2679/D/2006 4 AFRESH AFTER GIVING DUE OPPORTUNITY TO THE ASSESSEE . WE DIRECT ACCORDINGLY. THIS GROUND OF REVENUES APPEAL IS ALLOWED FOR STATISTIC AL PURPOSES. 7. NEXT COMMON ISSUE RELATES TO DELETING DISALLOWAN CE OF FOREIGN TOUR EXPENSES. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND FOUND THAT FOREIGN TOUR EXPENDITURE WAS DISALLOWED BY THE AO ON THE PLEA TH AT THE PERSONS WHO HAVE UNDERTAKEN THE FOREIGN TOUR WERE NOT PARTNERS OF TH E ASSESSEE FIRM. CONTENTION OF THE ASSESSEE WAS THAT SHRI AJAY PALIWAL, PARTNER OF THE ASSESSEE FIRM WAS NOT WELL AT THE RELEVANT TIME, THEREFORE UNABLE TO UNDERTAKE FOREIGN VISITS, ACCORDINGLY HELP OF THESE PERSONS WAS TAKEN FOR THE PURPOSE OF BUSIN ESS OF THE FIRM WHO HAVE VISITED FOREIGN COUNTRIES FOR THE BUSINESS OF THE A SSESSEE FIRM AND BROUGHT GOOD ORDERS FOR THE ASSESSEE. THE CIT(A) DELETED THE DI SALLOWANCE OF EXPENDITURE BY OBSERVING AS UNDER:- AS SHRI AJAY PALIWAL IS HIGH BLOOD PRESSURE PATIEN T AND NORMALLY AVOID TRAVEL AND THATS WHY MR.SOHAN LAL GARG TAKE CARE OF OVERSEAS BUSINESS AND BECAUSE OF THAT THEY UNDERTAKE FOREIGN TRAVEL. MR.SOHAN LAL GARG HAS BEEN PAID RS.1.00 LAC AS CONS ULTANCY CHARGES FOR THE SPECIFIC JOB AND BECAUSE OF THE EXTRA EFFOR TS OF MR.SOHAN LAL GARG, OUR COMPANY HAS BEEN ABLE TO START BUSINESS W ITH M/S KAS AUSTRALIA, M/S KAS NEW ZEALAND, M/S KAS ORIENTAL RU GS, M/S MAHAVI A & A RUGS, M/S WAL-MART USA., M/S WILLIAMS SONAVA INC AND 3 YEARS SALES CHART OF THESE BUYERS ARE GIV EN AS UNDER:- NAME OF PARTY AY 2001-02 AY 2002-03 AY 200 3-04 M/S KAS AUSTRALIA 0.14 0.31 0.23 M/S KAS NEW ZEALAND -- 0.01 0.05 M/S KAS ORIENTAL RUGS -- 0.05 0.36 M/S MADHAVI A & A RUGS -- 0.10 0.40 M/S WAL MART USA 16.86 12.21 0.54 M/S WILLIAMS SONAVA IMS -- 0.22 1.37 HOWEVER TRAVELING OF MR.SOHAN LAL GARG WERE WHOLLY AND EXCLUSIVELY FOR THE PROMOTION OF THE EXPORT BUSINES S. ITA-2677, 2678 & 2679/D/2006 5 8. FROM THE RECORD, WE ALSO FOUND THAT THE FOREIGN TRAVELING OF THESE TWO PERSONS HAVE BROUGHT GOOD BUSINESS RESULTS RESULTIN G IN ENHANCEMENT OF ASSESSEES TURNOVER. OUR ATTENTION WAS ALSO INVITED TO THE CO MPARATIVE TURNOVER OF THE BUSINESS AFTER THESE TRAVELING WERE UNDERTAKEN AND THE EXPENDITURE INCURRED THEREON. OUR ATTENTION WAS ALSO INVITED FOR SIMILA R EXPENDITURE IN THE EARLIER YEARS 1997-98 TO 1999-2000, THERE WAS NO DISALLOWANCE. E VEN DURING THE PRESENT YEARS UNDER CONSIDERATION, THE CONSULTANCY CHARGES PAID T O THESE PERSONS WHO HAD UNDERTAKEN FOREIGN TRAVELING WAS ALSO NOT DISALLOWE D. OUR ATTENTION WAS ALSO DRAWN TO THE CERTIFICATES FROM WALMART IS FILED WHI CH READS AS UNDER:- TO WHOMSOEVER IT MAY CONCERN IT IS CERTIFIED THAT PALIWAL EXPORTS PANIPAT (CONT ACT PERSON S.L.GARG) IS EXPORTING MERCHANDISING THROUGH WMGP I NDIA SINCE 2001 AND MR.S.L.GARG IS THE KEY PERSON FOR HIS BUSI NESS AND BECAUSE OF BUSINESS NEEDS, HE HAS BEEN TRAVELING VERY FREQU ENTLY TO OUR HEAD OFFICE AT BENTONVILLE IN USA TO MEET THE BUYERS/PRO DUCT DEVELOPMENT TEAM FOR THE NEW BUSINESS OPPORTUNITIES AND CURRENT RUNNING BUSINESS PROGRAMS WITH WAL-MART AND ITS PUR ELY BECAUSE OF HIS EFFORTS THE BUSINESS OF PALIWAL EXPORTS GREW TREMENDOUSLY. SIMILARLY, A CERTIFICATE FROM TARGET STORES IS ALSO FILED, WHICH READS AS UNDER:- TO WHOM SO EVER IT MAY CONCERN IT IS CERTIFIED THAT PALIWAL EXPORTS, PANIPAT IS E XPORTING THEIR MERCHANDISING THROUGH OUR LOCAL OFFICE SINCE 2004 A ND MR. S.L.GARG IS THE KEY PERSON WHO APPROACHED/FOLLOWED WITH US FOR THIS BUSINESS AND WHOLE BUSINESS IS BECAUSE OF HIS EFFOR TS. BECAUSE OF BUSINESS NEEDS, HE HAS BEEN TRAVELING TO OUR HEAD O FFICE AT MINNEAPOLIS IN USA TO MEET THE BUYERS/DESIGNER FOR THE PRODUCT FINALIZATION/ORDER CONFIRMATION AND BECAUSE OF HIS EFFORTS, PALIWAL EXPORTS HAS BEEN ABLE TO DEVELOP/MAINTAIN/GROW THEI R BUSINESS WITH US. 9. THE DOCUMENTS SO PLACED ON RECORD CLEARLY INDICA TE THAT TURNOVER OF THE ASSESSEE FIRM HAS INCREASED FROM RS.11.89 LAKHS TO RS.37 LAKHS FOR THE YEARS UNDER ITA-2677, 2678 & 2679/D/2006 6 CONSIDERATION AND EVEN TO RS.55 LAKHS IN THE AY 200 6-07. THE DETAILED FINDINGS RECORDED BY THE CIT(A) HAVE NOT BEEN CONTROVERTED, THEREFORE KEEPING IN VIEW THE FACT THAT NO DISALLOWANCE IN EARLIER YEARS I.E. 199 7-98 TO 1999-2000 AND 2006-07 TO 2007-08 WERE MADE, THE DISALLOWANCE MADE IN THESE Y EARS ALSO DOES NOT APPEAR TO BE JUSTIFIABLE. THESE TWO PERSONS HAVE BROUGHT SUB STANTIAL BUSINESS TO THE ASSESSEE FIRM, MERE FACT THAT THEY WERE NEITHER PARTNER NOR EMPLOYEES OF THE ASSESSEE FIRM WOULD NOT MAKE ANY DIFFERENCE SO LONG AS IT IS THE BUSINESS WHICH HAS BEEN BROUGHT BY THEM FOR THE ASSESSEE FIRM. 10. IN THE RESULT, THE APPEALS OF THE REVENUE ARE A LLOWED IN PART FOR STATISTICAL PURPOSES, IN TERMS INDICATED HEREINABOVE. DECISION PRONOUNCED IN THE OPEN COURT ON 30 TH OCTOBER, 2009. SD/- SD/- (A.D.JAIN) (R.C.SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 30.10.2009. VK. COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT DEPUTY REGISTRAR