VIGNESHWARA EXPORTS LTD, MUMBAI V. DCIT 7(3), MUMBAI

ITA 2718/MUM/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 1052 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-07-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Next Hearing Date: 15-07-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 28-04-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R M TIWARI
• Assessee Lawyers: ANIL CHATURVEDI
• Keywords: Business income; Retrospective amendment
• Section: 43B; 80HHC; 80IB; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'F' BENCH, MUMBAI BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO. 2718/MUM/2009 (ASSESSMENT YEAR: 2005-06) M/S. VIGNESHWARA EXPORTS LTD. DCIT 7(3) 450/451, KEWAL INDUSTRIAL ESTATE ROOM NO. 615, 6TH FLOOR S.B. MARG, LOWER PAREL VS. AAYAKAR BHAVAN, M.K. ROAD MUMBAI 400013 MUMBAI 400020 PAN - AAACV 4585 F APPELLANT RESPONDENT APPELLANT BY: SHRI ANIL CHATURVEDI RESPONDENT BY: SHRI R.M. TIWARI O R D E R PER B. RAMAKOTAIAH, A.M. THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER OF THE CIT(A)- VII, MUMBAI DATED 24.02.2009. 2. ASSESSEE HAS RAISED SIX GROUNDS OUT OF WHICH GROUND NOS. 5 & 6 ARE GENERAL IN NATURE WHICH DOES NOT REQUIRE ANY CONSID ERATION. 3. GROUND NOS. 1 & 2 ARE AS UNDER: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED CIT(A) ERRED IN HOLDING THAT INTEREST EARNE D ON FIXED DEPOSIT OF RS.24,84,695/- MADE WITH THE BANKS AS NOT THE IN COME ASSESSABLE UNDER THE HEAD INCOME FROM BUSINESS BU T IS ASSESSABLE UNDER THE HEAD INCOME FROM OTHER SOURCE S. 2.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED AO AND THE CIT(A) HAVE GROSSLY ERRED IN NOT ACCEPTING INTEREST EARNED ON FIXED DEPOSITS OF RS.24,84,695/- AS BEING ELIGIBLE FOR DEDUCTION U/S 80IA AS UPHELD BY THE CIT(A) HIMS ELF AND THE HONOURABLE ITAT IN THE CASE OF THE APPELLANT ITSELF FOR AY 1999- 2000 AND 2001-02. 2.2 THE CIT(A) GROSSLY ERRED IN LAW AND ON FACTS IN REJECTING THE APPELLANTS SUBMISSIONS, THE RELIANCE PLACED ON STA TUTORY JUDICIOUS BINDING PRECEDENTS AND IN TREATING THE SAME AS NOT APPLICABLE TO THE APPELLANTS CASE. ITA NO. 2718/MUM/2009 M/S. VIGNESHWARA EXPORTS LTD. 2 4. THE ISSUE IN THE ABOVE TWO GROUNDS IS THE TREATMENT OF INTEREST EARNED ON FIXED DEPOSIT OF RS.24,84,695/- BY THE A.O. AS I NCOME ASSESSABLE UNDER THE HEAD INCOME FROM OTHER SOURCES AS AGAINST THE CLAIM OF THE ASSESSEE AS INCOME FROM BUSINESS. CONSEQUENTLY, THE A.O. DEN IED DEDUCTION UNDER SECTION 80IA AS IT WAS TREATED AS INCOME FROM OTHER SOURCES, NOT AN INCOME OF THE INDUSTRIAL UNDERTAKING. THE A.O. RELIED ON THE FOLLOWING DECISIONS IN TREATING THE INTEREST EARNED ON FIXED DEPOSIT AS IN COME FROM OTHER SOURCES: - I) K. RAVINDRANATHAN NAIR VS. DCIT 262 ITR 662 (KER) II) URBAN STAINSLAUS C. VS. CIT 263 ITR 10 (KER) III) ACIT VS. SOUTH INDIA PRODUCE CO. 262 ITR 20 (KER) IV) CIT VS. JOSE THOMAS, 253 ITR 553 (KER) V) CIT VS. RAVI RATNA EXPORTS 246 ITR 443 (BOM) VI) CIT VS A.S. NISSAR AHMAD AND CO. 259 ITR 244 (MAD) 5. THE CIT(A), RELYING ON THE PRINCIPLES ESTABLISHED B Y THE HON'BLE SUPREME COURT IN THE CASE OF PANDIAN CHEMICALS LTD. VS. CIT 262 ITR 278, REJECTED ASSESSEES CONTENTION AND UPHELD ASSESSING OFFICERS ACTION IN TREATING IT AS INCOME FROM OTHER SOURCES AND CONSEQ UENTLY DENYING THE BENEFIT UNDER SECTION 80IA/80IB. 6. AT THE OUTSET THE LEARNED COUNSEL SUBMITTED THAT TH E INTEREST INCOME WAS TREATED AS INCOME FROM BUSINESS AND BENEFIT WA S GIVEN BY THE ITAT IN THE ORDERS IN EARLIER YEARS FOR ASSESSMENT YEARS 20 02-03 AND 2003-04 IN ITA NOS. 4074 & 4075/MUM/2007 AND ITA NOS. 3869 TO 3871 /MUM/2007 DATED 20 TH MAY 2009. HE REFERRED TO PARA 14 OF THE ORDER IN S UPPORT OF THE DECISION. 7. IN ADDITION TO THAT THE LEARNED COUNSEL ALSO FILED THE JUDGEMENT OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. JA GDISHPRASAD M. JOSHI 318 ITR 420 WHEREIN THE JURISDICTIONAL HIGH COURT C ONCLUDED THAT INTEREST ON FIXED DEPOSIT FROM BANKS AND OTHER INTEREST INCO ME DERIVED FROM THE BUSINESS OF THE INDUSTRIAL UNDERTAKING ARE ELIGIBLE FOR DEDUCTION UNDER SECTION 80IA. ON FACTS, HE REFERRED TO COPIES OF TH E LETTER PLACED ON RECORD SUPPORTING THAT THE DEPOSITS ARE KEPT FOR THE PURPO SE OF MARGIN MONEY FOR THE EXPORTS AND CREDIT LIMITS AND FURTHER REFERRED TO SCHEDULE J OF ITA NO. 2718/MUM/2009 M/S. VIGNESHWARA EXPORTS LTD. 3 EXPENDITURE WHERE THE ASSESSEE HAS PAID MORE THAN R S.1.34 CRORES OF INTEREST AS BANK INTEREST IN BUSINESS ACTIVITIES. I T WAS HIS CONTENTION THAT INTEREST EARNED ON FIXED DEPOSIT SHOULD BE CONSIDER ED AS PART OF BUSINESS INCOME AND DEDUCTION UNDER SECTION 80IB SHOULD BE A LLOWED. 8. IN REPLY THE LEARNED D.R., HOWEVER, SUBMITTED THAT THE INTEREST INCOME CAN NOT BE TREATED AS BUSINESS INCOME AND IT SHOULD BE TREATED AS INCOME FROM OTHER SOURCES. NOT ONLY THAT HE RELIED ON THE CASE LAW RELIED UPON BY THE A.O. BUT ALSO ON THE PRINCIPLES ESTABLISHED BY THE HON'BLE SUPREME COURT IN THE CASE OF LIBERTY INDIA 317 ITR 248 TO S UBMIT THAT DEDUCTION UNDER SECTION 80IA/80IB CAN ONLY BE GIVEN ON THE FI RST DEGREE SOURCE OF INCOME, I.E. MANUFACTURING ACTIVITY AND NOT ON OTHE R SOURCE INCOME AS ESTABLISHED BY HON'BLE SUPREME COURT. IT WAS HIS SU BMISSION THAT THE HON'BLE BOMBAY HIGH COURT HAS NOT CONSIDERED THE HO N'BLE SUPREME COURT JUDGEMENT QUOTED ABOVE AND THE ITAT ORDERS ARE PRIO R TO THE JUDGEMENT OF THE HON'BLE SUPREME COURT, HENCE, THEY NEED NOT BE CONSIDERED. 9. WE HAVE CONSIDERED THE ABOVE ISSUE. IT IS TRUE THAT COORDINATE BENCHES HAVE ALREADY CONSIDERED THAT INTEREST INCOM E WILL BECOME PART OF BUSINESS INCOME AND ACCORDINGLY DIRECTED THE A.O. T O CONSIDER THE SAME AS PART OF INCOME OF THE INDUSTRIAL UNDERTAKING AND AL LOW DEDUCTION UNDER SECTION 80IA/80IB IN EARLIER YEARS. THE EARLIER OPI NION ALSO GOT SUPPORT FROM THE ORDER IN THE CASE OF CIT VS. JAGDISHPRASAD M. J OSHI 318 ITR 420 (BOM) DATED 25 TH NOVEMBER 2008. HOWEVER, THE HON'BLE SUPREME COURT IN THE CASE OF LIBERTY INDIA LTD. VS. CIT, WHILE CONSIDERING TH E ISSUE OF DUTY DRAWBACK RECEIPTS AND DEPB BENEFITS FOR THE PURPOSE OF DEDUC TION UNDER SECTION 80IA/80IB,HAS LAID DOWN THE FOLLOWING PRINCIPLES: - THE INCOME TAX ACT, 1961, BROADLY PROVIDES FOR TWO TYPES OF TAX INCENTIVES, VIZ., INVESTMENT-LINKED INCENTIVES AND PROFIT-LINKED INCENTIVES. CHAPTER VI-A WHICH PROVIDES FOR INCENTIVES IN THE F ORM OF DEDUCTIONS ESSENTIALLY BELONG TO THE CATEGORY OF 'PROFIT-LINKE D INCENTIVES'. THEREFORE, WHEN SECTION 80-IA/80-IB REFERS TO PROFITS DERIVED FROM ELIGIBLE BUSINESS, IT IS NOT THE OWNERSHIP OF THAT BUSINESS WHICH ATTR ACTS THE INCENTIVES: WHAT ATTRACTS THE INCENTIVES UNDER SECTION 80-IA/80 -IB IS THE GENERATION OF PROFITS (OPERATIONAL PROFITS). IT IS FOR THIS RE ASON THAT PARLIAMENT HAS CONFINED DEDUCTION OF PROFITS DERIVED FROM ELIGIBLE BUSINESSES MENTIONED IN SUB-SECTIONS (3) TO (11A) STAND-ALONE ITEM IN TH E MATTER OF COMPUTATION OF PROFITS. ITA NO. 2718/MUM/2009 M/S. VIGNESHWARA EXPORTS LTD. 4 SECTIONS 80-IB AND 80-IA ARE THE CODE BY THEMSELVES AS THEY CONTAIN BOTH SUBSTANTIVE AS WELL AS PROCEDURAL PROVISIONS. SECTION 80-IB PROVIDES FOR THE ALLOWING OF DEDUCTIO N IN RESPECT OF PROFITS AND GAINS DERIVED FROM THE ELIGIBLE BUSINES S. THE CONNOTATION OF THE WORDS 'DERIVED FROM' IS NARROWER AS COMPARED TO THAT OF THE WORDS 'ATTRIBUTABLE TO'. BY USING THE EXPRESSION 'DERIVED FROM', PARLIAMENT INTENDED TO COVER SOURCES NOT BEYOND THE FIRST DEGR EE. SECTIONS 80-I, 80-IA AND 80-IB ARE TO BE READ AS HA VING A COMMON SCHEME. SUB-SECTION (5) OF SECTION 80-IA (WHICH IS REQUIRED TO BE READ INTO SECTION 80-IB) PROVIDES FOR THE MANNER OF COMPUTATI ON OF THE PROFITS OF AN ELIGIBLE BUSINESS. SUCH PROFITS ARE COMPUTED AS IF SUCH ELIGIBLE BUSINESS IS THE ONLY SOURCE OF INCOME OF THE ASSESSEE. THERE FORE, DEVICES ADOPTED TO REDUCE OR INFLATE THE PROFITS OF THE ELIGIBLE BU SINESS HAVE TO BE REJECTED IN VIEW OF THE OVERRIDING PROVISIONS OF SECTION 80- IA(5). SECTIONS 80-I, 80-IA AND 80-IB PROVIDE FOR INCENTIV ES IN THE FORM OF DEDUCTIONS WHICH ARE LINKED TO PROFITS AND NOT INVE STMENT. ON ANALYSIS OF SECTIONS 80-IA AND 80-IB IT BECOMES CLEAR THAT A NY INDUSTRIAL UNDERTAKING WHICH BECOMES ELIGIBLE ON SATISFYING SU B-SECTION (2) WOULD BE ENTITLED TO DEDUCTION UNDER SUB-SECTION (1) ONLY TO THE EXTENT OF PROFITS DERIVED FROM SUCH INDUSTRIAL UNDERTAKING AFTER SPEC IFIED DATE. APART FROM ELIGIBILITY, SUB-SECTION (1) PURPORTS TO RESTRICT T HE QUANTUM OF DEDUCTION TO A SPECIFIED PERCENTAGE OF PROFITS. THIS IS THE IMPO RTANCE OF THE WORDS 'DERIVED FROM INDUSTRIAL UNDERTAKING' AS AGAINST 'P ROFITS ATTRIBUTABLE TO INDUSTRIAL UNDERTAKING'. 10. IN VIEW OF THE PRINCIPLES ESTABLISHED BY THE HON'BL E SUPREME COURT, WE ARE OF THE OPINION THAT THE INTEREST INCOME ON FIXE D DEPOSIT BEING NOT A FIRST DEGREE PROFIT TO BE COVERED BY THE EXPRESSION DERI VED FROM AND ACCORDINGLY THE ORDERS OF THE A.O. AND CIT(A) ON THIS ISSUE ARE TO BE CONFIRMED. SINCE THE ORDER OF THE CIT(A) HAS FOLLOWED THE PRINCIPLES EST ABLISHED BY THE HON'BLE SUPREME COURT IN THE CASE PANDIAN CHEMICALS LTD. 26 2 ITR 278, WHICH IN TURN WAS REFERRED TO IN THE ABOVE SAID DECISION, WE ARE OF THE OPINION THAT INTEREST INCOME ON FIXED DEPOSIT IS NOT ELIGIBLE FO R DEDUCTION UNDER SECTION 80IA/80IB. ACCORDINGLY GROUND NO. 2 IS REJECTED. 11. WITH REFERENCE TO GROUND NO. 1 WHETHER INTEREST INC OME HAS TO BE TAXED UNDER THE HEAD OTHER SOURCES WE HAVE CONSID ERED THE ISSUE AND VARIOUS CASE LAW. IT WAS STATED THAT THE ASSESSEE C OMPANYS INTEREST INCOME WAS EARNED ON FDR KEPT WITH BANK AS MARGIN MONEY AS A CONDITION FOR AVAILING CREDIT FACILITY. THIS ISSUE WAS CONSIDERED BY THE HON'BLE HIGH COURT OF DELHI IN THE CASE OF KASHMIR ARTS VS. CIT 213 CT R 421 AS UNDER: - ITA NO. 2718/MUM/2009 M/S. VIGNESHWARA EXPORTS LTD. 5 INTEREST EARNED BY THE ASSESSEE ON FDRS KEPT WITH BANK AS MARGIN MONEY AS A CONDITION FOR AVAILING CREDIT FACILITIES IS NOT BUSINESS INCOME, AND IN VIEW OF THE FINDING OF THE AO THAT THERE IS NO NEXUS BETWEEN THE INTEREST PAID AND THE INTEREST EARNED BY THE ASSESS EE, NETTING CANNOT BE PERMITTED WHILE CALCULATING DEDUCTION UNDER S. 80HH C R.W EXPLN. (BAA). 12. SIMILAR VIEW IS ALSO TAKEN BY THE HON'BLE DELHI HIG H COURT IN THE CASE OF CIT VS. DELHI BRASS & MENTAL WORKS LTD. 328 ITR 352/16 DTR 339 WHEREIN ON SIMILAR FACTS IT WAS HELD AS UNDER: - ASSESSEE CANNOT BE ALLOWED TO DEDUCT INTEREST PAID TO BANK ON OVERDRAFT FACILITY AGAINST THE INTEREST RECEIVED BY IT IN FIXED DEPOSITS KEPT WITH THE BANK AS IT IS NOT THE EXPENDITURE LAID OUT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF EARNING INTEREST ON FIXED DEPOSI TS. 13. THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. KRAFT LAND INDIA 162 TAXMAN 123 IS ALSO ON SIMILAR FACTS WHERE THE HON'BLE DELHI HIGH COURT HAS HELD THAT INTEREST RECEIVED ON FDRS PLEDGED FOR OBTAINING SHIPPING LOAN/DEPOSITORY LOAN WAS NOT BUS INESS INCOME. SIMILARLY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF RAVI R ATNA EXPORTS (P.) LTD. 246 ITR 443 HELD THAT THE A.O. HAD RECORDED FINDING OF FACT THAT INTEREST INCOME FROM FIXED DEPOSIT WAS INCOME FROM OTHER SOU RCES. HENCE, IT CANNOT BE TAKEN INTO ACCOUNT FOR THE PURPOSE OF COMPUTATIO N OF DEDUCTION UNDER SECTION 80HHC. THE HON'BLE HIGH COURT HAS FURTHER D ISCUSSED AS UNDER: - THIS APPEAL RELATES TO THE ASSESSMENT YEAR 1989-90 . IN THE SAID ASSESSMENT YEAR, THE ASSESSEE RECEIVED RS.35,000 AS INTEREST ON FIXED DEPOSITS. THE ASSESSEE CLAIMED INTEREST INCOME AND INCLUDED THE SAME IN BUSINESS PROFITS IN THE FOLLOWING FORMULA, VIZ., BUSINESS PROFITS X EXPORT TURNOVER TOTAL TURNOVER TO ARRIVE AT EXPORT PROFITS ON WHICH THE ASSESSEE C LAIMED DEDUCTION UNDER SECTION 80HHC OF THE ACT. THE DEPARTMENT TREA TED THE INCOME FROM INTEREST AS INCOME FROM OTHER SOURCES. HOWEVER, THE TRIBUNAL INCLUDED THE SAID INTEREST INCOME IN THE BUSINESS PROFITS. H ENCE, THE DEPARTMENT HAS COME IN APPEAL. BEFORE APRIL 1, 1992, DISTORTIO N AROSE IN DETERMINING EXPORT PROFITS. THE ASSESSEE USED TO INFLATE THE BU SINESS PROFITS IN THE ABOVE FORMULA BY INCLUDING RECEIPTS WHICH HAD NO RE LATION WITH EXPORT ACTIVITIES. IN CASES OF COMPOSITE BUSINESS, EVEN WH ERE THE COMPONENT OF LOCAL SALES FAR EXCEEDED SALE PROCEEDS FROM EXPORT ACTIVITY, RECEIPTS LIKE RENT, INTEREST, LABOUR COMMISSION WERE INCLUDED IN BUSINESS PROFITS IN THE ABOVE FORMULA. IN THE CASE OF CIT V. KANTILAL CHHOT ALAL [2000] 246 ITR 440 (BOM) (INCOME-TAX APPEAL NO. 533 OF 2000), THIS COURT HAS EXCLUDED SUCH RECEIPTS FROM BUSINESS PROFITS. FURTHER, THIS COURT HAS HELD THAT THE ITA NO. 2718/MUM/2009 M/S. VIGNESHWARA EXPORTS LTD. 6 AMENDING LAW WHICH CAME INTO FORCE FROM APRIL 1, 19 92, BY WHICH CLAUSE (BAA) HAS BEEN INTRODUCED IN THE EXPLANATION TO SEC TION 80HHC, ALL SUCH RECEIPTS WHICH HAVE NO NEXUS WITH THE EXPORT ACTIVI TY, STAND EXCLUDED. THIS COURT HAS HELD THAT CLAUSE (BAA) IS CLARIFICAT ORY. HENCE, INTEREST INCOME FROM FIXED DEPOSIT CANNOT BE INCLUDED IN BUS INESS PROFITS. MOREOVER, IT MAY BE MENTIONED THAT IN THE CASE OF C IT V. SHIRKE CONSTRUCTION EQUIPMENTS LTD. [2000] 246 ITR 430 (BO M) (ITA NO. 133 OF 1999), THIS COURT HAS TAKEN THE VIEW THAT BUSINESS PROFITS WERE REQUIRED TO BE COMPUTED UNDER THE HEAD PROFITS AND GAINS OF BUSINESS WHICH, IN TURN, REFERS TO SECTION 28 TO SECTION 44D OF THE IN COME-TAX ACT. IN THE CASE OF CIT V. K.K. DOSHI AND CO. [2000] 245 ITR 849 (BO M) (ITA NO. 77 OF 2000), THIS COURT HAS ONCE AGAIN REITERATED THAT EV EN BEFORE APRIL 1, 1992, RECEIPTS WHICH DID NOT HAVE NEXUS WITH THE EX PORT ACTIVITY CANNOT BE INCLUDED IN BUSINESS PROFITS. IN THE PRESENT MAT TER, WE MAY MENTION THAT THE ASSESSING OFFICER HAS RECORDED A FINDING O F FACT THAT THE SAID INTEREST INCOME FROM FIXED DEPOSITS WAS INCOME FROM OTHER SOURCES. THE TRIBUNAL HAS NOT CONSIDERED THIS ASPECT. IN THE CAS E OF GODAVARI SUGAR MILLS LTD. (NO. 2) V. CIT [1991] 191 ITR 359, THE D IVISION BENCH OF THIS COURT TOOK THE VIEW, ON THE FACTS, THAT THE ASSESSE E HAD NO EVIDENCE TO SHOW THAT THE MONIES ON WHICH THE INTEREST WAS EARN ED WERE ADVANCED IN THE COURSE OF THE ASSESSEES BUSINESS AND, THERE FORE, THE DIVISION BENCH HELD THAT INTEREST INCOME WAS TAXABLE AS INCO ME FROM OTHER SOURCES. IN THIS MATTER, WE ARE CONCERNED WITH AN A PPEAL UNDER SECTION 260A. IN THIS MATTER, THE ASSESSING OFFICER HAS REC ORDED A FINDING OF FACT THAT INTEREST INCOME WAS TAXABLE AS INCOME FROM OTH ER SOURCES. IN THE CIRCUMSTANCES, SUCH INCOME CANNOT FALL UNDER THE HE AD PROFITS AND GAINS OF BUSINESS. HENCE, SUCH INCOME CANNOT BE IN CLUDED IN BUSINESS PROFITS IN THE ABOVE FORMULA. THEREFORE, ON BOTH CO UNTS, THE APPEAL STANDS ALLOWED. EVEN IF IT IS HELD THAT INTEREST IN COME WAS A BUSINESS INCOME, THE SAME WAS NOT INCLUDIBLE IN BUSINESS PRO FITS IN THE ABOVE FORMULA. ON THE OTHER HAND, AS STATED ABOVE, THE AS SESSING OFFICER HAS HELD THAT THE INTEREST INCOME WAS INCOME FROM OTHER SOURCES. IF THAT BE THE CASE, THEN SUCH AN INCOME CANNOT COME WITHIN TH E AMBIT OF SECTION 28 TO SECTION 44D OF THE INCOME-TAX ACT. IT CANNOT COME UNDER THE PROFITS AND GAINS OF BUSINESS. THEREFORE, LOOKING AT THIS M ATTER FROM EITHER POINT OF VIEW, THE APPEAL NEEDS TO BE ALLOWED. 14. SIMILAR VIEW WAS ALSO TAKEN BY THE HONBLE BOMBAY H IGH COURT IN THE CASE OF CIT VS. M/S. SHAH ORIGINALS ITA. 431 OF 200 8 DATED 22-04-10 WHEREIN IT WAS HELD THAT THE INTEREST INCOME IS TO BE TREATED AS INCOME FROM OTHER SOURCES AND DEDUCTION UNDER 80HHC CANNOT BE A LLOWED. IN VIEW OF THE JUDGEMENTS OF THE HON'BLE BOMBAY HIGH COURT AND THE JUDGEMENTS OF THE HON'BLE DELHI HIGH COURTS AND ALSO CASES RELIED UPON BY THE AUTHORITIES IT IS TO BE HELD THAT INTEREST INCOME EARNED ON FIX ED DEPOSITS WITH THE BANK FOR THE PURPOSE OF MARGIN MONEY OR LETTER OF CREDIT CANNOT BE CONSIDERED AS ITA NO. 2718/MUM/2009 M/S. VIGNESHWARA EXPORTS LTD. 7 PROFIT FROM BUSINESS FOR THE PURPOSE OF 80 IA/IB A ND HAS TO BE TREATED AS INCOME FROM OTHER SOURCES. GROUND IS REJECTED. 15. GROUND NO. 3 IS WITH REFERENCE TO ADHOC DISALLOWANC E OF EXPENDITURE. 16. A.O., AFTER EXAMINING ASSESSEES CLAIM OF EXPENDITU RE TO AN EXTENT OF RS.22,90,79,535/- AS ESTABLISHMENT, ADMINISTRATIVE AND SELLING EXPENSES , DISALLOWED AN AMOUNT OF RS.2,50,000/- VIDE PARA 4 F OR WANT OF PROOF OF VERIFICATION. IT WAS THE SUBMISSION OF THE ASSESSEE THAT SAID ACCOUNTS WERE PRODUCED AND THE A.O. HAS TEST CHECKED SUCH ACCOUNT S, AS ALREADY RECORDED IN PARA 3 OF THE ASSESSMENT ORDER IN PAGE NO. 1. IT WAS HIS SUBMISSION THAT ADHOC DISALLOWANCE DOES NOT ARISE AS ASSESSEE WAS H AVING A LARGE TURNOVER, BOOKS OF ACCOUNT WERE AUDITED AND INCOME OF MORE TH AN RS.3 CRORES WAS OFFERED. SINCE THE A.O. EXAMINED ALL THE BOOKS AND VOUCHERS THERE IS NO NEED FOR ANY ADHOC DISALLOWANCE. THE CIT(A) HAS REDUCED IT TO RS.1,00,000/- WHICH THE ASSESSEE IS CONTESTING. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND ALSO THE FACT THAT THE BOOKS OF ACCOUN T ARE PRODUCED BEFORE THE A.O. INCLUDING THE DETAILS AS RECORDED BY THE A.O. IN PARA 3 OF THE ASSESSMENT ORDER, WE ARE OF THE OPINION THAT THE A. O. IS NO JUSTIFIED IN DISALLOWING THE AMOUNT ON ADHOC BASIS FOR WANT OF P ROOF AND VERIFICATION. AS SEEN FROM THE ORDER THE DISALLOWANCE WAS MADE ON CU RSORY MANNER WHICH CANNOT BE SUSTAINED. THE CIT(A) ALSO HAS REDUCED IT FROM RS.2,50,000 TO RS.1,00,000/- WITHOUT PROPER REASONS. WE ARE OF THE OPINION THAT UNDER THE CIRCUMSTANCES THERE IS NO NEED FOR ANY DISALLOWANCE . ACCORDINGLY THE A.O. IS DIRECTED TO DELETE THE DISALLOWANCE SO MADE. GROUND ALLOWED. 17. GROUND NO. 4 PERTAINS TO DISALLOWANCE OF EMPLOYEES CONTRIBUTION THUS TREATING AS INCOME UNDER SECTION 36(1)(V)(A). THE A .O. DISALLOWED MANY AMOUNTS WHICH ARE PAID BEYOND THE DUE DATE. THE CIT (A) CONFIRMED THE SAME HOLDING THAT THE AMENDMENT BROUGHT TO SECTION 43B W.E.F. 01.04.2004 PERTAINS TO EMPLOYERS CONTRIBUTION ALLOWABLE UNDER SECTION 43B BUT NOT TO EMPLOYEES CONTRIBUTION TREATING AS INCOME UNDER SEC TION 36(1)(V)(A). 18. AS SEEN FROM THE DETAILS EXTRACTED IN THE ASSESSMEN T ORDER, MOST OF THE PAYMENTS SEEM TO HAVE BEEN MADE WITHIN THE GRAC E PERIOD, WHICH SHOULD BE ALLOWED. EVEN OTHERWISE THE DECISION OF T HE HON'BLE SUPREME ITA NO. 2718/MUM/2009 M/S. VIGNESHWARA EXPORTS LTD. 8 COURT IN THE CASE OF ALOM EXTRUSIONS LTD 319 ITR 30 6 WAS FOLLOWED BY THE COORDINATE BENCH IN THE CASE OF PIK PEN P. LTD IN I TA 6847/MUM/2008 DATED 28.02.10 IN ALLOWING DEDUCTION WITH REFERENCE TO EMPLOYERS CONTRIBUTION AS WELL AND ALSO FOLLOWING THE JUDGEME NT OF THE HON'BLE DELHI HIGH COURT IN CIT VS. AIMIL LIMITED WHICH HAS CONSIDERED THE DECISION OF THE HON'BLE SUPREME COURT AND EXTENDED THE BENEFIT TO THE EMPLOYEES CONTRIBUTION AS WELL. IN CIT VS. AIMIL LIMITED THE HONBLE DELHI HIGH COURT IN ITA NO. 1063 OF 2006 ITA NO.755 OF 2008 ITA NO. 204 OF 2009 ITA NO. 1214/2008 WITH ITA NO. 1246/2008 ITA NO. 50/2009 IT A NO. 78/2009 JUDGMENT DATED DECEMBER 23, 2009 HAD TO DEAL WITH A CASE OF DISALLOWANCE U/S.36(1)(VA) OF THE ACT. THE HONBLE COURT DISCUS SED THE PROVISIONS OF S. 2 (24) (X) WHICH PROVIDES THAT AMOUNTS RECEIVED BY AN ASSESSEE FROM EMPLOYEES TOWARDS PF CONTRIBUTIONS ETC SHALL BE IN COME AND S. 36 (1) (VA) WHICH PROVIDES THAT IF SUCH SUMS ARE CONTRIBUTED TO THE EMPLOYEES ACCOUNT IN THE RELEVANT FUND ON OR BEFORE THE DUE DATE SPEC IFIED IN THE PF ETC LEGISLATION, THE ASSESSEE SHALL BE ENTITLED TO A DE DUCTION. THE COURT ALSO NOTICED THAT THE SECOND PROVISO TO S. 43B (B) PROVI DED THAT ANY SUM PAID BY THE ASSESSEE AS AN EMPLOYER BY WAY OF CONTRIBUTION TO ANY PROVIDENT FUND ETC. SHALL BE ALLOWED AS A DEDUCTION ONLY IF PAID O N OR BEFORE THE DUE DATE SPECIFIED IN 36(1)(VA). AFTER THE OMISSION OF THE S ECOND PROVISO W.E.F 1.4.2004, THE DEDUCTION IS ALLOWABLE UNDER THE FIRS T PROVISO IF THE PAYMENT IS MADE ON OR BEFORE THE DUE DATE FOR FURNISHING THE R ETURN OF INCOME. IN ALOM EXTRUSIONS 319 ITR 306 (SC), THE DELETION OF THE SECOND PROVI SO HAS BEEN HELD TO BE WITH RETROSPECTIVE EFFECT. THE HIGH COUR T HAD TO CONSIDER WHETHER THE BENEFIT OF S. 43B CAN BE EXTENDED TO EMPLOYEES CONTRIBUTION AS WELL WHICH ARE PAID AFTER THE DUE DATE UNDER THE PF LAW BUT BEFORE THE DUE DATE FOR FILING THE RETURN. THE HONBLE COURT HELD THA T: (I ) THOUGH THE REVENUE HAS ARGUED THAT A DISTINCTION IS TO BE MADE BETWEEN EMPLOYERS CONTRIBUTION AND EMPLOYEES C ONTRIBUTION AND THAT EMPLOYEES CONTRIBUTION BEING IN THE NATURE OF TRUST MONEY IN THE HANDS OF THE ASSESSEE CANNOT BE ALLOWED AS A DEDUCT ION IF NOT PAID ON OR BEFORE THE DUE DATE SPECIFIED IN THE PF ETC LAW, TH E SCHEME OF THE ACT IS THAT EMPLOYEES CONTRIBUTION IS TREATED AS INCOME U /S 2 (24) (X) ON RECEIPT BY THE ASSESSEE AND ALLOWED AS A DEDUCTION U/S 36 ( 1) (VA) ON MAKING DEPOSIT WITH THE CONCERNED AUTHORITIES. S. 43B (B) STIPULATES THAT SUCH DEDUCTION WOULD BE PERMISSIBLE ONLY ON ACTUAL PAYME NT; ITA NO. 2718/MUM/2009 M/S. VIGNESHWARA EXPORTS LTD. 9 (II) THE QUESTION AS TO WHEN ACTUAL PAYMENT SHOULD BE MADE IS ANSWERED BY VINAY CEMENTS 213 CTR 268 WHERE THE DELETION OF THE SECOND PROVISO TO S. 43B W.E.F 1.4.2004 WAS HELD APPLICABL E TO EARLIER YEARS AS WELL. AS THE DELETION OF THE 2ND PROVISO IS RETROSP ECTIVE, THE CASE HAS TO BE GOVERNED BY THE FIRST PROVISO. DHARMENDRA SHARMA 297 ITR 320 (DEL) & P.M. ELECTRONICS 313 ITR 161 (DELHI) FOLLOWED; (III) IF THE EMPLOYEES CONTRIBUTION IS NOT DEPOSIT ED BY THE DUE DATE PRESCRIBED UNDER THE RELEVANT ACTS AND IS DEPOSITED LATE, THE EMPLOYER NOT ONLY PAYS INTEREST ON DELAYED PAYMENT BUT CAN I NCUR PENALTIES ALSO, FOR WHICH SPECIFIC PROVISIONS ARE MADE IN THE PROVI DENT FUND ACT AS WELL AS THE ESI ACT. THEREFORE, THE ACT PERMITS THE EMPL OYER TO MAKE THE DEPOSIT WITH SOME DELAYS, SUBJECT TO THE AFORESAID CONSEQUENCES . INSOFAR AS THE INCOME-TAX ACT IS CONCERNED, THE ASSESSEE CA N GET THE BENEFIT IF THE ACTUAL PAYMENT IS MADE BEFORE THE RETURN IS FIL ED, AS PER THE PRINCIPLE LAID DOWN IN VINAY CEMENT. IN VIEW OF THIS, THE A.O. IS DIRECTED TO ALLOW THE AMOUNTS WHICH ARE PAID BEFORE FILING OF RETURN OF INCOME. AS SEEN FRO M THE STATEMENT SOME OF THE PAYMENT WERE PAID WITHIN GRACE PERIOD AND BALAN CE OF THE AMOUNTS ARE PAID WITHIN THE FINANCIAL YEAR WITH SMALL DELAY BOTH ON FACTS AS WELL AS ON LAW ASSESSEES CLAIM IS ALLOWABLE. ACCORDINGLY, GRO UND NO. 4 IS ALLOWED. 19. IN THE RESULT, APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD JULY 2010. SD/- SD/- (N.V. VASUDEVAN) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 23 RD JULY 2010 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) VII, MUMBAI 4. THE CIT VII, MUMBAI CITY 5. THE DR, F BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.