M/s KCP Ltd., Chennai V. The CIT, Vijayawada

ITA 277/VIZ/2009

• Counselvise Citation: [2011] 119 COUNSELVISE.COM (IT) 6899 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 2 year(s) 1 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-06-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 18-04-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 22-05-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: TH L PETER
• Section: 80HHC; 263

Judgement Text

ITA NO277/VIZAG/2009 KCP LTD., CHENNAI . 1 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI BR BASKARAN, ACCOUNTANT MEMBER ITA NO. 277 /VIZAG/ 20 09 ASSESSMENT YEAR : 2004 - 05 KCP LTD. CHENNAI VS. CIT VIJAYAWADA (APPELLANT) (RESPONDENT) PAN NO.AAACT8046J APPELLANT BY: SHRI C. SUBRAHMANYAM, CA RESPONDENT BY: SHRI TH.L. PETER, CIT(DR) ORDER PER SHRI S.K. YADAV, JUDICIAL MEMBER:- THIS APPEAL OF THE ASSESSEE IS PREFERRED AGAINST THE ORDER OF THE CIT REVISING THE ORDER OF THE ASSESSING OFFICER AFTER I NVOKING ITS JURISDICTION UNDER SECTION 263 OF THE ACT ON VARIOUS GROUNDS WHICH ARE AS UNDER: I. INTEREST AND COMMISSION RECEIPTS: 1. THE COMMISSIONER OF INCOME TAX, VIJAYAWADA, WHILE P ASSING THE ORDER U/S 263 OF THE INCOME TAX ACT, 1961, AT PARA 5 IS NOT CORRECT IN REJECTING THE EXPLANATION OF THE ASSESSEE THAT O NLY @ 90% OF NET INTEREST AND COMMISSION RECEIPTS ARE TO BE EXCLUDED UNDER CLAUSE (BAA) TO EXPLANATION UNDER SUB SECTION (4C) OF THE SECTION 80HHC AND DIRECTING THE ASSESSING OFFICER TO EXCLUDED @90 % OF THE GROSS RECEIPTS UNDER THE SAID CLAUSE ON THE GROUND THAT T HE SAID EXPLANATION OF THE ASSESSEES IS NOT BACKED BY A JUR ISDICTIONAL HIGH COURT OR SUPREME COURT DECISION. 2. THE APPELLANT SUBMITS THAT THE CONSISTENT JUDICIAL OPINION IN THIS REGARD IN ITS FAVOUR AND THAT THE COMMISSIONER OF I NCOME TAX IS NOT JUSTIFIED IN IGNORING THIS LEGAL POSITION PARTI CULARLY WHEN THERE IS NEXUS BETWEEN RECEIPTS AND PAYMENTS. II. MISCELLANEOUS RECEIPTS RS.6659102/- 1. THE COMMISSIONER OF INCOME TAX IS NOT CORRECT (PARA 5.1) IN NOT ACCEPTING THE EXPLANATION OF THE APPELLANT THAT MIS CELLANEOUS RECEIPTS OF RS.6659102/- REPRESENT SCRAP SALES FOR THE ONLY REASON THAT THE APPELLANT HAD ALREADY SHOWN SEPARATELY `SC RAP SALES UNDER THE HEAD `CPV SCRAP SALES. ITA NO277/VIZAG/2009 KCP LTD., CHENNAI . 2 2. THE APPELLANT SUBMIT THAT THE COMMISSIONER OF INCOM E TAX IS NOT JUSTIFIED IS COMING TO SUCH AN ARBITRARY CONCLUSION WITHOUT PROPER AND REQUIRED VERIFICATION. 3. THE APPELLANT SUBMIT THAT THE MISCELLANEOUS RECEIPT S OF RS.6659102/- BEING SCRAP SALES GENERATED IN THE BUS INESS, DO NOT FALL WITHIN THE AMBIT OF THE SAID CLAUSE. III. SUNDRY COMMISSION RS.260096/- ROUNDING OFF RS.900/- 1. THE COMMISSIONER OF INCOME TAX (APPEALS) IS NOT COR RECT IN CONCLUDING THAT THE ABOVE TWO RECEIPTS ARE TO BE IN CLUDED IN THE GROSS RECEIPTS (PRESUMABLY FOR EXCLUDING @ 90% THER EOF FROM `PROFIT OF BUSINESS UNDER THE SAID CLAUSE) WITHOUT GIVING AN OPPORTUNITY TO THE APPELLANT TO OFFER EXPLANATION. IV. THE APPELLANT SUBMIT THAT THOUGH THE COMMISSIONER O F INCOME TAX HAS FINALLY SET ASIDE THE ASSESSMENT FOR RE-EXAMINA TION ON THE ABOVE POINTS, HE HAS NOT LEFT ANY AREA OR SCOPE TO THE ASSESSING OFFICER TO TAKE ANY INDEPENDENT DECISION ON SUCH RE -EXAMINATION SINCE THE COMMISSIONER OF INCOME TAX HAS ALREADY CO NCLUDED THE ISSUES ARISING OUT THE ABOVE POINTS. 2. DURING THE COURSE OF HEARING OF THE APPEAL THE L D. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT WITH REGARD TO GROUND N O.1, THE CIT HAS GIVEN A DIRECTION TO THE A.O. TO EXCLUDE 90% OF THE GROSS R ECEIPT OF INTEREST INSTEAD OF 90% OF THE NET RECEIPTS IN COMPUTING THE PROFITS OF THE BUSINESS. THE DIRECTIONS OF THE CIT ON CONTRARY TO THE VARIOUS JU DICIAL PRONOUNCEMENTS OF DIFFERENT HIGH COURTS AND THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF LARSEN ENTERPRISES VS. DCIT (162 TAXMAN, PAGE NO.9) . THE LD. COUNSEL FOR THE ASSESSEE THEREFORE REQUESTED FOR THE MODIFICATI ON IN THE DIRECTION OF THE CIT. 3. THE LD. D.R. FORMALLY OPPOSED THE CONTENTIONS OF THE ASSESSEES. 4. HAVING CAREFULLY EXAMINED THE ORDER OF THE C IT IN THIS REGARD AND VARIOUS JUDGMENTS, WE FIND THAT THROUGH VARIOUS JUD ICIAL PRONOUNCEMENTS, IT HAS BEEN HELD THAT NETTING OF INTEREST IS TO BE ALL OWED SUBJECT TO PROOF OF NEXUS BETWEEN THE BORROWINGS AND THE RECEIPT OF INT EREST. VIEW TAKEN BY THE SPECIAL BENCH IN THIS REGARD WAS ALSO APPROVED BY T HE HONBLE HIGH COURT. THEREFORE, WE ARE OF THE VIEW THAT DIRECTION OF THE CIT ARE CONTRARY TO THE LEGAL PROPOSITIONS LAID DOWN THROUGH VARIOUS JUDICI AL PRONOUNCEMENTS. WE ITA NO277/VIZAG/2009 KCP LTD., CHENNAI . 3 THEREFORE MODIFY THE DIRECTION OF CIT AND DIRECT TH E A.O. TO EXCLUDE THE 90% OF THE NET RECEIPT OF INTEREST IN COMPUTING THE PRO FITS OF THE BUSINESS SUBJECT TO PROOF OF NEXUS BETWEEN THE RECEIPTS OF INTEREST AND THE BORROWINGS ON WHICH THE INTEREST WAS RECEIVED. WITH REGARD TO TH E OTHER ISSUES, THE LD. COUNSEL FOR THE ASSESSEE HAS NO OBJECTIONS WITH THE ORDER OF CIT. ACCORDINGLY, WE CONFIRM THE ORDER OF THE CIT ON REM AINING TWO ISSUES. 5. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 27-06-2011. SD/- SD/- (BR BASKARAN) (SUNIL KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER VG/SPS VISAKHAPATNAM, DATED 27-06-2011 COPY TO 1 THE KCP LIMITED, NO.2, RAMAKRISHNA BUILDINGS, DR. P.V. CHERIAN CRESCENT, EGMORE, CHENNAI 2 THE CI T, VIJAYAWADA 3 THE CIT (A) , VIJAYAWADA 4 THE DR, ITAT, VISAKHAPATNAM. 5 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM