The ACIT, Central Circle-1, Baroda V. Sun Pharmaceuticals Industries Ltd., Mumbai

ITA 2807/AHD/2007

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 9573 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 3 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-10-2010
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 30-09-2010
• Assessment Year: 1997-1998
• Appeal Filed On: 26-06-2007
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: ANIL KUMARD R
• Assessee Lawyers: S N SOPARKAR
• Section: 80HHC; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH AHMEDABAD BENCH AHMEDABAD BENCH AHMEDABAD BENCH A AA A BEFORE BEFORE BEFORE BEFORE SHRI SHRI SHRI SHRI BHAVNESH BHAVNESH BHAVNESH BHAVNESH SAINI SAINI SAINI SAINI, , , , JUDICIAL JUDICIAL JUDICIAL JUDICIAL MEMBER MEMBER MEMBER MEMBER AND AND AND AND SHRI SHRI SHRI SHRI N.S.SAINI N.S.SAINI N.S.SAINI N.S.SAINI, , , , ACCOUNTANT ACCOUNTANT ACCOUNTANT ACCOUNTANT MEMBER MEMBER MEMBER MEMBER DATE OF HEARING 30-9-10: DRAFTED ON: 30-910 ITA NO. 2807 /AHD/ 2007 ASSESSMENT YEAR : 1997-98 A SSISTANT COMMISSIONER OF INCOME TAX,CENT.CIR.1, 6 TH FLOOR,AAYAKAR BHAVAN, RACE COURSE CIRCLE, BARODA VS. SUN PHARMACEUTICALS INDUSTRIES LTD., ACHMEPLAZA ANDHERI KURLA ROAD, ANDHERI (EAST) MUMBAI. PAN/GIR NO. : AADCS 3124 K (A PPELLANT ) .. ( RESPONDENT ) APPELLANT BY : SHRI ANIL KUMAR,D.R. RESPONDENT BY: SHRI S.N. SOPARKAR, SR. ADV. O R D E R O R D E R O R D E R O R D E R PER N.S.SAINI , ACCOUNTANT MEMBER :- THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-IV , AHMEDABAD DATED 27-2-2007 BY TAKING THE FOLLOWING GROUND OF APPEAL:- THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) H AS ERRED IN LAW AND ON FACTS IN ALLOWING THE NETTING O F INTEREST PAYMENT AGAINST THE INTEREST RECEIVED FOR THE PURPO SE OF DEDUCTION UNDER SECTION 80HHC DESPITE THE FACT THAT THE ASSESSEE WAS NOT ABLE TO ESTABLISH THE NEXUS BETWEE N INTEREST PAID AND INTEREST RECEIVED. 2. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOT H THE PARTIES, PERUSED THE FINDINGS OF THE AUTHORITIES BE LOW AND CONSIDERED THE MATERIALS AVAILABLE ON RECORD. 3. BRIEFLY THE FACTS OF THE CASE ARE THAT IT WAS CONTENDED BEFORE THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) THAT THE AO HAS WHILE GRANTING DEDUCT ION - 2 - U/S 80 HHC OF THE IT ACT ERRED IN HOLDING THAT GROS S INTEREST INCOME IS REQUIRED TO BE REDUCED FROM THE PROFIT AND GAIN OF BUSINESS FOR THE PURPOSE OF DEDUCTION U /S 80 HHC OF THE IT ACT AS AGAINST THE CLAIM OF THE ASSES SEE FOR NET INTEREST INCOME. THE AO IN HIS ORDER HAS OBSERV ED THAT ITAT AHMEDABAD BENCH HAS DIRECTED HIM TO DECID E THE ISSUE RELATING TO NETTING INTEREST INCOME FOR T HE PURPOSE OF DEDUCTION U/S 80 HHC OF THE IT ACT AS PE R DECISION OF ITAT SPECIAL BENCH, DELHI IN CASE OF LA LSONS ENTERPRISES REPORTED IN 89 ITD 25. THE AO OBSERVED THAT THE ASSESSEE AT THE TIME OF HEARING THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS IN PHARMA BUSINESS A ND FINANCE BUSINESS WHICH ARE TWO DISTINCT BUSINESS A ND IN VIEW OF THE INTERMINGLED NATURE OF BOTH THE BUSINES S, IT IS NOT POSSIBLE TO CORRELATE OR ESTABLISH NEXUS BETWEE N THE INCOME AND THE INTEREST OUTGO, THE LEARNED ASSESSIN G OFFICER THEREFORE REDUCED 90% OF THE GROSS AMOUNT O F INTEREST INCOME OF RS.13,96,31,228/- FROM THE BUSIN ESS PROFITS FOR ALLOWING DEDUCTION U/S 80 HHC OF THE IT ACT. 4. BEFORE THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) THE LEARNED COUNSEL FOR THE ASSESSEE SUBM ITTED THAT SINCE THE LOANS AND ADVANCES HAVE BEEN GIVEN O UT OF THE CASH CREDIT ACCOUNT THERE IS A NEXUS WITH THE BORROWED FUNDS AND HENCE IN VIEW OF THE DECISION OF THE SPECIAL BENCH OF THE DELHI TRIBUNAL IN THE CASE OF LALSONS ENTERPRISES (SUPRA) ONLY NET INTEREST INCOME SHOULD BE DEDUCTED FROM BUSINESS PROFITS FOR ALLOWING DEDUCTI ON UNDER SECTION 80HHC OF THE ACT. 5. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE OBSERVED THAT ON PERUSAL OF THE ASSESSMENT ORDER IT IS NOTICED THAT 90% OF GROSS INTEREST INCOME WAS REDUC ED FROM THE BUSINESS PROFITS FOR ALLOWING DEDUCTION UN DER - 3 - SECTION 80HHC OF THE ACT TO THE ASSESSEE AS THE ASS ESSEE FAILED TO ESTABLISH THE NEXUS BETWEEN THE INTEREST INCOME EARNED AS WELL AS THE INTEREST EXPENDITURE. HE NOTE D THAT SIMILAR WAS THE CASE IN ASSESSMENT YEAR 2001-02 AND 2002-03 WHICH WAS DECIDED BY THE LEARNED COMMISSION ER OF INCOME TAX (APPEALS) IN FAVOUR OF THE ASSESSEE V IDE ORDER DATED 31-3-2006 AND 30-6-2003 RESPECTIVELY FO R ASSESSMENT YEARS 2001-02 AND 2002-03. HE ALSO NOTED THAT EVEN IN ASSESSMENT YEAR 1997-98, 1998-99 AND 1999-00 AND 2000-01 THE CLAIM OF THE ASSESSEE WAS DECIDED IN HIS FAVOUR BY THE LEARNED COMMISSIONER O F INCOME TAX (APPEALS). THERE BEING NO CHANGE IN FACT S, LEARNED COMMISSIONER OF INCOME TAX (APPEALS) DIRECT ED THE LEARNED ASSESSING OFFICER TO REDUCE 90% OF THE NET INTEREST INCOME FROM BUSINESS PROFITS FOR ALLOWING DEDUCTION UNDER SECTION 80HHC OF THE ACT. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE, THE LEARNED ASSESSING OFFICER IN THE ORIGINAL ASSES SMENT ALLOWED DEDUCTION UNDER SECTION 80HHC TO THE ASSESS EE FROM BUSINESS PROFITS AFTER DEDUCTING 90% OF THE GR OSS INTEREST INCOME. THE MATER TRAVELLED BEFORE THE TRI BUNAL AND THE TRIBUNAL RESTORED THE MATTER TO THE FILE OF THE LEARNED ASSESSING OFFICER WITH A DIRECTION TO DECID E THE ISSUE IN ACCORDANCE WITH THE DECISION OF THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF LALSONS ENTERPRISES VS. DCIT (DELHI) (SB) 89 ITD 25 AFTER VERIFICATION OF THE FA CTS AND FIGURES. ACCORDINGLY, THE LEARNED ASSESSING OFFICER ISSUED NOTICE TO THE ASSESSEE TO FILE THE DETAILS REGARDIN G THE INTEREST INCOME EARNED AND THE INTEREST EXPENDITURE INCURRED FOR EARNING SUCH INCOME. BEFORE THE LEARNE D ASSESSING OFFICER THE ASSESSEE DID NOT FILE ANY DET AILS OF SUCH INTEREST INCOME AND EXPENDITURE AND SUBMITTED THAT THE ASSESSEE IS PHARMA BUSINESS AND FINANCE BUSINES S - 4 - WHICH ARE INTER-CONNECTED AND HAD A UNITY OF CONTRO L. IN VIEW OF THE INTERMINGLED NATURE OF BOTH THE BUSINES SES, IT IS NOT POSSIBLE TO CORRELATE OR ESTABLISH NEXUS BET WEEN THE INTEREST INCOME AND THE INTEREST OUTGO. IN THES E CIRCUMSTANCES THE LEARNED ASSESSING OFFICER REDUCED 90% OF THE GROSS INTEREST INCOME OF RS.13,96,31,238 /- FROM THE PROFITS OF THE BUSINESS AS PER EXPLANATION (BAA) OF SECTION 80HHC WHILE ALLOWING DEDUCTION UNDER SEC TION 80HHC TO THE ASSESSEE. IN APPEAL, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) MERELY OBSERVI NG THAT IN THE PAST ASSESSMENT YEARS THE CLAIM OF THE ASSESSEE WAS ALLOWED, FOLLOWING THE SAME HE DIRECTE D THE LEARNED ASSESSING OFFICER TO ALLOW DEDUCTION TO THE ASSESSEE. WE FIND THAT THIS WAS A SET ASIDE PROCEED INGS BEFORE THE LEARNED ASSESSING OFFICER. THE MATTER WA S RESTORED BACK TO THE FILE OF THE LEARNED ASSESSING OFFICER FOR THE LIMITED PURPOSE OF VERIFYING THE FACTS AND FIGURES AND TO ALLOW DEDUCTION IN TERMS OF THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF LALSON S ENTERPRISES (SUPRA). THE ASSESSEE FAILED TO FILE T HE NECESSARY DETAILS PROVING THE NEXUS BETWEEN THE INT EREST INCOME EARNED AND INTEREST EXPENDITURE INCURRED IN EARNING SUCH INCOME. IN THESE CIRCUMSTANCES, THE LEARNED ASSESSING OFFICER REDUCED THE 90% OF GROSS INTEREST INCOME FROM THE BUSINESS PROFITS IN ALLOWI NG DEDUCTION UNDER SECTION 80HHC OF THE ACT TO THE ASSESSEE. THEREFORE, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) WAS NOT JUSTIFIED IN ALLOWING THE CLAIM OF THE ASSESSEE BY FOLLOWING THE DECISION IN THE EARLIER YEARS. THE LEARNED AUTHORISED REPRESENTATI VE OF THE ASSESSEE BEFORE US HAS NOT DISPUTED THE OBSERVA TION MADE BY THE LEARNED ASSESSING OFFICER IN THE ASSESS MENT ORDER THAT THE ASSESSEE DID NOT FILE THE DETAILS OF INTEREST INCOME EARNED AND THE INTEREST EXPENDITURE INCURRED FOR EARNING SUCH INTEREST INCOME. THE LEARNED AUTHORISE D - 5 - REPRESENTATIVE OF THE ASSESSEE MERELY SUBMITTED THA T THE LEARNED ASSESSING OFFICER WAS NOT JUSTIFIED IN NOT FOLLOWING THE ORDER OF THE TRIBUNAL IN ALLOWING DED UCTION UNDER SECTION 80HHC TO THE ASSESSEE BY REDUCING THE NET INTEREST INCOME FROM THE ELIGIBLE BUSINESS PROFITS. THUS THE LEARNED ASSESSING OFFICER WAS FULLY JUSTIFIED I N REDUCING 90% OF THE GROSS INTEREST INCOME FROM THE BUSINESS PROFITS WHILE ALLOWING DEDUCTION UNDER SEC TION 80HHC TO THE ASSESSEE. THEREFORE, WE SET ASIDE THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) AND RESTORE BACK THE TO THE FILE OF THE LEARNED ASS ESSING OFFICER AND ALLOW THE GROUND OF APPEAL OF THE REVEN UE. 7. IN THE RESULT, THE APPEAL OF THE REVENUE IS ALLO WED. ORDER SIGNED, DATED AND PRONOUNCED IN THE COURT ON 7 TH DAY OF OCTOBER, 2010. SD/- SD/- (BHAVNESH SAINI) ( N.S. SAINI ) JUDICIAL MEMBER ACC OUNTANT MEMBER AHMEDABAD: ON THIS 7 TH DAY OF OCTOBER, 2010 COMPILED AND COMPARED BY : PATKI COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT(APPEALS)-IV, AHMEDABAD. 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT.REGISTRAR), ITAT, AHMEDABAD - 6 - DATE INITIALS 1. DRAFT DICTATED ON 30-09-2010 -------------- ----- 2. DRAFT PLACED BEFORE AUTHORITY 01-10-2010 ----- -------------- 3. DRAFT PROPOSED & PLACED 01-10-2010 ---------- --------- JM BEFORE THE SECOND MEMBER 4. DRAFT DISCUSSED/APPROVED 4-10-2010 ---------- ------JM/AM BY SECOND MEMBER 5. APPROVED DRAFT COMES TO P.S 7-10-2010 --------- ----------- 6. KEPT FOR PRONOUNCEMENT ON 7-10-2010 --------- ----------- 7. FILE SENT TO THE BENCH CLERK 7-10-2010 ------ -------------- 8. DATE ON WHICH FILE GOES TO THE ---------------- -------------------- 9. DATE OF DISPATCH OF ORDER ---------------- -- -------------------