Addl. CIT, Noida Range, V. Laxmi Narain Khetan,

ITA 2913/DEL/2005

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 8471 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-07-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Next Hearing Date: 26-06-2009
• Assessment Year: 2001-2002
• Appeal Filed On: 17-06-2005
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANUSHA KHURANA
• Keywords: Business income; Set aside
• Section: 80HHC; 80HH; 192; 56

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH I, NEW DELHI BEFORE SHRI G.E. VEERABHADRAPPA, VICE PRESIDENT & SHRI I.P. BANSAL, JUDICIAL MEMBER ITA NO. 2913/DEL/2005 ASSESSMENT YEAR: 2001-02 ACIT, VS. SRI LAXMI NARAIN KHETAN, NOIDA RANGE, PROP. M/S VRINDAWAN CARPET, NOIDA. A-9, SECTOR-30, NOIDA. PAN NO. APRPK7398F. (APPELLANT) (RESPONDENT) APPELLANT BY : MS. ANUSHA KHURANA, DR RESPONDENT BY : SH. K. SAMPATH, ADV. ORDER PER I.P. BANSAL, J.M. THIS IS AN APPEAL FILED BY THE REVENUE. IT IS DI RECTED AGAINST THE ORDER OF CIT(A) DATED 02.02.05 FOR A.Y. 01-02. GRO UNDS OF APPEAL READ AS UNDER: - 1. THE LD. CIT(A) HAS ERRED IN NOT FOLLOWING THE D ECISION OF HER PREDECESSOR IN OFFICE WHO IN THE ASSESSEES OWN CAS E IN A.Y. 1998-99 VIDE ORDER DTD. 27.12.01 HAS HELD THAT THE INTEREST INCOME EARNED FROM THE BANK DEPOSITS IS THE INCOME FROM OTHER SOURCES. RELIANCE IS PLACED ON THE RATIO OF JUDGME NT OF HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. MENON IMPE X (2003)180 CTR (MAD) 40 WHEREIN HONBLE COURT HAS CO NCLUDED THAT INTEREST ON BANK DEPOSITS WHICH WAS MADE FOR THE PURPOSE OF OBTAINING LETTER OF CREDIT WHICH WAS IN TURN USE D FOR THE PURPOSE OF BUSINESS OF INDUSTRIAL UNDERTAKING HAD N O DIRECT NEXUS WITH THE INDUSTRIAL UNDERTAKINGS, AND, THEREF ORE, SUCH ITA NO. 2913/D/05 2 INTEREST INCOME WAS NOT DERIVED FROM THE BUSINESS O F THE INDUSTRIAL UNDERTAKING. THIS FURTHER FINDS SUPPORT IN THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF TUTICOR IN ALKALIES CHEMICALS AND FERTILIZERS LTD. VS. CIT 227 ITR 172. 2. THE LD. CIT(A) ERRED IN LAW AND ON FACTS IN HOLD ING THAT THE ASSESSEE IS ENTITLED FOR NETTING BETWEEN INTEREST I NCOME EARNED ON BANK DEPOSITS AND INTEREST PAID TO BANK ON CREDI TS AVAILED. THIS FINDING IS NOT ACCEPTABLE IN VIEW OF THE FACT THAT THE DECISION TREATING INTEREST INCOME FROM BANK AS BUSINESS INCO ME HAS NOT BEEN ACCEPTED AND IS BEING ASSAILED AS PER GROUNDS NO. 1 ABOVE. 3. THE ORDER OF LD. CIT(A) ON THE ABOVE ISSUES BEIN G ERRONEOUS IN LAW AND ON THE FACTS MAY BE VACATED AND THE OTHER O F THE AO BE RESTORED. 2. EARLIER THIS APPEAL WAS DISPOSED OF BY THE TRIBU NAL VIDE ITS EX- PARTE ORDER DTD. 13 TH JULY, 2007 BY WAY OF CONSOLIDATED ORDERS FOR THE PRESENT ASSESSMENT YEAR AS WELL AS FOR THE APPEAL F OR AY 1997-98. THIS TRIBUNAL FOLLOWING THE DECISION OF HONBLE DELHI HI GH COURT IN THE CASE OF CIT VS. SHRI RAM HONDA POWER EQUIPMENT 289 ITR 475 HELD THAT AS SURPLUS FUNDS WERE INVESTED IN FDRS THEREFORE, THE INTEREST INCOME WAS TO BE CONSIDERED AS INCOME FROM OTHER SOURCES. IT WAS ALSO HELD THAT THERE WAS NO QUESTION OF NETTING OF INTEREST ALSO A S ACCORDING TO AFOREMENTIONED DECISION OF HONBLE HIGH COURT ANY I NTEREST EXPENSES WHICH HAS BEEN DEBITED IN THE PROFIT AND LOSS ACCOU NT AND WHICH RELATES TO THE EARNING OF INTEREST INCOME ON FDRS SHOULD B E REDUCED FROM THE PROFITS ON BUSINESS AND PROFIT OF BUSINESS SHOULD B E INCREASED ACCORDINGLY WHILE ALLOWING DEDUCTION U/S 80HHC. TH EREFORE, THE APPEAL ITA NO. 2913/D/05 3 OF THE REVENUE WAS ALLOWED. THE ASSESSEE CHALLENGE D THE SAID ORDER OF TRIBUNAL BEFORE HONBLE ALLAHABAD HIGH COURT (JURIS DICTIONAL HIGH COURT). 3. IN THE APPEAL FILED BEFORE HONBLE HIGH COURT IT WAS THE MAIN CONTENTION OF THE ASSESSEE THAT THE DECISION OF TRI BUNAL REQUIRES RE- CONSIDERATION IN VIEW OF THE JUDGMENT OF HONBLE BO MBAY HIGH COURT IN THE CASE OF CIT VS. PUNIT COMMERCIAL LTD. 245 ITR 5 50 (BOM.). THEIR LORDSHIPS ON THIS ISSUE OBSERVED THAT ON MERITS THE ISSUE DECIDED BY THE TRIBUNAL REQUIRES RE-CONSIDERATION OF THE CASE. IT WAS OBSERVED THAT FOR ASCERTAINING THE QUESTION OF INTEREST FROM OTHER SO URCES, THE VITAL POINT WHICH IS TO BE CONSIDERED IS WHETHER THE AMOUNT IS IN CIRCULATION WITH THE BUSINESS OR THE SAME IS KEPT IN THE FIXED DEPOSIT O F THE BANK TO EARN INTEREST. FURTHER ELABORATING IT WAS OBSERVED THAT IF INTEREST EARNED HAS NEXUS OR CONNECTION WITH THE BUSINESS IS ALSO A REL EVANT FACT. REFERRING TO THE AFOREMENTIONED DECISION OF HONBLE BOMBAY HI GH COURT IN THE CASE OF PUNIT COMMERCIAL LTD. (SUPRA) IT WAS OBSERV ED THAT IT WAS HELD THEREIN THAT SEC. 80HHC(3)(A) OF I.T. ACT, 1961 IS APPLICABLE TO THE ASSESSEE WHO IS 100% EXPORTER AND THE ENTIRE BUSINE SS INCOME IS TO BE DEEMED TO BE PROFIT DERIVED FROM EXPORT OF GOODS AN D THUS, ENTIRE PROFITS ARE ENTITLED TO DEDUCTION U/S 80HHC INCLUDING INTER EST INCOME. 4. IT WAS FURTHER OBSERVED BY THEIR LORDSHIPS THAT THEIR BEING DIFFERENT OPINION OF TWO HIGH COURTS, THE MATTER REQUIRED RE- CONSIDERATION BY A TIME BOUND PROGRAMME FOR COMING TO AN APPROPRIATE C ONCLUSION BY THE TRIBUNAL. THE AFOREMENTIONED ORDER OF TRIBUNAL DTD . 13 TH JULY, 2007 WAS ITA NO. 2913/D/05 4 KEPT IN ABEYANCE FOR A PERIOD OF ONE MONTH FROM THE DATE OF COMMUNICATION OF THE ORDER WITH A DIRECTION FOR GIV ING AN OPPORTUNITY TO THE ASSESSEE TO MAKE AN APPLICATION FOR HEARING ON MERIT ON THE POINTS RAISED BEFORE HONBLE HIGH COURT AND TRIBUNAL WAS D IRECTED TO DECIDE THE ISSUE INDEPENDENTLY WITHOUT BEING INFLUENCED BY THE OBSERVATIONS OF HONBLE HIGH COURT. THIS ORDER WAS PASSED BY HONB LE HIGH COURT ON 13 TH MAY, 2009. A COPY OF SUCH ORDER IS PLACED ON RECO RD. THE ASSESSEE VIDE HIS APPLICATION DTD. 10.06.09 HAS FURNISHED TH E COPY OF THE SAID ORDER FOR COMPLIANCE THEREOF. IT IS IN PURSUANCE O F THE SAID APPLICATION FILED BY THE ASSESSEE THIS APPEAL WAS FIXED FOR HEA RING ON 22.06.09 WHEN DEPARTMENT SOUGHT AN ADJOURNMENT AND THE MATTER WAS ADJOURNED TO 24.06.09 WHEN BOTH THE PARTIES WERE HEARD. 5. RELYING ON THE ORDER OF AO AND EARLIER ORDER OF THE TRIBUNAL IT WAS SUBMITTED BY LD. DR THAT INTEREST EARNED BY THE ASS ESSEE COULD NOT BE TREATED TO BE AN INCOME IN THE CHARACTER OF BUSINES S. IT WAS POINTED OUT THAT INTEREST EARNED BY THE ASSESSEE ON FDR WAS HAV ING CHARACTER OF INCOME FROM OTHER SOURCES AND THUS, AO WAS RIGHT IN HOLDING THAT SUCH INCOME SHOULD BE ASSESSED AS INCOME FROM OTHER SOUR CES. REFERENCE WAS ALSO MADE TO THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. SHREE RAM HONDA POWER EQUIPMENT 289 ITR 475 TO CONTEND THAT INTEREST EARNED ON FDR, FOR THE PURPOSE OF DED UCTION U/S 80HHC, IS TO BE HELD AS INCOME FROM OTHER SOURCES. THUS, IT WAS PLEADED THAT ORDER OF CIT(A) SHOULD BE SET ASIDE AND THAT OF AO BE RESTORED ON THE ISSUE OF DEDUCTION U/S 80HHC. ITA NO. 2913/D/05 5 6. ON THE OTHER HAND, LD. AR OF THE ASSESSEE HAS SU BMITTED BEFORE US WRITTEN SUBMISSIONS. IN THE WRITTEN SUBMISSIONS THE DIRECTIONS OF HONBLE JURISDICTION HIGH COURT HAVE BEEN REPRODUCE D. IT WAS SUBMITTED THAT THE APPEAL OF THE DEPARTMENT WAS DISPOSED OF B Y THE TRIBUNAL BY WAY OF AN EX-PARTE ORDER DTD. 13 TH JULY, 2007. IT WAS SUBMITTED THAT IT IS AN UNDISPUTED FACT THAT ASSESSEE IN THE PRESENT CAS E IS AN 100% EXPORTER CARRYING ON THE BUSINESS OF EXPORT UNDER T HE NAME AND STYLE OF M/S VRINDAVAN CARPETS WHICH IS A PROPRIETARY CONCER N OF THE ASSESSEE. RETURN OF INCOME WAS FILED AT AN INCOME OF RS. 1,04 ,86,950/- AFTER CLAIMING DEDUCTION U/S 80HHC FOR AN AMOUNT OF RS. 4 ,19,36,670/-. THE EXPORT TURNOVER WAS DECLARED AT RS. 15,33,35,536/- AND DUTY DRAWBACK WAS AN AMOUNT OF RS. 83,00,958/-. THE NET PROFIT W AS DECLARED AT RS. 5,22,36,695/-. 7. WHILE WORKING OUT DEDUCTION U/S 80HHC, THE BUSIN ESS PROFIT WAS COMPUTED BY THE AO BY DEDUCTING THE AMOUNT OF INTER EST INCOME EARNED ON FDRS AND DEPOSITS WITH DIFFERENT BANKS. THE PR INCIPLE AMOUNT OF SUCH SUM WAS RS. 4,60,34,629/-. THE AO BEING OF TH E VIEW THAT INTEREST INCOME IS ALWAYS ASSESSABLE AS INCOME FROM OTHER S OURCES AND THAT PROVISION OF SEC. 80HHC OF THE ACT DOES NOT PERMIT DEDUCTION OF OTHERWISE THAN TO ANY SUM EARNED IN FOREIGN EXCHANG E. DRAWING SUPPORT FROM THE DECISION OF HONBLE SUPREME COURT IN THE C ASE OF CIT VS. DR. V.P. GOPI NATH 248 ITR 449, THE AO HELD THAT THE IN TEREST WAS TO BE TAXED AS :INCOME FROM OTHER SOURCES AND HE ALSO H ELD THAT THE SAID ITA NO. 2913/D/05 6 INTEREST COULD NOT BE SET OFF AGAINST PAYMENT OF IN TEREST ON OVER DRAFT FACILITIES AS AVAILED BY THE BUSINESS. 8. IT WAS SUBMITTED BY LD. AR THAT DETAILED SUBMISS IONS WERE MADE BEFORE CIT(A). THE MATTER WAS ALSO REFERRED BY LD. CIT(A) TO THE AO AND AFTER CONSIDERING THE REMAND REPORT RECEIVED FROM H IM LD. CIT(A) HAS CONCLUDED AS UNDER: - HENCE, I AM INCLINED TO AGREE WITH THE SUBMISSIONS OF THE APPELLANT THAT THE INTEREST INCOME EARNED ON BANK D EPOSITS TAKEN ON THE FACTS AND CIRCUMSTANCES OF THE CASE IS INCIDENTAL TO THE BUSINESS OF THE APPELLANT WHICH 1 00% EXPORT. I HAD TAKEN A VIEW IN THE CASE OF VRINDAVA N OVERSEAS, A SISTER CONCERN OF THE APPELLANT, IN THE IR APPEAL FOR AY. 1993-94, 1994-95, 95-96, 97-98 & 00-01 THAT INTEREST INCOME AND BANK FDRS TAKEN AND FURNISHED TO BANK AS SECURITY FOR AVAILING PACKING CREDIT AND OTHER LIMI TS IN ITS EXPORT BUSINESS WOULD BE INCOME. I FIND THAT ON TH E FACTS OF THE CASE IN THE PRESENT APPEAL, THE FDRS TAKEN BY T HE APPELLANT OUT OF ITS ACCUMULATED PROFITS WERE USED BY WAY OF SECURITY FOR AVAILING CREDIT LIMITS TO THE TUNE OF RS. 4 CRORES AS CERTIFIED BY THE BANK. THUS, THE NEXUS BETWEEN THE SE FDRS AND EXPORT OF BUSINESS OF THE APPELLANT IS NOT ABSE NT IN VIEW OF THE BANKS CERTIFICATE. THEREFORE, INTEREST EAR NED THEREON IS FROM UTILIZATION OF BUSINESS FUNDS AND WOULD THU S, BEAR THE SAME NATURE AND CHARACTER AS OF BUSINESS RECEIPTS. I, THEREFORE, HOLD THAT INTEREST INCOME IS ASSESSABLE AS BUSINESS INCOME ON THE FACTS AND CIRCUMSTANCES OF T HE CASE. 9. LD. CIT(A) ALSO OBSERVED THAT THE ASSESSEE IS EN TITLE FOR NETTING OF INTEREST IN ACCORDANCE WITH DECISION OF SPL. BENCH IN THE CASE OF LALSONS ITA NO. 2913/D/05 7 ENTERPRISES VS. DCIT 89 ITD 29 SPL. BENCH (DEL.). REFERRING TO THE FINDINGS GIVEN BY LD. CIT(A) IT WAS SUBMITTED BY LD . AR THAT THE TRIBUNAL WAS WRONG IN OBSERVING THAT IT WAS AN ADMITTED POSI TION AND IN THE CASE OF ASSESSEE SURPLUS FUNDS WERE INVESTED IN FDRS. IT WAS SUBMITTED THAT THESE FINDINGS OF TRIBUNAL ARE AGAINST FINDINGS OF FACT RECORDED BY LD. CIT(A). IT WAS SUBMITTED THAT ASSESSEE IN THE PRES ENT CASE IS AN 100% EXPORTER AND THE ENTIRETY OF FUNDS ARE RETAINED IN THE BUSINESS CARRIED ON BY THE ASSESSEE AND THESE ARE THE FUNDS OF THE BUSI NESS MEANT FOR EXPORT ACTIVITY ALONE. IT WAS SUBMITTED THAT CASH LOCKED IN FIXED DEPOSITS AND OTHER DEPOSITS ARE PURELY OUT OF COMMERCIAL ASS ETS. IT WAS SUBMITTED THAT ACCORDING TO WELL ESTABLISHMENT PRIN CIPLES OF LAW IF ANY INCOME ARISES OUT OF COMMERCIAL ASSETS THAT WILL BE AN INCOME FROM BUSINESS. DISTINGUISHING DECISION OF HONBLE SUPRE ME COURT IN THE CASE OF CIT VS. DR. V.P. GOPI NATH (SUPRA) IT WAS PLEADE D BY LD. AR THAT IN THE SAID CASE ASSESSEE IS NOT AN EXPORTER. THE ASSESSE E IN THAT CASE HAD PUT HIS SURPLUS MONEY IN FDS OUT OF WHICH INTEREST INCOME WAS RECEIVED. ON SECURITY OF FIXED DEPOSITS HE OBTAINED A LOAN FR OM THE BANK ON WHICH HE WAS REQUIRED TO PAY INTEREST. THE INTEREST PAID TO BANK WAS ATTEMPTED TO BE SET OFF AGAINST INTEREST EARNED AGA INST FIXED DEPOSITS AND SUCH SET OFF WAS DENIED ON THE GROUND THAT THERE WA S NO PROVISION PERMITTING SUCH A SET OFF. THE REVENUES PLEA WAS ACCEPTED THAT NO DEDUCTION FOR INTEREST PAID AGAINST INTEREST EARNED COULD BE PROVIDED. IT WAS SUBMITTED THAT THERE IS NO SIMILARITY EITHER OF FACTS OR ISSUE INVOLVED IN THE PRESENT CASE AND IN THE CASE DECIDED BY HON BLE SUPREME COURT. IT WAS POINTED OUT THAT IN BOTH THE DECISIONS I.E. IN THE CASE OF SPL. BENCH ITA NO. 2913/D/05 8 DECISION OF LALSONS (SUPRA) AND DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF SHREE RAM HONDA POWER EQUIPMENT (SUPRA) THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. DR. V. P. GOPI NATH (SUPRA) WAS CONSIDERED AND WAS HELD TO BE INAPPLICA BLE AND IRRELEVANT. EXPLAINING THE FACTS OF ASSESSEES CASE IT WAS POIN TED OUT THAT ASSESSEE DID NOT MAKE FIXED DEPOSITS OUT OF SURPLUS FUNDS. IT WAS POINTED OUT THAT THOUGH AO HAS SO ALLEGED BUT THE SAME IS BASELESS A LLEGATION DEVOID OF ANY MATERIAL SUPPORT AND AS AGAINST THAT THE ASSESS EE IS 100% EXPORTER WHERE ENTIRETY OF FUNDS ARE RELATED TO THE EXPORT B USINESS. REFERENCE WAS MADE BY THE LD. AR TO THE DECISION IN THE CASE OF CIT VS. GOVINDA CHOUDHARY AND SONS 203 ITR 881 (SC) TO CONTEND THAT INTEREST INCOME ALWAYS DOES NOT HAVE THE CHARACTER OF INCOME FROM O THER SOURCES. REFERENCE WAS ALSO MADE TO THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. PARAMOUNT PREMISES PVT. LTD. 190 ITR 259 WHEREIN THE ASSESSEE HAD GIVEN THE GUARANTEE TO STA TE BANK IN RESPECT OF AMOUNT TAKEN BY IT ON LEASE FOR CONSTRUCTION WOR K. FOR THAT PURPOSE CERTAIN AMOUNTS WERE KEPT IN FIXED DEPOSITS ON WHIC H INTEREST WAS EARNED. A FINDING OF FACT WAS RECORDED BY THE TRIB UNAL THAT THE ENTIRE INTEREST SPRANG FROM THE BUSINESS ACTIVITY OF THE A SSESSEE AND DID NOT ARISE OUT OF ANY INDEPENDENT ACTIVITY. HENCE, INTE REST INCOME WAS HELD ASSESSABLE AS BUSINESS INCOME. IT WAS SUBMITTED TH AT HONBLE SUPREME COURT HAS DISMISSED SLP AGAINST THE SAID DECISION O F HONBLE BOMBAY HIGH COURT AND SUCH DISMISSAL IS REPORTED AS (2000) 244 ITR (STATUTE) 54. IT WAS SUBMITTED THAT FOLLOWING THE AFOREMENTI ONED DECISION IN THE CASE OF CIT VS. PARAMOUNT PREMISES P. LTD. (SUPRA), HONBLE BOMBAY ITA NO. 2913/D/05 9 HIGH COURT AGAIN IN CIT VS. NAGPUR ENGINEERING CO. LTD. 245 ITR 806 HAS HELD THAT INTEREST WAS ASSESSABLE AS BUSINESS I NCOME. 10. IT WAS SUBMITTED THAT ASSESSEE BEING 100% EXPOR TER, THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. PUNIT COMMERCIAL LTD. (SUPRA) IS FULLY APPLICABLE TO THE CASE OF ASS ESSEE. TO SUPPORT THE CONTENTION THAT SUCH INTEREST WILL HAVE CHARACTER O F BUSINESS INCOME RELIANCE IS PLACED ON THE DECISION OF SPL. BENCH JA IPUR IN THE CASE OF RAJIV ENTERPRISES VS. ACIT 261 ITR (80) AT 34. REF ERENCE IS ALSO MADE TO THE DECISION OF DELHI SPL. BENCH IN THE CASE OF LALSONS ENTERPRISES (SUPRA) TO CONTEND THAT NETTING HAS TO BE GRANTED A ND NETTING VIEW WAS ALSO UPHELD BY HONBLE DELHI HIGH COURT IN THE CASE OF HONDA SIEL (SUPRA). 11. IT WAS FURTHER SUBMITTED THAT CIT(A) WHILE DECI DING THE ISSUE IN FAVOUR OF ASSESSEE HAS ALSO RELIED ON HER DECISION IN THE CASE OF ASSESSEE SISTER CONCERN NAMELY VRINDAVAN OVERSEAS A ND THE SAID ORDER OF CIT(A) WAS UPHELD BY THE TRIBUNAL VIDE ITS ORDER DTD. 28 TH APRIL, 2006 IN ITA NOS. 157, 158, 159, 160 & 161/D/03. A COPY WAS PLACED ON OUR RECORD. 12. IT WAS FURTHER SUBMITTED THAT TRADE CYCLE OF TH E ASSESSEE IS OF 90 DAYS AND PAYMENT IS DUE ONE MOTH AFTER THE BILL WHI CH MAKES THE TRADE CYCLE TO THE TOTAL PERIOD OF 120 DAYS. THE FDRS A ND OTHER DEPOSITS ARE PLEDGED AS SECURITY FOR OBTAINING SEVERAL FACILITIE S INCLUDING PACKING ITA NO. 2913/D/05 10 CREDIT FACILITY WHICH STAND TO TURN THE WHEELS OF B USINESS AND KEEP IT GOING. IT WAS SUBMITTED THAT TOTAL TURNOVER IS A S UM OF RS. 15 CRORE AND FDR ARE OF RS. 4.5 CRORE. THE TURNOVER AS AGAINST THE FDR IS THREE TIMES AND THUS, IT CAN BE SEEN THAT FDRS WERE MEAN T ONLY FOR THE PURPOSE OF BUSINESS TO AVAIL PACKING CREDIT FACILIT Y AND FOR RUNNING OF BUSINESS SMOOTHLY WITHOUT ANY HURDLE OR HASTLE. 13. IT WAS SUBMITTED THAT THERE IS NO DECISION OF H ONBLE JURISDICTIONAL HIGH COURT ON THIS ISSUE AND TWO DIFFERENT VIEWS HA VE BEEN EXPRESSED BY TWO HIGH COURTS AND IN VIEW OF THE FOLLOWING DECISI ONS OF HONBLE SUPREME COURT, A VIEW FAVOURABLE TO ASSESSEE WAS TO BE ADOPTED: (I) CIT VS. KULU VELI TRANSPORT COMPANY 77 ITR 518 (II) CIT VS. VEGETABLE PRODUCTS LTD. 88 ITR 192 (SC ) (III) CIT VS. NAGA HILLS TEA COMPANY LTD. 89 ITR 23 6 (SC). 14. REFERRING TO ABOVE DECISIONS IT WAS SUBMITTED T HAT ACCORDING TO DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE O F CIT VS. PUNIT COMMERCIAL LTD. (SUPRA) THE ISSUE SHOULD BE DECIDED IN FAVOUR OF ASSESSEE. 15. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS IN THE LIGHT OF MATERIAL PLACED BEFORE US. 16. THE ASSESSING OFFICER HAS TREATED A SUM OF RS.3 6,88,078/- BEING INTEREST EARNED ON FDRS LYING WITH VARIOUS BANKS AS INCOME FROM OTHER SOURCES AS AGAINST THE CLAIM OF THE ASSESSEE THAT I T IS AN INCOME FROM ITA NO. 2913/D/05 11 BUSINESS, RESULTANTLY DISALLOWING THE CLAIM OF ASSE SSEE U/S 80HHC TO THE EXTENT IT RELATES TO INTEREST EARNED BY THE ASSESSE E ON THOSE FDRS. FOR HOLDING SO, THE ASSESSING OFFICER HAS PLACED RELIAN CE ON THE DECISION IN THE CASE OF CIT VS. DR. D.P. GOPINATH (SUPRA). ACC ORDING TO THE ASSESSING OFFICER, THE RATIO OF THE DECISION IS TH AT INTEREST INCOME HAS TO BE TAXED AS INCOME FROM OTHER SOURCES WHICH CANNO T BE SET OFF AGAINST PAYMENT OF INTEREST ON OVERDRAFT FACILITIES. THE A SSESSING OFFICER OBSERVED THAT IN ACCORDANCE WITH THE SAID DECISION OF HON'BLE SUPREME COURT, THE INTEREST EARNED BY THE ASSESSEE ON FDR I S TO BE TREATED AS INCOME FROM OTHER SOURCES ON WHICH DEDUCTION U/S 80-L WAS ALLOWABLE. THEREFORE, FOR COMPUTING DEDUCTION UNDE R SECTION 80HHC, THE SAID INTEREST HAS BEEN IGNORED. THE PART DISA LLOWANCE OF DEDUCTION UNDER SECTION 80HHC WAS AGITATED BY THE ASSESSEE I N APPEAL BEFORE THE CIT (A) CONTENDING THAT INTEREST INCOME EARNED ON FDR IS BUSINESS INCOME WHICH HAS BEEN EARNED DURING THE COURSE OF EXPORT BUSINESS AND, THEREFORE, ELIGIBLE FOR DEDUCTION UNDER SECTIO N 80HHC. IT WAS PLEADED THAT THE ASSESSEE IS A 100% EXPORTER AND IN HIS EXPORT BUSINESS THE ASSESSEE IS ENJOYING AND AVAILING VARIOUS CREDI T LIMITS FROM THE BANKS. AS PER USUAL PRACTICE, THE ASSESSEE HAD OBT AINED BANK FIXED DEPOSITS TO SECURE SUCH BANK CREDITS/LIMITS WHICH W AS REQUIRED FOR THE PURPOSE OF BUSINESS. THE DETAILS OF TOTAL BANK LIM ITS AND NATURE OF CREDITS SANCTIONED AND AVAILED BY THE ASSESSEE WITH RESPECT TO VARIOUS BANKS ALONG WITH DETAILS OF INTEREST INCOME YIELDED WERE FILED. IT WAS PLEADED THAT INTEREST EARNED AS WELL AS INTEREST PA ID WERE ENTERED IN COMMON INTEREST LEDGER COPY OF WHICH WAS SUBMITTED. IT WAS SUBMITTED ITA NO. 2913/D/05 12 THAT TOTAL BANK INTEREST CREDITED AMOUNTING TO RS.3 6,17,433/- ON FDRS AND RS.822/- ON SAVING BANK ACCOUNT TOTALING TO RS. 36,18,255/-, THE INTEREST PAID ON BANK LOANS WAS AGGREGATED TO RS.7, 75,655/- AND, THUS, NET RECEIPT OF INTEREST WERE A SUM OF RS.28,42,600/ - WHICH WAS NET INCOME ACCRUED TO ASSESSEE ON INTEREST ACCOUNT AND THE SAME WAS CREDITED TO PROFIT & LOSS ACCOUNT. ON ACCOUNT OF T HAT INTEREST BEING IN THE NATURE OF BUSINESS INCOME, DEDUCTION U/S 80HHC WAS CLAIMED AND THE SAID CLAIM OF THE ASSESSEE WAS NEGATED BY THE A SSESSING OFFICER BY EXCLUDING THE INTEREST EARNED ON FDRS. AS A CONSEQ UENCE OF THAT THE CLAIM OF THE ASSESSEE OF DEDUCTION UNDER SECTION 80 HHC WAS REDUCED TO RS.4,05,03,503/- FROM RS.4,19,36,670/-. IT WAS PLE ADED THAT FOR THE PURPOSE OF AND IN THE COURSE OF EXPORT BUSINESS, TH E ASSESSEE WAS PROVIDED VARIOUS CREDIT FACILITIES BY CANARA BANK S UCH AS P.C. AND FDB CREDIT LIMITS FOR RS.4 CRORE AGAINST FDRS OF ABOUT RS.4 CRORES AS PER BANK CERTIFICATE. IT WAS SUBMITTED THAT THE SAID C ERTIFICATE WAS FILED WITH THE ASSESSING OFFICER DURING THE ASSESSMENT PROCEED INGS ALONG WITH THE LETTER DATED 12 TH DECEMBER, 2003. IT WAS SUBMITTED THAT SOURCE OF F DRS WAS EXPORT PROFIT WHICH CONSTITUTED BUSINESS ASSET. THE PURPOSE OF DEPOSITING IN BANK FD WAS TO OBTAIN THE FDRS IN CON SIDERATION OF WHICH THE ASSESSEE SHOULD CONTINUE TO ENJOY VARIOUS BANK CREDIT LIMITS SUCH AS PACKING CREDIT AND SO AS TO USE IT AS SECURITY AGAI NST BANK LOANS/CREDIT LIMITS. THE LD. CIT (A) FORWARDED THE SUBMISSION O F THE ASSESSEE TO THE ASSESSING OFFICER WHO REITERATED THAT THE ASSESSEE IS NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 80HHC ON INTEREST INCOME WH ICH IS PURELY IN THE NATURE OF INTEREST ON FDRS AND, THEREFORE, IS TO BE ASSESSED AS INCOME ITA NO. 2913/D/05 13 FROM OTHER SOURCES. CONSIDERING THE SUBMISSION OF T HE ASSESSEE AND CONSIDERING THE CONTENTS OF THE BANK CERTIFICATE WH ICH ARE AS UNDER:- THIS IS TO CERTIFY THAT THE BANK HAS PROVIDED CREDIT FACILITY TO M/S VRINDAVAN CARPETS, CHAMAN STREET, HARTHRAS IN THE YEAR 2000-2001 IN THE FORM OF PACKING CREDIT AND FDB LIMITS FOR RUPEES FOUR CRORES AGAINST THE FDRS OF FOUR CRORES. THE LD. CIT (A) HAS OBSERVED THAT PURPOSE OF DEPOS ITING THE FUNDS IN BANKS FIXED DEPOSIT WAS TO OBTAIN THE FDRS IN CONSIDERATION OF WHICH THE ASSESSEE SHOULD CONTINUE TO ENJOY VARIOUS BANK CREDIT LIMITS IN THE SHAPE OF PACKING CREDITS AND SUCH INTEREST INCOME A ROSE TO THE ASSESSEE FROM DEPLOYMENT OF BUSINESS FUNDS WHICH COULD NOT BE TERMED TO BE INVESTMENT SIMPLICITOR. THE INCOME EARNED WAS IN T HE CHARACTER AS A TRADER IN THE COURSE OF EXPORT BUSINESS. THE ASSES SEE BEING 100% EXPORTER INCOME FROM DEPOSITS WITH BANKS AND OTHER PARTIES WERE BEARING THE CHARACTER OF BUSINESS INCOME. FOR THIS PURPOSE , THE LD. CIT (A) HAS RELIED ON THE DECISION OF SPECIAL BENCH IN THE CASE OF RAJIV ENTERPRISES 78 TTJ 330. THE LD. CIT (A) FURTHER REFERRED TO HI S DECISION IN THE CASE OF SISTER CONCERN, NAMELY, M/S VRINDAVAN OVERSEAS ACCORDING WHICH IT WAS HELD THAT INTEREST EARNED BY THE ASSESSEE ON FD RS WILL BEAR THE SAME CHARACTER OF BUSINESS INCOME AND HE HAS HELD T HAT THE INTEREST INCOME WAS ASSESSABLE AS BUSINESS INCOME ON THE FAC TS AND CIRCUMSTANCES OF THE CASE. 17. FURTHER, THE LD. CIT (A) HAS OBSERVED THAT NETT ING WAS TO BE DONE IN THE LIGHT OF THE SPECIAL BENCH DECISION IN THE C ASE OF LALSON ITA NO. 2913/D/05 14 ENTERPRISES VS. DCIT. AGAINST THESE FINDINGS OF TH E CIT (A) THE DEPARTMENT IS AGGRIEVED, HENCE, IN APPEAL. 18. THE CASE OF THE ASSESSEE WAS DECIDED BY THIS TR IBUNAL VIDE ORDER DATED 13 TH JULY, 2007 WHERE ASSESSEE DID NOT REPRESENT AND TH IS APPEAL WAS AGAIN FIXED IN PURSUANCE OF THE AFOREMENTIONED ORDER OF THE HONBLE JURISDICTIONAL HIGH COURT. THE ISSUE WHICH WE HAVE TO DECIDE IS WHETHER IN CASE WHERE ASSESSEE IS 100% EXPORTER, THE DECISI ON OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. PUNIT COMM ERCIAL LTD. (SUPRA) OR THE DECISION OF HON'BLE HIGH COURT OF DELHI IN T HE CASE OF CIT VS. SHREE RAM HONDA POWER EQUIPMENT LTD. (SUPRA) IS TO BE APPLIED. THERE IS NO DISPUTE SO AS IT RELATES TO THE FACT THAT ASS ESSEE IN THE PRESENT CASE IS 100% EXPORTER. THEREFORE, WE HAVE TO PROCEED ON THE BASIS THAT ASSESSEE IS A 100% EXPORTER. IN THE CASE OF CIT VS . PUNIT COMMERCIAL LTD. (SUPRA) THE HONBLE BOMBAY HIGH COURT HAS HELD THAT IN CASE OF 100% EXPORTER, SECTION 80HHC (3) (A) IS APPLICABLE AND THE ENTIRE PROFITS ARE ENTITLED TO DEDUCTION UNDER SECTION 80HHC INCLU DING INTEREST INCOME. IT WAS THE CONTENTION OF THE REVENUE IN THAT CASE T HAT THE INTEREST INCOME COULD NOT BE TREATED AS PROFIT RELATING TO EXPORT A ND ALSO THAT ANY BUSINESS PROFITS FROM AN ACTIVITY WHICH WAS NOT AN EXPORT ACTIVITY WAS NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 80HHC. WITH REGARD TO THESE CONTENTIONS OF REVENUE IT WAS CONCLUDED THAT THERE WAS NO MERIT IN SUCH CONTENTIONS OF THE REVENUE. IT WAS OBSERVED THAT I N THE ABSENCE OF ANYTHING CONTRARY, IN A CASE WHERE ASSESSEE IS 100% EXPORTER, SECTION 80HHC (3)(A) WILL BE APPLICABLE, THEREFORE, THE ENT IRE BUSINESS INCOME IS DEEMED TO BE PROFIT DERIVED FROM EXPORT OF GOODS AN D THE INTEREST INCOME ITA NO. 2913/D/05 15 COULD ONLY FALL UNDER BUSINESS INCOME. IT WAS OBSE RVED THAT SECTION 80HHC (3)(A) DEALS WITH 100% EXPORTER WHEREAS SECTI ON 80HHC (3) (B) DEALS WITH COMPOSITE BUSINESS. IN THE CASE OF 80HH C (3)(B) LOCAL SALES WERE INCLUDED. THEREFORE, UNDER SECTION 80HHC (3)( A) ENTIRE PROFITS ARE ENTITLED TO DEDUCTION WHICH WOULD INCLUDE INTEREST INCOME ALSO. THE SAID DECISION OF THE HONBLE BOMBAY HIGH COURT WAS ALSO CONSIDERED IN THE CASE OF CIT VS. SHREE RAM HONDA POWER EQUIPMENT LTD . (SUPRA) AND DISCUSSION IN THIS REGARD FIND PLACE IN PARA 18 OF THE SAID DECISION. THEIR LORDSHIPS HAVE EXPRESSED THAT IT WAS NOT CLEAR FROM THE NARRATION OF FACTS IN THE PUNIT COMMERCIAL LTD.S CASE THAT WHETHER TH E INTEREST EARNED WAS AS A RESULT OF PARKING SURPLUS FUNDS IN DEPOSITS A ND IF IT WAS SO EARNED, THEN IT WILL BE DIFFICULT TO ACCEPT THE SAID VIEW O F HONBLE BOMBAY HIGH COURT IN VIEW OF DECISION OF KERALA HIGH COURT IN T HE CASE OF K. RAVINDRANATHAN NAIR VS. DCIT 262 ITR 20 (KER) WHICH WAS AFFIRMED BY HON'BLE SUPREME COURT SO AS TO HOLD THAT SUCH INTER EST INCOME WAS BUSINESS INCOME. THUS, THEIR LORDSHIPS OF DELHI H IGH COURT HAVE RECORDED THEIR DISSENT FROM THE VIEW TAKEN BY HONB LE BOMBAY HIGH COURT. BOTH ARE THE DECISIONS OF NON-JURISDICTIONA L HIGH COURT. 19. IT IS OBSERVED FROM THE DECISION OF HONBLE BOM BAY HIGH COURT IN THE CASE OF PUNIT COMMERCIAL (SUPRA) THAT THE ASSES SING OFFICER IN THAT CASE ALSO TREATED THE INTEREST INCOME NOT RELATED T O EXPORT BUSINESS. ACCORDINGLY, WHILE WORKING OUT THE BUSINESS PROFITS FOR THE PURPOSES OF SECTION 80 HHC, THE ASSESSING OFFICER REDUCED INTER EST INCOME FROM THE BUSINESS PROFITS. HERE, IN THE PRESENT CASE ALSO SIMILAR COMPUTATION HAS BEEN DONE BY THE ASSESSING OFFICER BY FOLLOWING TH E DECISION OF HON'BLE ITA NO. 2913/D/05 16 SUPREME COURT IN THE CASE OF CIT VS. DR. V.P. GOPI NATH (SUPRA). SO AS IT RELATES TO THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF CIT VS. DR. V.P. GOPINATH (SUPRA), AFTER REFERRING TO THE S AID DECISION IN PARA 10, HONBLE DELHI HIGH COURT IN PARA 11 HAVE OBSERVED THAT THE DECISION REFERRED IN PARA 10 DID NOT CONSIDER OR DISCUSS ANY CLAUSE SIMILAR TO CLAUSE (BAA) OF EXPLANATION BELOW SUB-SECTION (4) ( C) OF 80HHC OF THE ACT AND THE PROVISIONS OF 80HHC WERE TO BE CONSIDER ED AND CONSTRUED ON ITS OWN WORDINGS ON STAND ALONE BASIS, THEREFO RE, THE DECISIONS REFERRED IN PARA 10 (INTER ALIA DR. GOPINATHS CASE ) MAY NOT BE PARTICULARLY HELPFUL. IT WAS OBSERVED THAT WORDING OF CLAUSE (BAA) OF THE EXPLANATION INCORPORATES THE ENTIRE PROCEDURE FOR C OMPUTING BUSINESS INCOME U/S 28 TO 44 OF THE ACT AND IN THAT CONTEXT THOSE DECISIONS ARE NOT PARTICULARLY HELPFUL SINCE THEY DEAL WITH INSTANCES OF THE TREATMENT OF INCOME FROM OTHER SOURCES REFERABLE TO SECTION 56 A ND THE ALLOWING OF NETTING FOR THE PURPOSE OF EARNING SUCH INCOME. TH US, THEIR LORDSHIPS OF HONBLE DELHI HIGH COURT HAVING FOUND THAT THE SAID DECISION OF HON'BLE SUPREME COURT IN THE CASE OF CIT VS. DR. V.P. GOPIN ATH (SUPRA) S NOT RELEVANT FOR DECIDING AN ISSUE WHERE THE QUESTION R ELATING TO DEDUCTION U/S 80HHC IS TO BE DECIDED. 20. IT HAS BEEN SEEN THAT HONBLE BOMBAY HIGH COURT AND HONBLE DELHI HIGH COURT HAVE TAKEN DIFFERENT VIEW ON THIS ISSUE AND THERE IS NO JURISDICTIONAL HIGH COURT DECISION ON THIS ISSUE. LD. COUNSEL OF THE ASSESSEE HAS REFERRED TO THE DECISION OF HON'BLE SU PREME COURT IN THE CASE OF CIT VS. KULLU VALLEY TRANSPORT COMPANY PVT. LTD. (SUPRA), CIT VS. VEGETABLE PRODUCTS LTD. (SUPRA) AND CIT VS. NAG A HILLS TEA CO. LTD. ITA NO. 2913/D/05 17 (SUPRA). THE SUM AND RATIO OF THESE DECISIONS IS T HAT WHILE INTERPRETING TAXING STATUTE IF THERE ARE TWO REASONABLE INTERPRE TATIONS, THEN THE INTERPRETATION WHICH IS FAVOURABLE TO THE ASSESSEE IS REQUIRED TO BE ACCEPTED. SO, THE LAW IN THIS REGARD IS WELL SETTL ED, THE INTERPRETATION WHICH HAS BEEN PUT BY HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. PUNIT COMMERCIAL LTD. (SUPRA) HAS TO BE FOLLOWED BE ING FAVOURABLE TO THE ASSESSEE. WE DECIDE THE ISSUE ACCORDINGLY. 22. SO FAR AS IT RELATES TO NETTING, IT IS OBSERVED THAT NETTING UNDER SECTION 80HHC HAS EVEN BEEN UPHELD BY HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. SHREE RAM HONDA POWER EQUIPMENTS LT D. (SUPRA) WHEREIN THEIR LORDSHIPS HAVE APPROVED THE DECISION OF SPECIAL BENCH IN THE CASE OF LALSON ENTERPRISES (SUPRA) FOR THE PROP OSITION THAT NETTING WAS PERMISSIBLE. SO ON THAT ACCOUNT ALSO WE FIND N O INFIRMITY IN THE ORDER OF THE LD. CIT (A) WHEREIN HE HAS DIRECTED THE ASS ESSING OFFICER TO ALLOW THE NETTING. 23. IN VIEW OF THE ABOVE DISCUSSIONS, WE FIND NO IN FIRMITY IN THE ORDER OF THE LD. CIT (A) AND THE SAID ORDER IS UPHELD. 24. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 16.07.09. (G.E. VEERABHADRAPPA) (I.P. BANSAL) VICE PRESIDENT JUD ICIAL MEMBER DATED: 16.07.09. ITA NO. 2913/D/05 18 DK COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT TRUE COPY BY ORDER, DEPUTY REGISTRAR