M/s. R.D. Ramnath Company (HUF), Delhi V. ITO, New Delhi

ITA 2966/DEL/1996

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 8839 (ITAT-DELHI)
• Duration Of Justice: 18 year(s) 8 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-01-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Assessment Year: 1992-1993
• Appeal Filed On: 13-05-1996
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PARWINDER KAUR
• Assessee Lawyers: SANTOSH K AGGARWAL
• Section: 80HHC; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B: NEW DELHI BEFORE SHRI S.V. MEHROTRA, ACCOUNTANT MEMBER AND SHRI A.T. VARKEY, JUDICIAL MEMBER ITA NO. 2966/DEL/1996 ASSESSMENT YEAR: 1992-93 M/S RAMNATH COMPANY (HUF), JAMA MASJID, DELHI. VS. ITO, WARD 2(2), NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY: SH. SANTOSH K. AGGARWAL, ADV. RESPONDENT BY: SMT. PARWINDER KA UR, SR. DR O R D E R PER S.V. MEHROTRA, A.M. THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF LD. CIT(A), NEW DELHI DATED 01/02/1996 FOR A.Y. 1992-93 . 2. THE ASSESSEE, AN HUF CONCERN, IN THE RELEVANT AS SESSMENT YEAR WAS ENGAGED IN THE BUSINESS OF MANUFACTURING AND EXPORT ING OF LEATHER ARTICLES, BRASS ARTWARES AND OTHER ITEMS TO RUSSIA AND OTHER COUNTRIES. THE ASSESSMENT WAS COMPLETED U/S 143(1)(A) ON 31/01/199 5 ON RETURNED INCOME OF RS. 30,560/- AND THEREAFTER WAS COMPLETED U/S 14 3(3) ON 20/03/1995 ON TAXABLE INCOME OF RS. 28,13,740/-. THE AO HAD MADE VARIOUS DISALLOWANCES AS PER TAX AUDIT REPORT. FURTHER AS REGARDS THE DE DUCTION CLAIMED U/S 80HHC, THE AO DID NOT ACCEPT THE ASSESSEES CLAIM F OR SETTING OFF OF THE INTEREST INCOME AGAINST INTEREST PAID AND DISALLOWE D 90% OF THE GROSS INTEREST RECEIPT OF RS. 41,21,678/- AS PER EXPLANAT ION (BAA). THUS, HE MADE A DISALLOWANCE OF RS. 37,09,510/- U/S 80HHC. BEFOR E LD. CIT(A) THE ASSESSEE HAD SUBMITTED THAT AN INTEREST OF RS. 40,6 5,297/- WAS PAID TO VARIOUS BANKS IN RESPECT OF LOAN CREDIT FACILITIES AVAILED BY IT FOR ITS EXPORT ITA NO. 2966/D/ 1996 2 BUSINESS AND, THEREFORE, THIS INTEREST PAID SHOULD HAVE BEEN SET OFF AGAINST THE INTEREST RECEIPTS OF RS. 41,21,678/- AND THEN O NLY 90% OF THE BALANCE AMOUNT SHOULD HAVE BEEN DISALLOWED. THEREFORE, IT WAS SUBMITTED THAT AO SHOULD HAVE MADE DISALLOWANCE AT RS. 50,643/- BEING 90% OF RS. 56,381/- AS AGAINST RS. 37,09,510/-. THE ASSESSEE HAD RELIE D ON THE DECISION OF HONBLE ANDHRA PRADESH HIGH COURT IN THE CASE OF CI T VS. NAGARJUN STEEL LTD., 171 ITR 660. LD. CIT(A) OBSERVED THAT UNLESS THIS WAS SHOWN BY THE ASSESSEE THAT IT HAD INCURRED THE EXPENDITURE OF IN TEREST ON BORROWING THE AMOUNT WHICH HAD BEEN UTILIZED BY IT TO MAKE DEPOSI TS GIVING RISE TO INTEREST INCOME, IT CANNOT BE SAID THAT THERE EXISTED ANY NE XUS BETWEEN INTEREST PAID AND INTEREST RECEIVED, WHICH WOULD ENTITLE THE ASSE SSEE FOR SET OFF OF THE EXPENDITURE AGAINST THE INTEREST RECEIVED. HE RELI ED ON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. MOD I RUBBER LTD. (1994) 73 TAXMAN 337. HE OBSERVED THAT IN VIEW OF THE DECISI ON THE PLEA OF ASSESSEE WAS NOT ACCEPTABLE BECAUSE THE INTEREST HAD BEEN EA RNED BY THE ASSESSEE ON ITS FIXED DEPOSITS WHILE THE INTEREST HAD BEEN P AID ON LOAN BORROWED TO CONDUCT VARIOUS BUSINESS ACTIVITIES. HE OBSERVED T HAT IT IS NOT THE CASE THAT THE ASSESSEE HAD BORROWED THE FUNDS ON WHICH THE IN TEREST WAS PAID AND THOSE VERY FUNDS WERE UTILIZED FOR MAKING THE DEPOS ITS. THEREFORE, THERE WAS COMPLETE LACK OF NEXUS BETWEEN INTEREST PAID BY THE ASSESSEE AND THE INTEREST RECEIVED. HE, ACCORDINGLY, UPHELD THE AO S ACTION. LD. COUNSEL FOR THE ASSESSEE RELIED ON THE DECISION OF HONBLE SUPR EME COURT IN ACJ ASSOCIATED CAPSULES P. LTD. VS. CIT, 343 ITR 89. 3. LD. DR RELIED ON THE ORDER OF CIT(A). 4. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE P ARTIES AND HAVE PERUSED THE RECORD OF THE CASE. 5. LD. COUNSEL HAS RELIED ON THE DECISION OF HONBL E SUPREME COURT IN THE CASE OF ACJ ASSOCIATED CAPSULES P. LTD. (SUPRA) HAS NOT HELD THAT EVEN IF THERE IS NO NEXUS BETWEEN THE INTEREST EARNED AN D INTEREST PAID IS THERE STILL ITA NO. 2966/D/ 1996 3 ONLY NET INTEREST IS TO BE CONSIDERED. THIS IS EVI DENT FROM THE FOLLOWING OBSERVATIONS OF THE HONBLE SUPREME COURT: SIMILARLY, EXPLANATION (BAA) HAS TO BE CONSTRUED ON ITS OWN LANGUAGE AND AS PER THE PLAIN NATURAL MEANING OF TH E WORDS USED IN EXPLANATION (BAA), THE WORDS RECEIPTS BY WAY OF BROKERAGE, COMMISSION, INTEREST, RENT, CHARGES OR ANY OTHER RE CEIPT OF A SIMILAR NATURE INCLUDED IN SUCH PROFITSWILL NOT ON LY REFER TO THE NATURE OF RECEIPTS BUT ALSO THE QUANTUM OF RECEIPTS INCLUDED IN THE PROFITS OF THE BUSINESS AS COMPUTED UNDER THE H EAD PROFITS AND GAINS OF BUSINESS OR PROFESSION REFERRED TO IN THE FIRST PART OF EXPLANATION (BAA). ACCORDINGLY, IF ANY QUANTUM OF ANY RECEIPT OF THE NATURE MENTIONED IN CLAUSE (1) OF EXPLANATIO N (BAA) HAS NOT BEEN INCLUDED IN THE PROFITS OF BUSINESS OF AN ASSESSEE AS COMPUTED UNDER THE HEAD PROFITS AND GAINS OF BUSIN ESS OR PROFESSION, NINETY PER CENT OF SUCH QUANTUM OF THE RECEIPT CANNOT BE DEDUCTED UNDER EXPLANATION (BAA) TO SECTI ON 80HHC. IF WE NOW APPLY EXPLANATION (BAA) AS INTERPRETED B Y US IN THIS JUDGMENT TO THE FACTS OF THE CASE BEFORE US, I F THE RENT OR INTEREST IS A RECEIPT CHARGEABLE AS PROFITS AND GAI NS OF BUSINESS AND CHARGEABLE TO TAX UNDER SECTION 28 OF THE ACT, AND IF ANY QUANTUM OF THE RENT OR INTEREST OF THE ASSESSEE IS ALLOWABLE AS AN EXPENSE IN ACCORDANCE WITH SECTIONS 30 TO 44D OF TH E ACT AND IS NOT TO BE INCLUDED IN THE PROFITS OF THE BUSINESS O F THE ASSESSEE AS COMPUTED UNDER THE HEAD PROFITS AND GAINS OF BUSIN ESS OR PROFESSION, NINETY PER CENT OF SUCH QUANTUM OF THE RECEIPT OF RENT OR INTEREST WILL NOT BE DEDUCTED UNDER CLAUSE (1) OF EXPLANATION (BAA) TO SECTION 80HHC. IN OTHER WORDS , NINETY PER CENT OF NOT THE GROSS RENT OR GROSS INTEREST BUT ON LY THE NET INTEREST OR NET RENT, WHICH HAS BEEN INCLUDED IN TH E PROFITS OF BUSINESS OF THE ASSESSEE AS COMPUTED UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION, IS TO BE DEDU CTED UNDER CLAUSE (1) OF EXPLANATION (BAA) TO SECTION 80HHC FO R DETERMINING THE PROFITS OF THE BUSINESS. 6. FROM THE ABOVE OBSERVATIONS, IT IS EVIDENT THAT UNLESS THE INTEREST INCOME AND INTEREST PAYMENT ARE ASSESSABLE UNDER TH E HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION AS PER EXPLANATION (BAA) TO SECTION 80HHC THE NETTING OF INTEREST CANNOT BE DONE. THE HONBL E SC HAS APPROVED THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN UPHOLD ING THE DECISION OF TRIBUNAL IN REMITTING THE MATTER TO THE AO TO ENABL E HIM TO EXAMINE THE ASSESSEES CLAIM THAT THERE WAS FACTUALLY A NEXUS B ETWEEN THE INTEREST PAID AND RECEIVED AND TAKE A FRESH DECISION. IN THE PRE SENT CASE, WE FIND THAT THE ITA NO. 2966/D/ 1996 4 FACTS HAVE TO BE EXAMINED AFRESH IN THE LIGHT OF OB SERVATIONS OF THE HONB LE SC IN ACJ ASSOCIATED CAPSULES P. LTD. (SUPRA) AND, THEREFORE, WE RESTORE THE MATTER TO THE FILE OF AO TO DECIDE THE ISSUE IN THE LIGHT OF OBSERVATIONS OF THE HONBLE SC. 7. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 27/01/2015 SD/- SD/- (A.T. VARKEY) JUDICIAL MEMBER (S.V. MEHROTRA) ACCOUNTANT MEMBER DATED: 27/01/2015 *KAVITA COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, NEW DELHI. TRUE COPY BY ORDER ASSISTANT REGISTRAR