ZEE TELEFILMS LTD ( NOW ZEE ENTERTAINMENT ENTERPRISES LTD), MUMBAI V. ACIT CIR 11(1), MUMBAI

ITA 298/MUM/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 8394 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 1 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-02-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 20-12-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 14-01-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: K SHIVARAM
• Keywords: Business income; Revision of order; Opportunity of being heard; Assessment record; Revenue expenditure; Capital expenditure
• Section: 143(3); 14A; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, G, MUMBAI BEFORE SHRI R.S. SYAL (A.M.) AND SHRI D.K.AGARWAL ( JM) ITA NO.298/MUM/2009 (ASSESSMENT YEAR: 2004-05) ZEE TELEFILMS LTD., (NO W ZEE ENTERTAINMENT ENTERPRISES LTD.), CONTINENTAL BUILDING, 135, DR.ANNIE BESANT ROAD, WORLI, MUMBAI-400018 PAN:AAACZ0243R ASSISTANT COMMISSIONER OF INCOME TAX, 11(1), AAYAKAR BHAVAN, MUMBAI-400020 APPELLANT V/S RESPONDENT ITA NO.4850/MUM/2010 (ASSESSMENT YEAR: 2004-05) ASSTT. COMMISSIONER OF INCOME TAX, 11(1), ROOM NO.439, M.K.ROAD, AAYAKAR BHAVAN, MUMBAI-400020 ZEE TELEFILMS LTD., (NOW ZEE ENTERTAINMENT ENTERPRISES LTD.), CONTINENTAL BUILDING, 135, DR.ANNIE BESANT ROAD, WORLI, MUMBAI-400018 PAN:AAACZ0243R APPELLANT V/S RESPONDENT DATE OF HEARING : 20.12.2011 DATE OF PRONOUNCEMENT : 04.01.2012 ASSESSEE BY : SHRI K.SHIVARAM, REVENUE BY : SHRI PAWAN VED. ITA NO.298/MUM/2009 ITA NO.4850/MUM/2010 (ASSESSMENT YEAR: 2004-05) 2 O R D E R PER D.K.AGARWAL (JM) THE APPEAL IN ITA NO.298/MUM/2009 PREFERRED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 25.11.2008 PASSED U/S 263 BY LD.CIT-XI, MUMBAI AND THE APPEAL IN ITA NO.4850/MUM/2010 PREFERRED BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 29.3.20 10 PASSED BY THE LD. CIT(A) FOR THE ASSESSMENT YEAR 2004-05. SINCE THE FACTS ARE IDENTICAL AND ISSUES INVOLVED ARE INTERCONNECTED, BOTH THESE APPEALS AR E DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVEYANCE. ITA NO.298/MUM/2009 (BY THE ASSESSEE) 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF PURCHASE AND SALE OF TV PROGRAM FILMS RIGHTS AND AUDIO/VIDEOCASSETTES, BROADCASTER OF TV CHANNELS, SPACE SELLING AGENT AND PAY TV SUBSCRIPTION DISTRIBUTOR. THE RETURN WAS FILED SHOWING TOTAL IN COME OF RS.1,92,48,78,470/-. HOWEVER, THE ASSESSMENT WAS COMPLETED AT AN INCOME OF RS.1,97,94,13,320/- VIDE ITA NO.298/MUM/2009 ITA NO.4850/MUM/2010 (ASSESSMENT YEAR: 2004-05) 3 ORDER DATED 28.12.2006 PASSED U/S 143(3) OF THE INCOME TAX ACT, 1961( IN SHORT THE ACT). ON EXAMINATION OF ASSESSMENT RECORDS FOR THE ASSESSMEN T YEAR 2004-05, THE LD.CIT OBSERVED THAT THE AO WHI LE ALLOWING THE DEDUCTION U/S 80HHF, THE EXPENDITURE INCURRED IN FOREIGN CURRENCY HAVE NOT BEEN REDUCED FROM EXPORT/TOTAL TURNOVER AND THE INTEREST INCOME OF RS.57.76 CRORES HAS BEEN CONSIDERED AS PART OF THE BUSINESS INCOME AND HAS REDUCED 90% OF THE SAME FROM THE PROFIT OF THE BUSINESS. WHEREAS THE AO SHOULD HAVE EXCLUDED 100% OF THE RECEIPT FROM THE BUSINESS INCOME AS INTEREST INCOME HAS TO BE TAX ED UNDER THE HEAD INCOME FROM OTHER SOURCES. THEREFORE, THE DEDUCTION U/S 80HHF HAS BEEN ALLOWE D IN EXCESS. HE FURTHER OBSERVED THAT THE AO WHILE CONSIDERING THE PROVISIONS OF SECTION 14A HAS NOT CONSIDERED THE DECISION OF THE SPECIAL BENCH OF TH E TRIBUNAL IN ITO V/S DAGA CAPITAL MANAGEMENT (P) LTD ., 117 ITD 169(MUM) (SB). ACCORDINGLY AN OPPORTUNITY OF BEING HEARD WAS PROVIDED TO THE ASSESSEE. IN RESPONSE, THE ASSESSEE INTERALIA SUBMITTED THAT THE ORDER HAS TO BE BOTH ERRONEOUS AS WELL AS PREJUDICI AL TO THE INTERESTS OF THE REVENUE AND MERELY BECAUSE ITA NO.298/MUM/2009 ITA NO.4850/MUM/2010 (ASSESSMENT YEAR: 2004-05) 4 ONE VIEW HAS BEEN TAKEN BY THE AO, THE ORDER DOES NOT BECOME LIABLE FOR ACTION U/S 263, IF OTHER POSSIBLE VIEW EXISTS. IT WAS THEREFORE SUBMITTED THAT THE ORDER PASSED BY THE AO BE UPHELD. HOWEVER, THE LD. CIT DID NOT ACCEPT THE ASSESSEES SUBMISSIONS. ACCORDING TO THE LD. CIT, THE AO HAS NOT PROPERLY COMPUTED THE DEDUCTION U/S 80HHF AND HAS NOT PROPERLY CONSIDERED THE PROVISIONS OF EXPLANATION (C) AND (F) BELOW SECTION 80HHF(6) OF THE ACT BEFORE COMPUTING DEDUCTION U/S 80HHF. HE FURTHER HELD THAT THE AO SHOULD CONSIDER THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF DAGA CAPITA L MANAGEMENT (P) LTD.(SUPRA) AND THE RULE 8D OF THE INCOME TAX RULES WHILE COMPUTING THE DISALLOWANCE U/S 14A. HE, THEREFORE, HELD THAT THE ORDER PASSED BY THE AO IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE AND HENCE HE SET ASIDE THE ORDER TO THE FILE OF THE AO ON THE ISSUE OF DEDUCTI ON U/S 80HHF AND 14A TO CONSIDER THE SAME AFRESH AFTER PROVIDING OPPORTUNITY OF BEING HEARD TO THE ASSESSE E. 3. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT, THE ASSESSEE IS IN APPEAL BEFORE US CHALLENGING IN ALL THE ITA NO.298/MUM/2009 ITA NO.4850/MUM/2010 (ASSESSMENT YEAR: 2004-05) 5 REVISED GROUNDS OF APPEAL THE VALIDITY OF THE ORDE R PASSED BY THE LD. CIT U/S 263 OF THE ACT ON THE I SSUE OF DEDUCTION U/S 80HHF AND 14A OF THE ACT. 4. AT THE TIME OF HEARING, THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT THE AO AFTER ISSUING THE QUESTIONNAIRE DATED 25.9.2006, WHEREIN HE HAS SPECIFICALLY RAISED THE ISSUE OF COMPUTATION OF DEDUCTION U/S 80HHF IN RESPECT OF EXPENDITURE INCURRED IN FOREIGN CURRENCY, INTEREST INCOME AND DISALLOWANCE U/S 14A VIDE POINTS NO.16,17 AND 27 AN D AFTER CONSIDERING THE ASSESSEES EXPLANATION ON T HE ABOVE ISSUES PASSED THE DETAILED ASSESSMENT ORDER DISCUSSING OF THE ABOVE ISSUES AT PAGES NO.2 TO 6 O F THE ASSESSMENT ORDER DATED 28.12.2006, THEREFORE, THE LD.CIT WAS NOT JUSTIFIED IN INVOKING THE PROVISIONS OF SECTION 263 OF THE ACT. HE FURTHER SUBMITS THAT AGAINST THE ASSESSMENT ORDER, THE ASSESSEE HAS FILED APPEAL BEFORE THE LD.CIT(A) AND THE LD. CIT(A) HAS AGAIN CONSIDERED THE ABOVE ISSUE VID E APPELLATE ORDER DATED 2.1.2008, THEREFORE, THE ASSESSMENT ORDER HAS BEEN MERGED WITH THE ORDER PASSED BY THE LD. CIT(A) AND THEREFORE, THE PROVISI ONS ITA NO.298/MUM/2009 ITA NO.4850/MUM/2010 (ASSESSMENT YEAR: 2004-05) 6 OF SECTION 263 CANNOT BE INVOKED. HE FURTHER SUBM ITS THAT THE LD.CIT IN HIS ORDER PASSED U/S 263 HAS DIRECTED THE AO TO RECOMPUTE THE ENTIRE DEDUCTION U/S 80HHF AFRESH AND DID NOT RESTRICT TO THE POINTS RAISED IN THE NOTICE U/S 263, THEREFORE, THE LD. C IT TRAVELLED BEYOND THE SHOW CAUSE NOTICE WHICH IS BAD IN LAW AND FOR THIS PROPOSITION THE RELIANCE WAS ALS O PLACED IN CIT V/S SHRI ASHISH RAJPAL (2010) 320 ITR 674 (DEL) AT PAGE 690. THE RELIANCE WAS ALSO PLACE D ON THE DECISIONS IN (I) CIT V/S GABRIEL INDIA LTD. , (1993) 203 ITR 108 (BOM), (II)MALBAR INDUSTRIAL CO. LTD. V/S CIT (2000) (243 ITR 83 (SC) AND (III) C IT V/S MAX INDIA LTD. (2007) 295 ITR 282 (SC). HE FURTHER SUBMITS THAT THE TRIBUNAL IN ASSESSEES OW N CASE IN M/S ZEE TELEFILMS LTD. (NOW ZEE ENTERTAINMENT ENTERPRISES LTD.) V/S ADDL.CIT IN ITA NO.265/MUM/2008 (AY-2003-04) DATED 29.9.2009 IN THE APPEAL AGAINST THE ORDER PASSED U/S 263 HAS UPHELD THE ORDER OF THE AO IN TREATING THE INTERES T INCOME AS BUSINESS INCOME. HE FURTHER SUBMITS THAT THE ORDER PASSED BY THE TRIBUNAL HAS BEEN UPHELD B Y THE HONBLE JURISDICTIONAL HIGH COURT IN CIT V/S M/S ZEE TELEFILMS LTD. (NOW ZEE ENTERTAINMENT ITA NO.298/MUM/2009 ITA NO.4850/MUM/2010 (ASSESSMENT YEAR: 2004-05) 7 ENTERPRISES LTD.) IN INCOME TAX APPEAL NO.2262 OF 2010 DATED 10.8.2011. 5. WITH REGARD TO THE ISSUE OF DEDUCTION U/S 80HHF VIS-A-VIS NON-EXCLUSION OF EXPENDITURE INCURRED IN FOREIGN CURRENCY UNDER EXPLANATION (C) AND (J) B ELOW SECTION 80HHF, THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT THE TRIBUNAL IN THE SAME ORDER DATE D 29.9.2009 FOR THE ASSESSMENT YEAR 2003-04 HAS UPHELD THE ORDER OF THE LD.CIT ON THIS ISSUE. HE FURTHER SUBMITS THAT IN THE SETTING ASIDE ASSESSME NT ORDER DATED 4.12.2009 PASSED U/S 143(3) READ WITH SECTION 263 FOR THE IMPUGNED ASSESSMENT YEAR 2004- 05, THE AO IN VIEW OF THE DIRECTIONS GIVEN IN THE ORDER PASSED U/S 263 WHILE WORKING OUT THE DEDUCTI ON U/S 80HHF REDUCED THE AMOUNT OF RS.12,32,72,000/- BEING EXPENSES INCURRED IN FOREIGN CURRENCY ON TRANSPONDER HIRE CHARGES FOR BROADCASTING TV CHANNE LS IN INDIA FROM TOTAL TURNOVER AND EXPORT TURNOVER F OR COMPUTING THE DEDUCTION U/S 80HHF OF THE ACT. HOWEVER, ON APPEAL, THE LD.CIT(A) FOLLOWING THE APPELLATE ORDER FOR THE ASSESSMENT YEAR 2003-04 DATED 4.1.2010, WHEREIN IT HAS BEEN HELD THAT THE ITA NO.298/MUM/2009 ITA NO.4850/MUM/2010 (ASSESSMENT YEAR: 2004-05) 8 DISALLOWANCE MADE ON ACCOUNT OF FOREIGN CURRENCY EXPENSES FOR TRANSPONDER HIRE CHARGES IS NOT JUSTIF IED, DELETED THE DISALLOWANCE MADE BY THE AO. HE FURTHE R SUBMITS THAT AGAINST THE SAID ORDER OF THE LD. CIT( A), THE REVENUE HAS NOT RAISED ANY SUCH GROUND IN THE APPEAL FILED BEFORE THE TRIBUNAL FOR THE ASSESSMENT YEAR 2004-05 AND IN SUPPORT HE ALSO PLACED ON RECO RD THE COPY OF THE GROUNDS OF APPEAL DATED 11.6.2010 FILED BY THE REVENUE. HE, THEREFORE, SUBMITS THAT THE ORDER PASSED BY THE LD. CIT ON THE ABOVE ISSUE MAY BE CANCELLED. 6. ON THE ISSUE OF DISALLOWANCE U/S 14A, THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT THE LD. CIT OBSERVED AND HELD THAT THE AO SHOULD CONSIDER THE SPECIAL BENCH DECISION OF THE TRIBUNAL IN THE CASE OF DAGA CAPITAL MANAGEMENT (P) LTD.(SUPRA) AND THE RULE 8D OF THE INCOME TAX RULES, 1962 AND COMPUTE THE DISALLOWANCE ACCORDINGLY. IN THIS REGARD, HE SUBMITS THAT IN VIEW OF THE JUDGMENT OF HON'BLE JURISDICTIONAL HIGH COURT IN GODREJ & BOYCE MFG. CO . LTD. V/S DCIT (2010) 328 ITR 81 (BOM.) RULE 8D IS NOT APPLICABLE FOR THE YEAR UNDER CONSIDERATION AND ITA NO.298/MUM/2009 ITA NO.4850/MUM/2010 (ASSESSMENT YEAR: 2004-05) 9 THE SAME IS APPLICABLE FOR THE ASSESSMENT YEAR 2008 - 09, THEREFORE, THE ORDER PASSED BY THE LD. CIT IS NOT SUSTAINABLE IN LAW ON THIS ISSUE ALSO. HE, THEREFO RE, SUBMITS THAT THE ORDER PASSED BY THE LD. CIT BE CANCELLED. 7. ON THE OTHER HAND, THE LD. DR SUBMITS THAT IN VIEW OF THE FINDINGS RECORDED IN THE ORDER PASSED U/S 263, THE ORDER PASSED BY THE LD. CIT BE UPHELD. 8. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS O F THE RIVAL PARTIES AND PERUSED THE MATERIALS AVAILAB LE ON RECORD. IT IS SETTLED LAW THAT THE SCOPE OF APPLICATION OF SECTION 263 OF THE ACT IS GOVERNED BY THE PRINCIPLES SET OUT IN MALABAR INDUSTRIAL CO.LT D. V. CIT (2000) 243 ITR 83(SC) AS REAFFIRMED IN CIT V.MA X INDIA LTD (2007) 295 ITR 282 (SC). IT HAS BEEN HEL D THAT THE PHRASE PREJUDICIAL TO THE INTERESTS OF TH E REVENUE USED IN SECTION 263 OF THE ACT HAS TO BE READ IN THE CONJUNCTION WITH AN ERRONEOUS ORDER PASSED BY THE ASSESSING OFFICER. THUS, IT IS NOT, AS IF IN EVERY CASE WHERE THERE IS LOSS OF REVENUE, AS A CONSEQUENCE OF AN ORDER PASSED BY THE ASSESSING OFFICER, IT CAN BE TREATED AS PREJUDICIAL TO THE ITA NO.298/MUM/2009 ITA NO.4850/MUM/2010 (ASSESSMENT YEAR: 2004-05) 10 INTERESTS OF THE REVENUE. CONSEQUENTLY, IF THE ASSESSING OFFICER HAS ADOPTED ONE OF THE COURSES PERMISSIBLE IN LAW, WHICH RESULTED IN LOSS OF REVEN UE OR WHERE TWO VIEWS ARE POSSIBLE AND THE ASSESSING OFFICER HAS TAKEN ONE VIEW WITH WHICH THE COMMISSIONER OF INCOME TAX DOES NOT AGREE, IT CANNO T BE TREATED AS AN ERRONEOUS ORDER PREJUDICIAL TO T HE INTERESTS OF THE REVENUE UNLESS THE VIEW TAKEN BY T HE ASSESSING OFFICER IS UNSUSTAINABLE IN LAW. 9. IN GABRIEL INDIA LTD. (SUPRA) IT HAS BEEN HELD (PAGE 110): HELD THAT THE INCOME-TAX OFFICER IN THIS CASE HAD MADE ENQUIRIES IN REGARD TO THE NATURE OF THE EXPENDITURE INCURRED BY THE ASSESSEE. THE ASSESSEE HAD GIVEN A DETAILED EXPLANATION IN THAT REGARD BY A LETTER IN WRITING. ALL THESE WERE PART OF THE RECORD OF THE CASE. EVIDENTLY, THE CLAIM WAS ALLOWED BY THE INCOME-TAX OFFICER ON BEING SATISFIED WITH THE EXPLANATION OF THE ASSESSEE. THI S DECISION OF THE INCOME-TAX OFFICER COULD NOT BE HELD TO BE 'ERRONEOUS' SIMPLY BECAUSE IN HIS ORDER HE DID NOT MAKE AN ELABORATE DISCUSSION IN THAT REGARD. MOREOVER, IN THE INSTANT CASE, THE COMMISSIONER HIMSELF, EVEN AFTER INITIATING PROCEEDINGS FOR REVISION AND HEARING THE ASSESSEE, COULD NOT SAY THAT THE ALLOWANCE OF THE CLAIM OF THE ASSESSEE WAS ERRONEOUS AND THAT THE EXPENDITURE WAS NOT REVENUE EXPENDITURE BUT AN EXPENDITURE OF CAPITAL NATURE. HE SIMPLY ASKED THE INCOME-TAX OFFICER TO RE-EXAMINE THE MATTER. THAT WAS NOT PERMISSIBLE. THE TRIBUNAL WAS JUSTIFIED IN ITA NO.298/MUM/2009 ITA NO.4850/MUM/2010 (ASSESSMENT YEAR: 2004-05) 11 SETTING ASIDE THE ORDER PASSED BY THE COMMISSIONER OF INCOME-TAX UNDER SECTION 263. 10. APPLYING THE RATIO OF THE ABOVE DECISIONS TO T HE FACTS OF THE PRESENT CASE, WE FIND THAT THERE IS NO DISPUTE THAT IN THIS CASE THE AO HAS MADE INQUIRI ES WITH REGARD TO THE ALLOWABILITY OF DEDUCTION U/S 80 HHF IN RESPECT OF INTEREST INCOME TREATED AS BUSINESS INCOME AND NON-EXCLUSION OF EXPENSES INCURRED IN FOREIGN CURRENCY UNDER EXPLANATION (C) AND (J) BELO W TO SECTION 80HHF. THE ASSESSEE HAS GIVEN DETAILED EXPLANATION IN THAT REGARD BY A LETTER IN WRITING. THE AO AFTER CONSIDERING THE ASSESSEES REPLY ON BEING SATISFIED WITH THE EXPLANATION OF THE ASSESSEE ALLO WED THE SAME. THE ORDER OF THE AO COULD NOT BE CONSIDER ED TO BE ERRONEOUS SIMPLY BECAUSE TWO VIEWS ARE POSSIBLE AND THE AO HAS TAKEN AS ONE VIEW WITH WHICH THE LD. CIT DOES NOT AGREE, WHICH CANNOT BE TREATED AS ERRONEOUS AND PREJUDICIAL TO THE INTERE STS OF THE REVENUE UNLESS THE VIEW TAKEN BY THE AO IS FOUND TO BE UNSUSTAINABLE IN LAW. 11. IN M/S ZEE TELEFILMS LTD. (NOW ZEE ENTERTAINMENT ENTERPRISES LTD.) V/S ADDL.CIT IN ITA ITA NO.298/MUM/2009 ITA NO.4850/MUM/2010 (ASSESSMENT YEAR: 2004-05) 12 NO.265/MUM/2008 (AY-2003-04) DATED 29.9.2009 ON THE SIMILAR ISSUE AND ON THE IDENTICAL FACTS OF THE CASE, THE TRIBUNAL HAS HELD THAT THE INTEREST ISSUE HAD RIGHTLY BEEN CONSIDERED BY THE AO AS PROFITS OF T HE BUSINESS VIDE FINDING RECORDED IN PARAGRAPHS 13 OF ITS ORDER WHICH ARE REPRODUCED AS UNDER : 13. HAVING HEARD THE RIVAL SUBMISSIONS AND PERUSING THE MATERIAL ON RECORD IT IS NOTED THAT TH E ASSESSEE HAD CATEGORICALLY SUBMITTED BEFORE THE ASSESSING OFFICER THAT IT WAS ENGAGED IN THE FINANCING BUSINESS AND THE INTEREST INCOME RESULTED THEREFROM ONLY. THE ASSESSING OFFICER GOT SATISFIED AND REDUCED 90% OF THE GROSS INTEREST INCOME FROM THE PROFITS OF THE BUSINESS FOR THE PURPOSE OF COMPUTING DEDUCTION U/S.80HHF OF THE ACT. IT SHOWS THAT THE INTEREST INCOME WAS ASSESSED UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION BUT DEDUCTION U/S.80HHF WAS NOT ALLOWED. THE FINDING GIVEN BY THE AUDITOR SIMPLY SHOWS THAT THE SURPLUS FUNDS FOR THE BUSINESS ARE INVESTED FOR MAKING LOANS AND ADVANCES ON WHICH INTEREST INCOME HAS BEEN EARNED. IT WAS NOWHERE REPORTED BY THE AUDITOR THAT THE ASSESSEE WAS NOT ENGAGED IN THE BUSINESS OF FINANCING. WHEN THE ASSESSEE IS ENGAGED IN TWO BUSINESSES BEING EXPORT OF FILM SOFTWARE ETC. AND FINANCING BUSINESS AND THE SURPLUS FROM THE EXPORT BUSINESS IS UTILIZED IN THE OTHER BUSINESS OF FINANCING, THE CHARACTER OF THE INTEREST INCOME WIL L REMAIN AS PROFIT AND GAINS OF BUSINESS OR PROFESSION AND NOT INCOME FROM OTHER SOURCES. IF THAT BE THE POSITION NO FAULT CAN BE FOUND WIT H THE ACTION OF THE AO IN REDUCING 90% OF THE INTEREST INCOME FROM THE PROFITS OF THE BUSINESS AS HE HAD RIGHTLY CONSIDERED IT AS TAXABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. WE, THEREFORE, DO NOT FIND ANY INFIRMITY IN THE ASSESSMENT ORDER IN THIS ISSUE. ITA NO.298/MUM/2009 ITA NO.4850/MUM/2010 (ASSESSMENT YEAR: 2004-05) 13 12. ON THE ISSUE OF DEDUCTION U/S 80HHF VIS-A-VIS NON-EXCLUSION OF EXPENSES INCURRED IN FOREIGN CURRE NCY UNDER EXPLANATION (C) AND (J) BELOW TO SECTION 80HH F, THE TRIBUNAL IN PARAGRAPH 8 OF ITS ORDER (SUPRA) H AS UPHELD THE ORDER OF THE LD. CIT IN DIRECTING THE AO TO DECIDE THE SAME AFRESH. HOWEVER, WE FIND THAT AS A RESULT OF THE ORDER PASSED U/S 263 OF THE ACT, TH E AO HAS PASSED THE ASSESSMENT ORDER DATED 4.12.2009 U/S 143(3) READ WITH SECTION 263 OF THE ACT HOLDIN G THAT RS.12,32,72,000/- BEING EXPENSES INCURRED IN FOREIGN CURRENCY ON TRANSPONDER HIRE CHARGES FOR BROADCASTING TV CHANNELS IN INDIA FROM THE TOTAL TURNOVER AND EXPORT TURNOVER FOR COMPUTING THE DEDUCTION U/S 80HHF OF THE ACT. ON APPEAL, THE LD. CIT(A) FOLLOWING THE APPELLATE ORDER FOR THE ASSESSMENT YEAR 2003-04 WHEREIN IT HAS BEEN HELD THAT THE DISALLOWANCE MADE ON ACCOUNT OF FOREIGN CURRENCY EXPENSES FOR TRANSPONDER HIRE CHARGES IS NOT JUSTIFIED, ALLOWED THE CLAIM OF THE ASSESSEE. AGAINST THE SAID ORDER OF THE LD. CIT(A), THE REV ENUE HAS NOT RAISED ANY SUCH GROUND IN THIS REGARD IN T HE SECOND APPEAL FILED BEFORE THE TRIBUNAL DATED 11.6.2010 IN ITA NO.4850/MUM/2010 FOR THE ITA NO.298/MUM/2009 ITA NO.4850/MUM/2010 (ASSESSMENT YEAR: 2004-05) 14 ASSESSMENT YEAR 2004-05 WHICH ARE ALSO REPRODUCED IN PARAGRAPH 15 OF THIS ORDER AND THIS FACT HAS BEE N ADMITTED BY THE LD. DR AT THE TIME OF HEARING ALSO. 13. AS REGARDS THE ISSUE OF DISALLOWANCE U/S 14A RE AD WITH RULE 8D OF THE INCOME TAX RULES, WE FIND THAT THE LD. CIT IN HIS ORDER U/S 263 HAS DIRECTED THE AO TO APPLY RULE 8D OF THE INCOME TAX RULES IN VIEW OF THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN T HE CASE OF DAGA CAPITAL MANAGEMENT (P) LTD. (SUPRA). SINCE THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD.(SUPRA) HAS HELD TH AT RULE 8D OF THE INCOME TAX RULES IS APPLICABLE WIT H EFFECT FROM THE ASSESSMENT YEAR 2008-09, THEREFOR E, THE DIRECTION OF THE LD. CIT TO APPLY RULE 8D FOR T HE YEAR UNDER CONSIDERATION I.E. ASSESSMENT YEAR 2004- 05 IS NOT SUSTAINABLE IN LAW. 14. FOR THE REASONS AS DISCUSSED ABOVE, THE ORDER PASSED BY THE LD. CIT U/S 263 IS SQUARELY FALLS OUT SIDE THE PURVIEW OF SECTION 263 OF THE ACT AND HENCE, TH E SAME IS CANCELLED. THE GROUNDS TAKEN BY THE ASSESS EE ARE, THEREFORE, ALLOWED. ITA NO.298/MUM/2009 ITA NO.4850/MUM/2010 (ASSESSMENT YEAR: 2004-05) 15 ITA NO.4850/MUM/2010 (BY REVENUE) 15. THE GROUNDS TAKEN BY THE REVENUE READ AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCE OF THE CASE AND IN LAW, THE LD. CIT(A) WAS NOT JUSTIFIED I N HOLDING THAT 90% OF THE NET INTEREST AND NOT 90% OF THE GROSS INTEREST AS HELD BY THE AO IS TO BE REDUCED FROM THE PROFITS OF BUSINESS FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/S 80HHF OF THE IT ACT. 2. ON THE FACTS AND IN THE CIRCUMSTANCE OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DIRECTING THE AO TO ALLOW DEDUCTION U/S 14A IGNORING THE FACT THAT ASSESSEE EARNED EXEMPTED INCOME AND INCURRED DIRECT AND INDIRECT EXPENSES TO EARN THE SAID EXEMPTED INCOME. 3. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE AO RESTORED. 16. AFTER HEARING THE RIVAL PARTIES AND PERUSING TH E MATERIAL AVAILABLE ON RECORD, WE FIND THAT THIS APP EAL WAS FILED BY THE REVENUE AGAINST THE ORDER PASSED B Y THE LD. CIT(A) WHO HAS PARTLY ALLOWED THE APPEAL AGAINST THE ASSESSMENT ORDER DATED 4.12.2009 PASSED U/S 143(3) READ WITH SECTION 263 OF THE ACT. SINC E, WE HAVE CANCELLED THE ORDER PASSED U/S 263 VIDE FINDINGS RECORDED IN PARAGRAPHS 8 TO 14 OF THIS OR DER, THEREFORE, THE ORDER PASSED BY THE AO U/S 143(3) RE AD ITA NO.298/MUM/2009 ITA NO.4850/MUM/2010 (ASSESSMENT YEAR: 2004-05) 16 WITH SECTION 263 DATED 4.12.2009 HAS NO LEGS TO STAND AND CONSEQUENTLY, WE DO NOT FIND ANY MERIT IN THE GROUNDS TAKEN BY THE REVENUE AGAINST THE ORDER PASSED BY THE LD. CIT(A). THE GROUND TAKEN BY THE REVENUE ARE, THEREFORE, REJECTED. 17. IN THE RESULT, THE ASSESSEES APPEAL STANDS ALLOWED AND REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 4TH JANUARY, 2012. SD SD ( R.S. SYAL) (D.K.AGARWAL) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, 4TH JANUARY, 2012 SRL: COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT CONCERNED 4. CIT(A) CONCERNED 5. DR CONCERNED BENCH 6. GUARD FILE. BY ORDER TRUE COPY ASSTT. REGISTRAR, ITAT, MUMBAI