M/s. EUROTEX INDUSTRIES & EXPORTS, MUMBAI V. DCIT CIR. - 3(1), MUMBAI

ITA 3394/MUM/2007

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 2712 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 7 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-12-2009
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Next Hearing Date: 17-11-2009
• Assessment Year: 2003-2004
• Appeal Filed On: 03-05-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAJNISH ARVIND
• Keywords: Opportunity of being heard; Proportionate interest; Competent authority; Set aside
• Section: 80HHC; 234B; 14A; 115JB; 10B; 201

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH K, MUMBAI BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI A.L. GEHLOT, ACCOUNTANT MEMBER ITA NO. 3394/M/07 ASSESSMENT YEAR: 2003-04 EUROTEX INDUSTRIES & EXPORTS LTD., APPELLANT C/O SHANKARLAL JAIN & ASSOCIATES, 12, ENGINEERING BLDG, 265, PRINCESS STREET, MUMBAI 400 002. (PAN AAACE1569M) VS. DY. COMMISSIONER OF INCOME TAX, RESPONDENT CIRCLE 3(1), MUMBAI. ITA NO. 3478/M/07 ASSESSMENT YEAR: 2003-04 DY. COMMISSIONER OF INCOME TAX, APPELLANT CIRCLE 3(1), MUMBAI. VS. EUROTEX INDUSTRIES & EXPORTS LTD., RESPONDEN T C/O SHANKARLAL JAIN & ASSOCIATES, 12, ENGINEERING BLDG, 265, PRINCESS STREET, MUMBAI 400 002. (PAN AAACE1569M) ASSESSEE BY : MR. S.L. JAIN REVENUE BY : MR. RAJNISH ARVIND O R D E R PER A.L. GELHOT, A.M.: THESE ARE THE CROSS APPEALS DIRECTED AGAINST THE O RDER OF CIT(A) XXVIII, MUMBAI, PASSED ON 26.02.2007 FOR THE ASSESSMENT YEAR 2003-04. ITA NO. 3394/MUM/07 & 3478/M/07 M/S EUROTEX INDUSTRIES & EXPORTS LTD. 2 ITA NO. 3394/M/07 APPEAL BY THE ASSESSEE 2. IN ADDITION TO THE GROUNDS OF APPEAL FILED BY TH E ASSESSEE, A NOTE HAS BEEN FILED WHEREIN THE ASSESSEE SUMMARIZED THE GROUNDS OF APPEAL; THEREFORE, WHILE DECIDING THE GROUNDS OF AP PEAL, THIS NOTE HAS BEEN TAKEN INTO CONSIDERATION. 3. GROUND NOS. 1 & 2 ARE IN RESPECT OF COMPUTATION OF TOTAL TURNOVER FOR THE PURPOSE OF DEDUCTION U/S 80 HHC OF THE ACT. 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASSESSEE HAS NOT INCLUDED TURNOVER OF UNIT -II OF RS. 89,66,62,686/-, ON WHICH, THE ASSESSEE HAD CLAIMED EXEMPTION U/S 10B OF THE ACT. WHILE CALCULATING DEDUCTION U/S 80 HHC, THE AO INCLUDED THE TOTAL TURNOVER OF UNIT-II AND NOTICED THAT ELIGIBLE PROFIT IS NEGATIVE, THEREFORE, DEDUCTION ALLOWABLE U/S 80 HHC IS NIL. THE CIT(A) CONFIRMED THE ACTION OF THE AO BY OBSERVING AS UNDER:- THE CONTENTION OF THE APPELLANT IS NOT ACCEPTABLE. FIRSTLY AS PER DEFINITION OF TOTAL TURNOVER GIVEN IN EXPLANATION T O SECTION 80HHC(3) OF IT ACT ONLY EXPORTED IF TRADED GOODS IS TO BE EXCLUDED FROM TOTAL TURNOVER THEREFORE THE TURNOVER OF IIND UNIT IS NOT OF EXPORT OF TRADED GOODS THEREFORE IT IS PART OF THE ADJUSTED TOTAL TURNOVER. AS REGARDS NOT INCLUSION OF INCOME OF IIND UNIT IN THE ADJUSTED EXPORT TURNOVER IS CONCERNED THE INCOM E OF UNIT II IS EXEMPT U/S 80B OF IT ACT AND THE SAME CANNOT BE A P ART OF TOTAL INCOME AS THE INCOME OF EXPORT EXEMPT U/S 10B FALLS IN CHAPTER III OF THE ACT. THE HEADING OF THIS CHAPTER IS INCO ME WHICH DO NOT FORM PART OF TOTAL INCOME. THUS THE ANY INCOME EXEM PT UNDER THIS CHAPTER CANNOT BE INCLUDED IN THE ADJUSTED EXPORT T URNOVER FOR CALCULATION OF DEDUCTION U/S 80 HHC OF THE IT ACT. THE APPELLANT HAS RELIED ON THE DECISION OF HONBL E BOMBAY HIGH COURT IN THE CASE OF SUDARSHAN CHEMICALS INDUS TRIES 246 ITR 769 IN WHICH IT IS HELD THAT STATE LEVY LIKE EX CISE DUTY AND SALES TAX CANNOT PART OF THE TOTAL TURNOVER AS THER E IS NO PROFIT ELEMENT IN IT. THE RATIO OF THIS JUDGMENT IS NOT AP PLICABLE IN THE CASE OF APPELLANT AS THE FACTS ARE DIFFERENT. NO SA LE TAX, EXCISE DUTY OR STATE LEVY HAS BEEN INCLUDED IN ADJUSTED TO TAL TURNOVER. OTHER CASE LAW RELIED UPON THE APPELLANT ARE DISTIN GUISHABLE ON FACT AND ARE NOT DIRECTLY RELATED TO THE ISSUE IN H AND. IN VIEW OF THE ABOVE FACTS THE AO IS JUSTIFIED IN ADDING TURNO VER OF UNIT II ITA NO. 3394/MUM/07 & 3478/M/07 M/S EUROTEX INDUSTRIES & EXPORTS LTD. 3 WHILE CALCULATING DEDUCTION U/S 80 HHC. THE ACTION OF THE AO IS JUSTIFIED AND CONFIRMED. 5. THE LEARNED AR SUBMITTED THAT WHILE CALCULATING ADJUSTED TURNOVER FOR THE PURPOSE OF DEDUCTION UNDER SECTION 80HHC TURNOVER OF UNIT II WHICH IS ELIGIBLE FOR DEDUCTION UNDER SE CTION 10B SHOULD NOT INCLUDE BECAUSE NEITHER PROFIT NOR EXPORT TURNOVER RELATED TO EXPORT BUSINESS ACTIVITIEY. THE LEARNED IN SUPPORT OF HIS CONTENTION, RELIED UPON THE FOLLOWING DECISIONS:- 1. CIT V. SUDARSHAN CHEMICAL INDUSTRIES LTD., 245 ITR 769 (BOM.) 2. CIT V. PINK STAR, 245 ITR 757 (BOM.) 3. ACIT V. SOUTH INDIA PRODUCE CO., 262 ITR 201 (MA D.) 4. WIPRO LTD. V. DC, 96 TTJ 211 (BGL.) 6. ON THE OTHER HAND, THE LEARNED DR RELIED UPON TH E ORDERS OF THE REVENUE AUTHORITIES. 7. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF THE PARTIES AND PERUSED THE RECORD AS WELL AS GONE THROUGH THE DECI SIONS CITED. SIMILAR ISSUE CAME UP BEFORE THE ITAT, MUMBAI BENCH IN THE CASE OF ACIT VS. MS. PUJA BHAGNANI IN ITA NO 5412/M/05 FOR AY 2001-02 VIDE ORDER DATED 22.06.2009(WHERE THE AM WAS ONE OF THE PARTY) WHEREIN THE ITAT HELD AS UNDER:- 3. FOLLOWING ITS EARLIER DECISIONS IN CIT VS. RATHO RE BROTHERS [2002] 175 CTR (MAD) 60: [2002] 254 ITR 656 (MAD), CIT VS. SURESH B. MEHTA [2007] 291ITR 462 (MAD) AND CIT VS. MACMILLAM INDIA LTD. [2007] 295 ITR67 (MAD), THE HIGH COURT OF MADRAS IN CIT VS. M. GANI & CO., [2008] 301 ITR 381 (MAD) HAS HELD THAT TRIBUNA L HAVING CATEGORICALLY STATED THAT ASSESSEE WAS MAINTAINING SEPARATE BOOKS OF ACCOUNT FOR EXPORT BUSINESS AND DOMESTIC BUSINESS, IT WAS JUSTIFIED IN GRANTING DEDUCTION U/S 80 HHC FULLY EXPORT PROFITS. 4. AFTER HEARING THE LEARNED REPRESENTATIVES OF TH E PARTIES AND PERUSING THE RECORD, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A). THERE IS NO JUDGMENT OF JURISDICTIONAL HIGH COURT O N THE ISSUE, THEREFORE, THE VIEW TAKEN BY THE CIT(A) IS IN ACCOR DANCE WITH SETTLED POSITION OF LAW. WE, THEREFORE, CONFIRM THE ORDER O F CIT(A). 7.1 IN THE CASE UNDER CONSIDERATION, THE CLAIM OF T HE ASSESSEE IS THAT THE ASSESSEE MAINTAINED COMPLETE SET OF FINANC IAL STATEMENTS INCLUDING P&L A/C SEPARATELY JUST LIKE A CASE WHERE IN SEPARATE BOOKS ITA NO. 3394/MUM/07 & 3478/M/07 M/S EUROTEX INDUSTRIES & EXPORTS LTD. 4 OF ACCOUNT FOR THE UNIT-II WAS MAINTAINED. UNDER TH E CIRCUMSTANCES, THE RELEVANT TURNOVER, PROFIT, EXPENDITURE AND OTH ER ITEMS OF EXPENDITURE OF UNIT-II ARE NOT REQUIRED TO BE CONSI DERED WHILE CALCULATING DEDUCTION U/S 80 HHC. SINCE FACTS ARE R EQUIRED TO BE VERIFIED IN THE LIGHT OF ABOVE DISCUSSION, WE, THER EFORE, REMIT THE MATTER BACK TO THE FILE OF THE AO WITH A DIRECTION TO DECIDE THE ISSUE AFTER VERIFICATION OF THE FACTS IN THE LIGHT OF ABO VE DISCUSSION AND AFTER PROVIDING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 8. GROUND NOS. 3 & 4 ARE IN RESPECT OF PROFIT ON SA LE OF DEPB. THE LEARNED REPRESENTATIVES OF THE PARTIES SUBMITTE D THAT THIS ISSUE IS COVERED BY THE SPECIAL BENCH DECISION OF ITAT IN TH E CASE OF M/S TOPMAN EXPORTS V. ITO, [2009] 328 ITR(AT) 87(MUM.)( SB) WHEREIN IT WAS HELD AS UNDER:- 89. THE QUESTION RAISED BEFORE THE SPECIAL BENCH HAS TW O PARTS. IN SO FAR AS THE FIRST PART :`WHETHER THE ENTIRE AMOUNT R ECEIVED ON SALE OF DEPB ENTITLEMENTS REPRESENTS PROFIT CHARGEABLE UNDER SEC TION 28(IIID) OF THE INCOME TAX ACT, IS CONCERNED, WE ANSWER IT IN NEGA TIVE AND THE SECOND PART OF THE QUESTION :`OR THE PROFIT REFERRED TO TH EREIN REQUIRES ANY ARTIFICIAL COST TO BE INTERPOLATED? IS REPLIED IN AFFIRMATIV E TO THE EXTENT THAT THE FACE VALUE OF DEPB SHALL BE DEDUCTED FROM THE SALE PROCEEDS. AS REGARDS THE GROUNDS RAISED IN THESE APPEALS AGAINST THE DEN IAL OF DEDUCTION U/S 80HHC, IN FULL OR PART, WE FIND THAT THE COMPUTATI ON OF PROFITS DERIVED FROM EXPORTS AND THE RESULTANT AMOUNT OF DEDUCTION UNDER THIS SECTION CAN BE MADE ONLY WHEN THE DECISION IS TAKEN ON THE AMO UNT AND THE TIMING OF TAXABILITY OF THE FACE VALUE OF DEPB AND THE PROFI T ON ITS SALE. ON THIS ISSUE WE HOLD THAT THE FACE VALUE OF DEPB IS CHARG EABLE TO TAX U/S 28(IIIB) AT THE TIME OF ACCRUAL OF INCOME, THAT IS, WHEN THE APPLICATION FOR DEPB IS FILED WITH THE COMPETENT AUTHORITY PURSUANT TO EXP ORTS AND PROFIT ON SALE OF DEPB REPRESENTING THE EXCESS OF SALE PROCEEDS O F DEPB OVER ITS FACE VALUE IS LIABLE TO BE CONSIDERED U/S 28(IIID) AT TH E TIME OF ITS SALE. WHATEVER IS SAID ABOUT DEPB, SHALL ALSO HOLD GOOD FOR DFRC, ON BOTH ITS COMPONENTS, VIZ, THE FACE VALUE OF DFRC AND PROFIT ON ITS TRANSFER, EXCEPT FOR THE FACT THAT THE PROFIT ON SALE OF DFRC SHALL BE CHARGED TO TAX U/S 28(IIIE). THERE IS NO DISPUTE ABOUT THE DUTY DRAWB ACK, WHICH SHALL BE CHARGEABLE TO TAX AT THE TIME OF ACCRUAL OF INCOME U/S 28(IIIC) WHEN APPLICATION IS FILED WITH THE COMPETENT AUTHORITY A FTER MAKING EXPORTS. SINCE THE NECESSARY FACTS FOR THE DETERMINATION OF THE QUANTUM OF DEDUCTION U/S 80HHC, AS DISCUSSED ABOVE, ARE NOT A VAILABLE ON RECORD, WE, THEREFORE, SET ASIDE THE IMPUGNED ORDERS AND DI RECT THE AO TO COMPUTE THE AMOUNT OF RELIEF IN ACCORDANCE WITH THE VIEW E XPRESSED BY US HERE IN ABOVE. ITA NO. 3394/MUM/07 & 3478/M/07 M/S EUROTEX INDUSTRIES & EXPORTS LTD. 5 9. SINCE THE FACTS ARE SUBJECT TO VERIFICATION IN T HE LIGHT OF ABOVE DECISION OF ITAT CITED SUPRA, WE THEREFORE REMIT TH IS ISSUE BACK TO THE FILE OF THE AO WITH A DIRECTION TO DECIDE THE ISSUE IN THE LIGHT OF THE SPECIAL BENCH OF ITAT (SUPRA) AFTER PROVIDING REASO NABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. 10. GROUND NO. 5 IS IN RESPECT OF INTEREST U/S 234B & 234C OF THE ACT. 11. INTEREST U/S 234B & C LEVIED BY THE AO HAS BEEN CONFIRMED BY THE CIT(A) BY OBSERVING AS UNDER:- THE GROUND OF APPEAL NO. 6 IS THAT ASSESSING OFFICE R IS ERRED IN CHARGING INTEREST U/S 234B AND 234C WHICH IS AGAINS T THE DIRECTION OF C BDT CIRULAR DATED 17.01.2006. THIS G ROUND OF APPEAL IS NOT AND APPELLANT IS NOT ENTITLED ANY DED UCTION U/S 80 HHC ON DEPB LICENCES WHICH IS THE SUBJECT MATTER OF CIRCULAR THEREFORE NO BENEFIT OF CIRCULAR CAN BE GIVEN TO AP PELLANT. THIS GROUND OF APPEAL IS DECIDED AGAINST THE APPELLANT. 12. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF TH E PARTIES AND PERUSED THE RECORD. SINE THIS GROUND DEPENDS UPON T HE FINAL OUTCOME OF DEDUCTION U/S 80 HHC AND IN ACCORDANCE WITH THE BENEFIT OF CBDTS CIRCULAR IS TO BE GIVEN. SINCE THE ISSUE OF DEDUCTION U/S 80 HHC BEING GROUND NOS. 1 & 2 REMITTED BACK TO THE FI LE OF THE AO, THIS GROUND IS ALSO REMITTED TO THE AO TO DECIDE ISSUE W ITH IDENTICAL DIRECTIONS AS GIVEN IN GROUND NOS. 1 & 2. 13. GROUND NO. 6 IS IN RESPECT OF DISALLOWANCE OUT OF INTEREST CLAIM ON THE GROUND THAT THE BORROWED FUNDS HAVE BE EN DIVERTED TO INVESTMENT IN SHARES. 14. DURING THE ASSESSMENT PROCEEDINGS, THE AO NOTIC ED THAT THE ASSESSEE HAS DIVERTED THE BORROWED FUNDS FOR ACQUIS ITION OF SHARES. THE AO DISALLOWED THE INTEREST OF WHICH CALCULATION COMES TO RS. 22,07,886/- WHILE ALLOWING DEDUCTION U/S 80-M. SINC E THE DIVIDEND ITA NO. 3394/MUM/07 & 3478/M/07 M/S EUROTEX INDUSTRIES & EXPORTS LTD. 6 INCOME WAS ONLY RS. 12,81,958/-, THEREFORE, NO DEDU CTION U/S 80-M HAS BEEN ALLOWED TO THE ASSESSEE. THE CIT(A) DECIDE D THE ISSUE BY OBSERVING AS UNDER:- THIS ISSUE HAS BEEN DECIDED BY THE ITAT IN FAVOUR O F THE APPELLANT IN AY 98-99 IN ITA NO. 1417/M/02 DATED 10 .07.2006 AND HELD THAT NO INTEREST BEARING FUNDS HAS BEEN UT ILIZED FOR PURCHASE OF SHARES THEREFORE NO INTEREST SHOULD HAV E BEEN DEDUCTED WHILE ALLOWING DEDUCTION U/S 80M. I RESPEC TFULLY FOLLOWING THE DECISION OF ITAT ALLOW THE GROUNDS OF APPEAL OF THE APPELLANT. AO DIRECTED TO ALLOW DEDUCTION U/S 80M A MOUNTING TO RS. 12,81,958/- TO THE APPELLANT. THE GROUND OF APPEAL NO. 2 IS THAT THE AO ERRED NOT COMPUTED LOSS UNDER THE HEAD DIVIDEND INCOME AFTER REDUCING INTEREST EXPENDITURE OUT OF DIVIDEND INCOME. SINCE GROUND OF APPEAL NO. 1 HAS BEEN DECIDED IN THE FAVOUR OF THE APPELLANT THE REFORE THIS GROUND OF APPEAL IS NOT SURVIVED HENCE THE SAME IS DECIDED AGAINST THE APPELLANT. 15. THE LEARNED AR SUBMITTED THAT THE ISSUE IS COVE RED BY THE DECISION OF THE ITAT IN THE EARLIER YEARS FOR AY 19 98-99 AND THE CIT(A) HAS FOLLOWED THE ORDER OF ITAT IN AY 1998-99. THE LEARNED DR, ON THE OTHER HAND, RELIED UPON THE ORDER OF AO. 16. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF TH E PARTIES AND PERUSED THE RECORD. WE FAIL TO UNDERSTAND THE GRIEV ANCE OF THE ASSESSEE AGAINST THE ORDER OF CIT(A) AND THE CIT(A) HAS FOLLOWED THE ORDER OF ITAT IN 1998-99 AND FAIRLY HELD THAT NO IN TEREST BEARING FUNDS HAVE BEEN UTILIZED FOR THE PURPOSE OF PURCHAS ING SHARES, THEREFORE, NO INTEREST SHOULD HAVE BEEN DEDUCTED WH ILE ALLOWING DEDUCTION U/S 80M. THE AO WAS DIRECTED TO ALLOW DED UCTION U/S 80M AMOUNTING TO RS. 12,81,958/- AS CLAIMED BY THE ASSE SSEE. THE EXACT GROUND RAISED BY THE ASSESSEE BEFORE US READS AS UN DER:- 7. THE LEARNED CIT(A) ERRED IN NOT HOLDING THAT DISALLOWANCES MADE BY THE LD. AO OUT OF THE INTERES T ON PRESUMED BORROWED FUNDS ON INVESTMENT IN SHARES OF RS. 22,07 ,886/- BE DEDUCTED IN SPITE OF UPHOLDING THAT THE APPELLANT I S ENTITLED FOR DEDUCTION U/S 80M WHEN SUCH DEDUCTIONS ARE OUT OF D IVIDEND. 17. THE AO MADE OUT A CASE THAT THE ASSESSEE HAS CL AIMED DEDUCTION U/S 80M FOR RS. 12,81,958/- I.E. GROSS DI VIDEND RECEIVED. ITA NO. 3394/MUM/07 & 3478/M/07 M/S EUROTEX INDUSTRIES & EXPORTS LTD. 7 THE AO WAS OF THE VIEW THAT THE DEDUCTION U/S 80M S HOULD HAVE ALLOWED ON NET BASIS AFTER REDUCING EXPENSES ATTRIB UTABLE TO EARNING OF DIVIDEND INCOME. THE AO FURTHER NOTICED THAT ON THE SIMILAR LINES IN THE EARLIER YEARS DISALLOWANCE U/S 14A HAD BEEN MAD E IN ASSESSEES OWN CASE AND HAD BEEN CONFIRMED BY THE CIT(A). THER EFORE, THE AO CALCULATED PROPORTIONATE INTEREST RELATED TO DIVIDE ND INCOME, WHICH IS ATTRIBUTABLE TO INCOME EARNED AS DIVIDEND INCOME. I T HAS BEEN NOTICED ABOVE THAT THE CIT(A) ACCEPTED THE ASSESSEES CLAIM THAT THE ASSESSEE HAS UTILIZED ITS OWN FUNDS IN INVESTMENT IN SHARES BY FOLLOWING THE ORDER OF ITAT IN AY 1998-99. WHEN THE ASSESSEE DID NOT USE BORROWED FUNDS IN INVESTMENT OF SHARES, THE DISALLOWANCE FRO M DIVIDEND INCOME ON ACCOUNT OF INTEREST DOES NOT ARISE. HOWEVER, WE FIND THAT THE CIT(A) WHILE DECIDING THE GROUND NO. 2 HE HELD THAT THIS G ROUND OF APPEAL IS NOT SURVIVED AND HENCE THE SAME IS DECIDED AGAINST THE APPELLANT. IN FACT HE SHOULD HAVE HELD THAT GROUND NO.2 BECOMES I N FRUCTUOUS AS THE MAIN GROUND HAS BEEN DECIDED IN FAVOUR OF THE A SSESSEE. TO THAT EXTENT, WE MODIFY THE ORDER OF CIT(A) ON THIS ISSUE . 18. GROUND NO. 8 READS AS UNDER:- THE LD. CIT(A) ERRED IN UPHOLDING THAT PROFIT UNDER SECTION 115JB AS COMPUTED IS CORRECT AND NO DEDUCTION WILL BE ALLOWABLE U/S 80HHC AS THE GROUNDS RELATING THERETO HAS BEEN REJECTED. IT IS URGED THAT THE BOOK PROFIT US. 115JB HAS TO BE W ORKED OUT WITH REFERENCE TO EXPORT TURNOVER AND BOOK PROFIT. 19. THE CIT(A) HELD THAT SINCE THERE IS NO DEDUCTIO N ALLOWABLE U/S 80 HHC, HE REJECTED THE ASSESSEES GROUND BY OBSERV ING THAT THE AO WAS NOT JUSTIFIED IN NOT COMPUTING DEDUCTION U/S 80 HHC WITHOUT PROPERLY AND NOT REDUCING BOOK PROFIT U/S 115JB BY THE EXPORT PROFIT REDUCING DEDUCTION U/S 80 HHC. 20. THE LEARNED REPRESENTATIVES OF THE PARTIES SUB MITTED THAT THIS ISSUE IS COVERED BY THE JUDGMENT OF JURISDICTIONAL HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX-9, MUMBAI .V. AJ ANTA PHARMA LTD. ITA NO. 3394/MUM/07 & 3478/M/07 M/S EUROTEX INDUSTRIES & EXPORTS LTD. 8 (BOMBAY) INCOME TAX APPEAL NO. 1005 OF 2008. THE SA ID JUDGMENT HAS BEEN CONSIDERED BY THE ITAT MUMBAI BENCH IN ITA NO 4155/M/2007 AY 2004-2005 ORDER DATED 9.11.2009 WHEREIN ONE OF T HE PARTY OF THAT ORDER IS HONBLE VP. THE RELEVANT FINDING OF THE IT AT READ AS UNDER :- 8. ON THE OTHER HAND, THE LEARNED COUNSEL APPEARING ON BEHALF OF THE ASSESSEE RELIED UPON THE DECISION OF THE ITAT, MUMBAI SPECIAL BENCH IN THE CASE OF DY. CIT VS. SYN COME FORMULATIONS (I) LTD. (2007) 106 ITD 193 (MUM.) (SB ) WHEREIN THIS VERY ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE AN D AGAINST THE REVENUE BY FOLLOWING THE DECISION OF THE HONBLE KE RALA HIGH COURT (SUPRA). IT WAS ALSO SUBMITTED THAT THE ITAT SPECIAL BENCH HAS SPECIFICALLY REFERRED TO THE DIFFERENCE IN PHRA SEOLOGY BETWEEN 115JA AND 115JB OF THE ACT TO TAKE A CONSCIOUS DECI SION THAT DESPITE THE MINOR DIFFERENCE IN THE LANGUAGE EMPLO YED THEREIN, DEDUCTION UNDER SECTION 80 HHC DESERVES TO BE COMPU TED BY TAKING INTO CONSIDERATION BOOK PROFIT. LEARNED C OUNSEL WAS FAIR ENOUGH TO SUBMIT THAT IN THE CASE OF AJANTA PHARMA LIMITED, THE ITAT, E BENCH, MUMBAI (SUPRA) OVERRULED (SEE PARA 28 IN 223 CTR 441). HE THEN CLARIFIED THAT THE ITAT, SPECIAL BENCH WAS CALLED-UPON TO ANSWER TOW QUESTIONS I.E., (A) METHO D OF COMPUTATION OF DEDUCTION UNDER SECTION 80 HHC AND ( B) PERCENTAGE OF DEDUCTION ALLOWABLE IN EACH YEAR. AS REGARDS THE PERCENTAGE OF DEDUCTION ALLOWABLE IN EACH YEAR. AS REGARDS THE PERCENTAGE OF DEDUCTION ALLOWABLE, THE ITAT TOOK A VIEW THAT ASSESSEE WOULD BE ENTITLED TO 100% DEDUCTION AND TH E VIEW TAKEN BY THE ITAT, SPECIAL BENCH WAS FOLLOWED IN THE CASE OF AJANTA PHARMA LTD. ON AN APPEAL FILED BY THE REVENUE, WHIL E ANSWERING A SPECIFIC QUESTION RAISED BEORE THE HIGH COURT, T HE COURT OBSERVED THAT AN ASSESSEE WOULD NOT BE ENTITLED TO 100% DEDUCTION SINCE SUB-SECTION 1 TO SECTION 80HHC INTR ODUCED BY THE FINANCE ACT W.E.F. 1 ST APRIL, 2001 WAS SPECIFICALLY MEANT TO PHASE OUT THE DEDUCTION COMPLETELY Y ASSESSMENT YEAR 2005 -2006 IN WHICH EVENT, ON AN APPLICATION OF THE SAID SUB-SECT ION, ONLY A PORTION OF THE AMOUNT COMPUTED UNDER SECTION 80HHC IS ALLOWABLE IN A PARTICULAR YEAR. WHILE ANSWERING THE SAID QUESTION THE HONBLE BOMBAY HIGH COURT OPINED THAT A CONTRAR Y VIEW TAKEN BY THE ITAT, SPECIAL BENCH IN THE CASE OF SYN COME FORMULATIONS LTD. (SUPRA) STAND OVERRULED. HE HAS A LSO ADVERTED OUR ATTENTION TO PARA 19 OF THE ORDER OF THE JURIS DICTIONAL HIGH COURT TO SUBMIT THAT ON THE FIRST ISSUE THE HONBLE BOMBAY HIGH COURT HAS NOT RENDERED ITS OPINION SINCE THAT ISSUE WAS NOT PLACED BEFORE THEIR LORDSHIPS FOR THEIR KIND CONSID ERATION. HE HAS ALSO RELIED UPON THE DECISION OF THE APEX COURT IN THE CASE OF SUN ENGINEERING WORKS 198 ITR 297 TO SUBMIT THAT ANY OB SERVATION OF A COURT HAS TO BE UNDERSTOOD IN THE LIGHT OF QUESTI ON PLACED BEFORE THEM AND INTERPRETATION OF AN EXPRESSION SHO ULD NOT BE ITA NO. 3394/MUM/07 & 3478/M/07 M/S EUROTEX INDUSTRIES & EXPORTS LTD. 9 DIVERSED FROM ITS CONTEXT. HE THUS SUBMITTED THAT S O FAR AS THE PRESENT ISSUE IS CONCERNED I.E., THE METHOD OF COMP UTATION OF DEDUCTION UNDER SECTION 80HHC, THE ISSUE STANDS COV ERED BY THE DECISION OF THE ITAT, SPECIAL BENCH IN THE CASE OF SYNCOME FORMULATIONS (SUPRA). 9. ON THE OTHER HAND LEARNED DEPARTMENTAL REPRESEN TATIVE STRONGLY RELIED UPON THE ORDER OF THE AO. 10. HAVING CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS WE ARE OF THE VIEW THAT THE VIEW TAKEN BY THE LEARNED CIT(A) IS IN CONFORMITY WITH THE DECISION OF THE ITAT SPECIAL BE NCH CITED (SUPRA) AND HENCE, WE AFFIRM THE ORDER OF THE LEARN ED CIT(A) AND REJECT GROUND NO. 1 OF THE REVENUE. 21. AFTER HEARING THE LEARNED REPRESENTATIVES OF TH E PARTIES AND PERUSING THE RECORD, WE ARE OF THE VIEW THAT SINCE THE FACTS OF THE CASE REQUIRED TO BE EXAMINED IN THE LIGHT OF DECISIONS C ITED SUPRA, WE RESTORE THE ISSUE TO THE FILE OF THE AO TO DECIDE T HE ISSUE IN ACCORDANCE WITH THE AFORESAID DECISIONS AFTER PROVI DING REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. ITA NO. 3478/M/07 APPEAL BY THE REVENUE 22. THE GROUNDS RAISED BY THE REVENUE IN THIS APPEA L ARE AS UNDER:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN DIRECTING THE AO TO AL LOW 80M DEDUCTION ON THE GROSS DIVIDEND RECEIPTS WITHOUT DE DUCTING THE PROPORTIONATE INTEREST OF RS. 22,07,886/- AND ALLOW DEDUCTION U/S 80M TO THE TUNE OF RS. 12,81,858/-. 23. AFTER HEARING THE LEARNED REPRESENTATIVES OF TH E PARTIES AND PERUSING THE RECORD, THIS ISSUE HAS BEEN DECIDED AF TER ELABORATE DISCUSSION WHILE DECIDING GROUND NO. 7 OF THE ASSES SEES APPEAL (SUPRA) WHEREIN IT WAS HELD THAT THE ASSESSEE DID N OT USE BORROWED FUNDS FOR INVESTMENT IN SHARES. WHEN THE BORROWED F UNDS WERE NOT USED IN INVESTMENT OF SHARES, THE QUESTION OF PROPO RTIONATE INTEREST DEDUCTION FROM THE DIVIDEND DOES NOT ARISE. IN THE LIGHT OF THE ABOVE DISCUSSION, THE GROUND OF REVENUES APPEAL IS DISMI SSED. ITA NO. 3394/MUM/07 & 3478/M/07 M/S EUROTEX INDUSTRIES & EXPORTS LTD. 10 24. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED FOR STATISTICAL PURPOSES AND THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON 10 TH DECEMBER, 2009. SD/- SD/- (D. MANMOHAN) (A.L. GEHLOT ) VICE PRESIDENT ACCOUNTAN T MEMBER DATED: 10 TH DECEMBER, 2009 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) CONCERNED. 4) THE CIT CONCERNED. 5) THE DEPARTMENTAL REPRESENTATIVE, K BENCH , I.T.A.T., MUMBAI. BY ORDER //TRUE COPY// ASST. REGISTRAR, I.T.A.T., MUMBAI. KV S.NO. DESCRIPTION DATE INTALS 1. DRAFT DICTATED ON 17.11.09 SR.P.S./P.S 2. DRAFT PLACED BEFORE AUTHOR 19.11.09 SR.P.S/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.P.S./PS SR.P.S./P.S 6. KEPT FOR PRONOUNCEMENT ON SR. P.S./P.S. 7. FILE SENT TO THE BENCH CLERK SR.P.S./P.S 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER