THE DCIT CIR 3(1), MUMBAI V. M/S. EUROTEX INDUSTRIES & EXPORTS LTD, MUMBAI

ITA 3408/MUM/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 7428 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-03-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: J
• Next Hearing Date: 03-03-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 15-05-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: L K AGARWAL
• Keywords: Business income; Proportionate interest

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH J MUMBAI BEFORE PRAMOD KUMAR, AM & SMT. P.MADHAVI DEVI, JM I.T.A.NO.3408/MUM/2008 - A.Y 2005-06 DY. COMMISSIONER OF I.T., CIRCLE 3 (1), MUMBAI VS. M/S EUROTEX INDUSTRIES & EXPORTS LTD., RAHEJA CHAMBERS, 213, NARIMAN POINT, MUMBAI 400 021. PAN NO.AAACE 1569 M (APPELLANT) (RESPONDENT) REVENUE BY : SHRI L.K.AGARWAL. REVENUE BY : SHRI S.L.JAIN. O R D E R PER P.MADHAVI DEVI, JM: THIS APPEAL OF THE REVENUE IS DIRECTED AGAINST CIT (A)S ORDER DATED 12-2-2008. 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT[A] ERRED IN DELETING AMOUNT OF RS.17,64,585/- BEING THE ADDITION MADE BY THE AO U/S.14A OF THE IT ACT. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT[A] ERRED IN DIRECTING THAT THE INTEREST OF RS.2,00,757/- RECEIVED BY THE ASSESSEE FROM MIDC SHALL BE ENTITLED TO DEDUCTION U/S.10B WITHOUT APPRECIATING THAT THE INTEREST RECEIVED BY THE ASSESSEE IS INCOME FROM OTHER SOURCES. 3. AS REGARDS GROUND NO.1 BRIEF FACTS ARE THAT THE ASSESSEE IS A COMPANY WHICH IS ENGAGED IN THE MANUFACTURE OF COTT ON YARN, KNITTED FABRICS AND TRADING EXPORT. DURING THE ASSESSMENT P ROCEEDINGS U/S.143[3], AO NOTICED THAT THE ASSESSEE HAS SHOWN DIVIDEND INCOME OF RS.9,65,488/- UNDER THE HEAD INCOME FROM OTHER SOURCES. HE OBSERVED THAT IN THE EARLIER YEAR BORROWED FUNDS WE RE UTILIZED FOR EARNING DIVIDEND INCOME OF THE ACT. HE ALSO OBSERVE D THAT DURING THE YEAR TOTAL FUNDS INVESTED IN BUSINESS ARE RS.14633. 46 LAKHS OUT OF 2 WHICH BORROWED FUNDS ARE OF RS.7939.70 LAKHS. HE FU RTHER OBSERVED THAT THE TOTAL INVESTMENT HELD AS ON 31-3-2005 ARE OF RS.218.27 LAKHS AND THE AVERAGE RATE OF INTEREST PAID IS 10.22%. HE , THEREFORE, DISALLOWED PROPORTIONATE INTEREST U/S.14A OF THE AC T. 4. AGGRIEVED, ASSESSEE FILED AN APPEAL BEFORE THE C IT[A] STATING THAT DURING THE EARLIER YEARS I.E. A.YRS. 1998-99 A ND 2000-01 THE TRIBUNAL HAS HELD THAT NO BORROWED FUNDS ARE BEING USED FOR ACQUISITION OF INVESTMENTS AND NO INTEREST IS DISAL LOWABLE. THE CIT[A] FOLLOWING THE DECISION OF THE TRIBUNAL FOR THE EARL IER YEARS DELETED THE ADDITION AND AGGRIEVED REVENUE IS IN APPEAL BEFORE US. 5. HAVING HEARD BOTH THE PARTIES, WE FIND THAT THE AO HAS ONLY FOLLOWED THE FINDING OF HIS PREDECESSOR IN THE ASSE SSEES OWN CASE FOR THE EARLIER ASSESSMENT YEARS AND THE CIT[A] HAS FO LLOWED THE ORDER OF THE TRIBUNAL FOR THE EARLIER ASSESSMENT YEARS. THER EFORE, WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDER OF THE CIT[A ] AND REVENUES GROUND OF APPEAL IS ACCORDINGLY REJECTED. 6. AS REGARDS GROUND NO.2, BRIEF FACTS ARE THAT ASS ESSEE HAD CLAIMED DEDUCTION U/S.10B OF THE ACT IN THE CASE OF UNIT I BEING 100% EXPORT ORIENTED UNDERTAKING. ON EXAMINATION OF SUCH CLAIM, AO OBSERVED THAT THE BUSINESS PROFITS OF UNIT II INCLU DED AN AMOUNT OF RS.2,00,757/- RECEIVED FROM MSEB & MIDC AS INTEREST ON DEPOSITS. HE HELD THAT THE ASSESSEE IS NOT ELIGIBLE TO CLAIM DED UCTION U/S.10B ON THIS AMOUNT AS IT IS NOT ATTRIBUTABLE OR DERIVED FROM TH E BUSINESS OF THE ASSESSEE. HE THEREFORE REDUCED IT FROM THE PROFITS OF THE BUSINESS ELIGIBLE FOR DEDUCTION U/S.10B OF THE ACT AND ADDED IT TO THE TOTAL INCOME OF THE ASSESSEE. 3 7. AGGRIEVED, ASSESSEE FILED AN APPEAL BEFORE THE CIT[A] WHO DELETED THE DISALLOWANCE BY FOLLOWING THE ORDER OF THE TRIBUNAL FOR A.Y 2000-01 HOLDING THAT THE INTEREST FROM MIDC & MSEB IS BUSINESS INCOME AND DEDUCTION U/S.10B IS ALLOWABLE AS SUCH. AGGRIEVED, REVENUE IS IN APPEAL BEFORE US. 8. THE LD. DR SUPPORTED THE ORDER OF THE AO, WHILE THE LD. COUNSEL FOR THE ASSESSEE RELIED UPON THE ORDER OF THE CIT[A ] AND ALSO PLACED RELIANCE ON THE FOLLOWING DECISIONS- A) CIT VS. INDOSWISS JEWELS LTD. & ANOTHER 284 ITR 389 [BOM] B) CIT VS. CHINNA NACHIMUTHU CONSTRUCTIONS 297 ITR 17 [KAR] C) CIT VS. PAWAN KUMAR JAIN 298 ITR 443 [DEL] 9. HAVING HEARD BOTH THE PARTIES AND HAVING CONSIDE RED THE MATERIAL ON RECORD AS WELL AS THE DECISIONS RELIED UPON BY THE LD. COUNSEL FOR THE ASSESSEE, WHEREIN IT HAS BEEN HELD THAT THE INTEREST INCOME ON FDRS HAVING DIRECT NEXUS WITH THE BUSINES S OF THE ASSESSEE IS TO BE TREATED AS BUSINESS INCOME AND DEDUCTION U /S.10B IS ALLOWABLE ON SUCH INCOME, WE SEE NO REASON TO INTERFERE WITH THE ORDER OF THE CIT[A] AND ACCORDINGLY GROUND NO.2 IS REJECTED. 10. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED ON THIS 31 ST DAY OF MARCH, 2010. SD/- SD/- (PRAMOD KUMAR) (P.MADHAVI DEVI) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI:31 ST MARCH, 2010. P/-* 4