Appeal details
Counselvise Citation
[2010] 136 COUNSELVISE.COM (IT) 3733 (ITAT-DELHI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
1 year(s) 7 month(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
18-06-2010
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
E
Next Hearing Date
24-05-2010
Assessment Year
2004-2005
Appeal Filed On
18-11-2008
Judgement Text
I.T.A. NO. 3432 /DEL/2008 1/7 IN THE INCOME TAX APPELLATE TRIBUNAL, NEW DELHI, BENCH E BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI A K GARODIA, ACCOUTANT MEMBER ITA NO.3432 /DEL/2008 (ASSESSMENT YEAR 2004-05) M/S. MOTHERSON SUMI SYSTEMS LTD., VS. DCIT, 43, COMMUNITY CENTRE; 3 RD FLOOR,. CO.CIRCLE 5(1), BHAGERIA HOUSE, NEW DELHI NEW FRIENDS COLONY, NEW DELHI. (APPELLANTS) (RESPONDENTS) PAN / GIR NO.AAACM0405A APPELLANT BY: SHRI Y.K. SHARMA, CA RESPONDENT BY: SHRI G.S. SAHOTA, SR. DR ORDER PER A. K. GARODIA, AM: 1. THIS APPEAL BY THE ASSESSEE HAS BEEN DIRECTED AGAIN ST THE ORDER OF LD. CIT(A) VIII, NEW DELHI DATED 30.09.2008 FOR THE ASSESSMENT YEAR 2004-05. THE GROUNDS RAISED BY THE ASSESSEE READ AS UNDER: 1) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND UNDER THE PROVISIONS OF THE ACT, THE LD. COMMISSIONER HAS ERRED IN SUSTAINING THE REDUCTION IN THE CLAIM U/S 10B OF I. T. ACT, BY RS.26,14,775/- REPRESENTING INTEREST RECEIVED ON I.T.A. NO. 3432 /DEL/2008 2/7 LOANS TO EMPLOYEES, SCRAP SALES ETC. IN RESPECT OF THREE UNITS OF THE APPELLANT. 2) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND UNDER THE PROVISIONS OF THE ACT, THE LD. COMMISSIONER HAS ERRED IN SUSTAINING DISALLOWANCE BENEFIT OF RS.1,03,695/- U/S 80IB OF THE I. T. ACT IN RELATION TO INTERESTS RECEIVED ON LOANS TO EMPLOYEES AND DUTY DRAW BACK. 3) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C SE AND UNDER THE PROVISIONS OF LAW, NO INTEREST U/S 234A, 234B & 234C IS CHARGEABLE FOR WHICH THE LD. COMMISSIONER HAS GIVEN NO FINDING. 2. REGARDING GROUND NO.1 OF THE APPEAL, IT WAS SUBMITT ED BY THE LD. A.R. FOR THE ASSESSEE THAT WHILE WORKING OUT THE DEDUCTION ALLOWABLE TO THE ASSESSEE U/S 10B, TH E A.O. HAS EXCLUDED TWO TYPES OF INCOME FROM THE AMOUNT OF BUSINESS PROFIT. SUCH EXCLUSION IS ON AC COUNT OF INTEREST INCOME RECEIVED BY THE ASSESSEE COMPANY FROM EMPLOYEES AND OTHER INCOME EXCLUDED IS REGARDI NG SALE OF SCRAP. REGARDING SALE OF SCRAP, IT WAS SUB MITTED THAT AS PER THE PROVISIONS OF SECTION 10B(4), DEDUC TION HAS TO BE ALLOWED ON PROPORTIONATE BASIS IN THE PROPORTION OF EXPORT TURNOVER TO TOTAL TURNOVER. I T IS SUBMITTED THAT THE SALE PROCEEDS OF SCRAP HAS TO BE INCLUDED IN THE TOTAL TURNOVER AND THEREAFTER, THE PROPORTIONATE DEDUCTION COULD BE WORKED OUT AND THE RE IS NO CLAUSE IN HIS SECTION AND THERE IS NO EXPLANA TION IN SECTION 10B AS IN SECTION 80HHC TO EXCLUDE ANY PART OF I.T.A. NO. 3432 /DEL/2008 3/7 INCOME FROM BUSINESS PROFIT FOR THE PURPOSE OF WORK ING OUT DEDUCTION ALLOWABLE TO THE ASSESSEE U/S 10B. REGARDING INTEREST INCOME, IT WAS SUBMITTED THAT IN TEREST INCOME IS ON LOAN GIVEN TO EMPLOYEES AND AS PER THE DETAILS AVAILABLE ON PAGE 54 OF THE PAPER BOOK, THE AMOUNT OF INTEREST PAYMENT IS MUCH MORE THAN INTERE ST RECEIVED AND HENCE THERE IS NO INTEREST INCOME AT A LL. HE ALSO POINTED OUT THAT IT CAN BE SEEN AT PAGE 39 OF THE PAPER BOOK THAT FOR THE PURPOSE OF WORKING OUT PROF IT BEFORE TAXATION, INTEREST PAYMENT HAS BEEN EXCLUDED FORM THE PROFIT AND THEREFORE, NO FURTHER EXCLUSION IS REQUIRED ON ACCOUNT OF INTEREST RECEIPT WHICH IS LE SS THAN INTEREST PAYMENT. AT THIS JUNCTURE, IT WAS ENQUIRE D BY THE BENCH AS TO WHETHER THE ASSESSEE CAN ESTABLISH DIRECT NEXUS BETWEEN INTEREST RECEIPT AND INTEREST PAYMENT , IT WAS SUBMITTED BY THE LD. A.R. THAT THERE IS NO NECE SSITY TO ESTABLISH ANY SUCH NEXUS. 3. AS AGAINST THIS, IT WAS SUBMITTED BY THE LD. D.R. F OR THE REVENUE THAT INTEREST INCOME HAS TO BE ASSESSED AS INCOME FROM OTHER SOURCES AS WAS HELD BY HONBLE DELHI HIGH COURT IN THE CASE OF SRIRAM HONDA POWER EQUIPMENTS AS REPORTED IN 289 ITR 475. 4. REGARDING 2 ND GROUND, IT WAS SUBMITTED THAT WITH REGARD TO DEDUCTION CLAIMED BY THE ASSESSEE U/S 80IB ALSO, THE I.T.A. NO. 3432 /DEL/2008 4/7 A.O. HAS REDUCED THE SAME BY EXCLUDING INTEREST INC OME AND DUTY DRAWBACK. IT IS SUBMITTED THAT ADMITTEDLY THE ISSUE REGARDING DUTY DRAWBACK IS NOW COVERED AGAINS T THE ASSESSEE BY THE JUDGEMENT OF HONBLE APEX COURT RENDERED IN THE CASE OF LIBERTY INDIA AS REPORTED I N 317 ITR 218. BUT SO FAR EXCLUSION OF INTEREST INCOME O N ADVANCED TO EMPLOYEES IS CONCERNED, THE SAME IS REQUIRED TO BE REDUCED FROM INTEREST EXPENSES AND EXCLUSION FROM BUSINESS PROFIT IS NOT JUSTIFIED. A S AGAINST THIS, IT WAS SUBMITTED BY THE LD. D.R. THAT BOTH THESE ISSUES ARE COVERED AGAINST THE ASSESSEE BY TH E JUDGEMENT OF HONBLE APEX COURT RENDERED IN THE CAS E OF LIBERTY INDIA (SUPRA). 5. REGARDING GROUND NO.3, BOTH THE SIDES AGREED THAT T HE ISSUE REGARDING CHARGEABILITY OF INTEREST IS CONSEQUENTIAL. 6. WE HAVE CONSIDERED RIVAL SUBMISSIONS. REGARDING GROUND NO.1, WITH REGARD TO EXCLUSION OF SCRAP SALE FROM BUSINESS PROFIT, WE ARE IN AGREEMENT WITH THE LD. A.R. OF THE ASSESSEE THAT AS PER THE PROVISIONS OF SECTION 10B, NO SUCH EXCLUSION FROM BUSINESS PROFIT IS REQUIRED AND ONLY PROPORTIONATE DEDUCTION HAS TO BE ALLOWED AS PER THE PROVISIONS OF SUB-SECTION (4) OF SECTION 10B IN THE PROPORTION OF EXPORT TURNOVER TO TOTAL I.T.A. NO. 3432 /DEL/2008 5/7 TURNOVER. WE ARE IN AGREEMENT WITH HIM BECAUSE THER E IS NO SUCH SUB-SECTION, CLAUSE OR EXPLANATION IN SE CTION 10B IN LINE WITH THE EXPLANATION (BAA) TO SECTION 80HHC WHERE SPECIFIC PROVISIONS ARE MADE FOR SUCH EXCLUSION FROM PROFIT OF BUSINESS. IT IS NOT THE C ASE OF THE A.O. THAT SCRAP SALE BY THE ASSESSEE WERE NOT GENERATED IN MANUFACTURING PROCESS CARRIED OUT BY T HE ASSESSEE AND HENCE WE DIRECT THE A.O. THAT HE SHOUL D WORK OUT THE DEDUCTION ALLOWABLE TO THE ASSESSEE U/ S 10B AS PER THE PROVISIONS OF SECTION 10B(4) IN THE PROPORTION OF EXPORT TURNOVER TO TOTAL TURNOVER WIT HOUT EXCLUDING THE SALE PROCEEDS OF SCRAP FROM BUSINESS PROFIT. SUCH SALE PROCEEDS OF SCRAP SHOULD BE ADDE D TO TOTAL TURNOVER AND THEREAFTER, THE AMOUNT OF DEDUCT ION ALLOWABLE TO THE ASSESSEE SHOULD BE WORKED OUT AS P ER SUB-SECTION (4) OF SECTION 10B. 7. REGARDING 2 ND ASPECT I.E. REGARDING INTEREST INCOME WE ARE NOT IN AGREEMENT WITH THE LD. A.R. OF THE ASSES SEE BECAUSE HE COULD NOT SHOW US ANY DIRECT NEXUS BETWE EN INTEREST RECEIVED AND INTEREST PAYMENT BY SHOWING T HAT INTEREST PAYMENT WAS INCURRED FOR THE PURPOSE OF EARNING INTEREST INCOME. INTEREST PAYMENT HAS TO B E EXCLUDED FROM BUSINESS PROFIT BECAUSE THIS IS BUSIN ESS EXPENDITURE. INTEREST INCOME IS GENERALLY ASSESSAB LE AS I.T.A. NO. 3432 /DEL/2008 6/7 INCOME FROM OTHER SOURCES WHEN IT IS EARNED BY DEPLOYING SURPLUS FUNDS WHEN INTEREST IS EARNED BY DEPLOYING INTEREST BEARING BORROWED FUNDS, IN THAT CASE ALSO INTEREST EXPENDITURE TO THE EXTENT NEXUS IS ESTABLISHED HAS TO BE REDUCED FROM INTEREST INCOME AND SURPLUS, IF ANY HAS TO BE ASSESSED AS INCOME FROM O THER SOURCES WHEREAS DEDUCTION U/S 10B IS ALLOWABLE ON ACCOUNT OF PROFIT AND GAINS DERIVED FROM 100% EXPOR T ORIENTED UNDERTAKING. HENCE, SUCH INTEREST INCOME CANNOT BE CONSIDERED AS A PROFIT AND GAINS DERIVED BY 100% EXPORT ORIENTED UNDERTAKING AND, THEREFORE, TH E SAME WAS RIGHTLY EXCLUDED BY THE A.O. FROM PROFIT O F BUSINESS SHOWN BY THE ASSESSEE IN COMPUTATION OF INCOME FILED WITH INCOME TAX RETURN COPY OF WHICH I S AVAILABLE ON PAGE 2-4 OF THE PAPER BOOK. GROUND 1 OF THE ASSESSEES APPEAL IS PARTLY ALLOWED AS INDICATE D ABOVE. 8. REGARDING GROUND NO.2, WE FIND THAT THE ISSUE REGAR DING DUTY DRAWBACK IS DIRECTLY COVERED AGAINST THE ASSES SEE BY THE JUDGEMENT OF HONBLE APEX COURT RENDERED IN THE CASE OF LIBERTY INDIA (SUPRA). REGARDING INTER EST ISSUE ALSO, WE FIND THAT IN LINE WITH OUR DECISION ON THIS ASPECT WITH REGARD DEDUCTION ALLOWABLE TO THE ASSES SEE U/S 10B, FOR THE PURPOSE OF GRANTING DEDUCTION U/S 80IB I.T.A. NO. 3432 /DEL/2008 7/7 ALSO, SUCH INTEREST INCOME HAS TO BE EXCLUDED FROM BUSINESS PROFIT BECAUSE SUCH INTEREST INCOME CANNOT BE SAID TO BE PART OF THE PROFIT AND GAINS DERIVED FOR M ELIGIBLE BUSINESS OF UNDERTAKING. HENCE BOTH THESE ASPECTS ARE DECIDED AGAINST THE ASSESSEE. GROUND N O.2 IS REJECTED. 9. REGARDING GROUND NO.3, IT IS BY NOW A SETTLED POSIT ION THAT INTEREST ISSUE IS CONSEQUENTIAL AND HENCE NO SEPARATE ADJUDICATION IS CALLED FOR. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE STANDS PA RTLY ALLOWED AS INDICATED ABOVE. 11. THIS DECISION WAS PRONOUNCED IN THE OPEN COURT ON 1 8 TH JUNE, 2010. SD.//- SD./- (RAJPAL YADAV) (A K GARODIA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED:18 TH JUNE, 2010 SP. COPY FORWARDED TO 1. APPELLANT 2. RESPONDENT 3. CIT TRUE COPY: BY ORDER 4. CIT(A) 5. DR DY. REGISTRAR, ITAT, NEW DELHI
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