ACIT, Circle-24(1), V. Vikas Kalra,

ITA 3529/DEL/2004

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 1019 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 3 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2009
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 30-11-2009
• Assessment Year: 2001-2002
• Appeal Filed On: 09-08-2004
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: BK GUPTA
• Assessee Lawyers: ROHIT JAIN
• Keywords: Business income; Competent authority; Set aside
• Section: 143(3); 80HHC; 56; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D : NEW DELHI BEFORE SHRI C.L.SETHI, JM AND SHRI R.C.SHARMA, AM ITA NO.3529//DEL/2004 ASSESSMENT YEAR : 2001-02 ASSTT.COMMISSIONER OF INCOME TAX, CIRCLE-24(1), NEW DELHI. VS. SHRI VIKAS KALRA, K-4, GREEN PARK, NEW DELHI. PAN NO.AAJPK4780G. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI B.K.GUPTA, SR.DR. RESPONDENT BY : SHRI ROHIT JAIN, CA. ORDER PER R.C.SHARMA, AM : THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A) DATED 31.5.2004 FOR THE AY 2001-02, IN THE MATTER OF ORDE R PASSED U/S 143(3) OF THE IT ACT. 2. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PER USED. FIRST GRIEVANCE OF THE REVENUE RELATES TO CIT(A)S DIRECTION TO ALLOW CLAIM OF DEDUCTION U/S 80HHC ON THE DEPB RECEIPTS. THE ISSUE UNDER CONTROVERSY IS COVERED BY THE DECISION OF ITAT SPECIAL BENCH IN THE CASE OF TOPMAN EXPORTS IN ITA NO.5769/MUM/2006, ORDER DATED 11.8.2009 WHEREIN FOLLOWING QUESTION WA S BEFORE THE TRIBUNAL :- WHETHER THE ENTIRE AMOUNT RECEIVED ON SALE OF DEPB ENTITLEMENTS REPRESENTS PROFIT CHARGEABLE UNDER SECTION 28(IIID) OF THE INCOME TAX ACT OR THE PROFIT REFERRED TO THEREIN REQUIRES ANY ARTIFICIAL COST TO BE INTERPOLATED? 3. AFTER HAVING DETAILED DISCUSSION, THE SPECIAL BE NCH CONCLUDED AS UNDER:- ITA-3529/D/2004 2 89. THE QUESTION RAISED BEFORE THE SPECIAL BENCH H AS TWO PARTS. IN SO FAR AS THE FIRST PART : WHETHER THE ENTIRE AMOU NT RECEIVED ON SALE OF DEPB ENTITLEMENTS REPRESENTS PROFIT CHARGEABLE U NDER SECTION 28(IIID) OF THE INCOME TAX ACT, IS CONCERNED, WE A NSWER IT IN NEGATIVE AND THE SECOND PART OF THE QUESTION : OR THE PROFIT REFERRED TO THEREIN REQUIRES ANY ARTIFICIAL COST TO BE INTER POLATED? IS REPLIED IN AFFIRMATIVE TO THE EXTENT THAT THE FACE VALUE OF DE PB SHALL BE DEDUCTED FROM THE SALE PROCEEDS. AS REGARDS THE GR OUNDS RAISED IN THESE APPEALS AGAINST THE DENIAL OF DEDUCTION U/S 8 0HHC, IN FULL OR PART, WE FIND THAT THE COMPUTATION OF PROFITS DERIV ED FROM EXPORTS AND THE RESULTANT AMOUNT OF DEDUCTION UNDER THIS SE CTION CAN BE MADE ONLY WHEN THE DECISION IS TAKEN ON THE AMOUNT AND T HE TIMING OF TAXABILITY OF THE FACE VALUE OF DEPB AND THE PROFIT ON ITS SALE. ON THIS ISSUE WE HOLD THAT THE FACE VALUE OF DEPB IS C HARGEABLE 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 AU THORITY PURSUANT TO EXPORTS AND PROFIT ON SALE OF DEPB REPRESENTING THE EXCESS OF SALE PROCEEDS OF DEPB OVER ITS FACE VALUE IS LIABLE TO B E CONSIDERED U/S 28(IIID) AT THE TIME OF ITS SALE. WHATEVER IS SAID ABOUT DEPB SHALL ALSO HOLD GOOD FOR DFRC, ON BOTH ITS COMPONENTS, VI Z., THE FACE VALUE OF DFRC AND PROFIT ON ITS TRANSFER, EXCEPT FO R 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 DRAWBACK, 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 AFTER MAKING EXPORTS. SINCE THE NECESSARY FACTS FOR THE DETERMINATION OF THE QUANTU M OF DEDUCTION U/S 80HHC, AS DISCUSSED ABOVE, ARE NOT AVAILABLE ON RECORD. WE, THEREFORE, SET ASIDE THE IMPUGNED ORDERS AND DIRECT THE AO TO COMPUTE THE AMOUNT OF RELIEF IN ACCORDANCE WITH THE VIEW EXPRESSED BY US HERE IN ABOVE. 4. IN VIEW OF THE ABOVE, WE SET ASIDE THE ORDER OF THE CIT(A) WITH RESPECT TO ALLOWING THE CLAIM OF 80HHC ON DEPB RECEIPTS, AND T HE MATTER IS RESTORED BACK TO THE FILE OF THE AO FOR DECIDING AFRESH IN TERMS OF THE OBSERVATIONS MADE BY THE SPECIAL BENCH REFERRED ABOVE. 5. NEXT GRIEVANCE OF THE REVENUE RELATES TO ALLOWIN G NETTING OF INTEREST INCOME OUT OF INTEREST EXPENDITURE WHEREIN DEDUCTIO N CAN BE ALLOWED U/S 80HHC. THE AO HAS TREATED INTEREST INCOME AS INCOME FROM O THER SOURCES AND BROUGHT THE ITA-3529/D/2004 3 GROSS INTEREST INCOME TO THE TAX NET. BY THE IMPUG NED ORDER, THE CIT(A) DIRECTED THE AO TO TREAT THE INTEREST ON FDRS AS BUSINESS IN COME AND TO ALLOW NETTING OF INTEREST RECEIVED OUT OF INTEREST PAID BY THE ASSES SEE. 6. WE HAVE CONSIDERED THE RIVAL CONTENTIONS. THE I SSUE REGARDING TREATMENT OF INTEREST INCOME WHILE COMPUTING DEDUCTION UNDER SEC TION 80HHC HAS BEEN ELABORATELY CONSIDERED BY THE JURISDICTIONAL HIGH C OURT IN CASE OF SRI RAM HONDA POWER EQUIPMENT, 289 ITR 475. BROAD PRINCIPLES FOR DETERMINING THE NATURE OF INTEREST INCOME, AS TO WHETHER SUCH INTEREST INCOME IS BUSINESS INCOME AS COMPUTED UNDER SECTION 28 TO 44 OF THE ACT OR INCOM E FROM OTHER SOURCES AS DETERMINED UNDER SECTION 56 READ WITH SECTION 57 OF THE INCOME TAX ACT WERE LAID OUT. THE FIRST CATEGORY OF SUCH INTEREST INCOME WA S HELD BY THE HON'BLE HIGH COURT AS ARISING OUT OF PARKING OF SURPLUS FUND, SU CH INCOME IS TO BE TREATED AS INCOME FROM OTHER SOURCES. THE SECOND CATEGORY O F CASES ARE THOSE WHERE ASSESSING OFFICER HIMSELF TREATS THE INTEREST INCOM E AS INCOME FROM BUSINESS, ON THE PLEA THAT SUCH INTEREST INCOME IS INEXTRICABLY LINKED WITH THE EXPORT BUSINESS. HERE WE ARE CONCERNED WITH FIRST CATEGORY WHERE ASS ESSING OFFICER TREATS SUCH INCOME AS NOT RELATED TO BUSINESS OF EXPORTS, BUT AS INCOME FROM OTHER SOURCES. HOWEVER, THE JURISDICTIONAL HIGH COURT IN SUCH SITU ATION HAVE HELD THAT THESE RECEIPTS MERITS SEPARATE TREATMENT UNDER SECTION 56 OF THE ACT WHICH IS OUTSIDE THE RING OF PROFIT AND GAINS FROM BUSINESS AND PROFESS ION. THE COURT HAS FURTHER PROVIDED THAT TO GIVE EFFECT TO THIS POSITION, THE ASSESSING OFFICER WHILE COMPUTING THE PROFITS OF THE EXPORT BUSINESS WILL HAVE TO REM OVE FROM THE DEBIT SIDE OF THE PROFIT & LOSS ACCOUNT, THE CORRESPONDING INTEREST E XPENDITURE THAT HAD BEEN LAID OUT TO EARN SUCH INCOME FROM OTHER SOURCES. OTHER WISE, THIS WILL DEPRESS THE PROFIT BY AN AMOUNT WHICH IS OUT OF RECKONING OF SE CTION 80HHC, A CONSEQUENCE NOT INTENDING TO BE BROUGHT ABOUT. FOLLOWING IS TH E RELEVANT OBSERVATION OF THE HON'BLE HIGH COURT AT PARA 19 :- ITA-3529/D/2004 4 WE ARE THEREFORE OF THE VIEW THAT WHERE SURPLUS FU NDS ARE PARKED WITH THE BANK AND INTEREST IS EARNED THEREON IT CAN ONLY BE CATEGORIZED AS INCOME FROM OTHER SOURCES. THIS REC EIPT MERITS SEPARATE TREATMENT UNDER SECTION 56 OF THE ACT WHIC H IS OUTSIDE THE RING OF PROFIT AND GAINS FROM BUSINESS AND PROFESSI ON. IT GOES ENTIRELY OUT OF THE RECKONING FOR THE PURPOSE OF SE CTION 80HHC. TO GIVE EFFECT TO THIS POSITION, THE ASSESSING OFFICER WHILE COMPUTING PROFITS OF THE EXPORT BUSINESS WILL HAVE TO REMOVE FROM THE DEBIT SIDE OF THE PROFIT & LOSS ACCOUNT THE CORRESPONDING INTE REST EXPENDITURE THAT HAS BEEN LAID OUT TO EARN SUCH INCOME FROM O THER SOURCES. OTHERWISE THIS WILL DEPRESS THE PROFITS BY AN AMOUN T WHICH IS OUT OF THE RECKONING OF SECTION 80HHC, A CONSEQUENCE NOT I NTENDED TO BE BROUGHT ABOUT. 7. IT IS QUITE CLEAR FROM THE ABOVE PROPOSITION THA T IF THE ASSESSEE HAS INCURRED ANY EXPENDITURE FOR MAKING THE FDRS, INTEREST INCOM E OF WHICH IS BROUGHT TO TAX UNDER THE HEAD INCOME FROM OTHER SOURCES, SUCH IN TEREST EXPENDITURE IS TO BE TAKEN OUT FROM THE PROFITS OF EXPORT BUSINESS, AND AT THE SAME TIME SUCH INTEREST EXPENDITURE IS TO BE DEDUCTED WHILE ARRIVING AT NET INCOME FROM INTEREST ON BANK DEPOSIT. TAKING OUT SUCH INTEREST INCOME AND INTER EST EXPENDITURE OUT OF THE PROFIT & LOSS ACCOUNT PREPARED FOR COMPUTING EXPORT PROFIT S, WILL CHANGE SUCH EXPORT PROFIT, THEREFORE, ASSESSING OFFICER IS TO RECALCUL ATE PERMISSIBLE DEDUCTION UNDER SECTION 80HHC WITH REFERENCE TO SUCH REVISED EXPORT PROFITS. ON THE OTHER HAND, SUCH INTEREST EXPENDITURE IS TO BE ALLOWED AS A DED UCTION WHILE COMPUTING NET INTEREST INCOME TO BE TAXED UNDER SECTION 56 AS INC OME FROM OTHER SOURCES. IN VIEW OF THE PROPOSITION LAID DOWN BY JURISDICTIONAL HIGH COURT AS DISCUSSED ABOVE, THE ASSESSING OFFICER IS REQUIRED TO EXCLUDE ANY INTEREST EXPENDITURE IF ANY RELATABLE TO SUCH INCOME FROM THE PROFIT & LOSS ACC OUNT OF EXPORT BUSINESS. AT THE VERY SAME TIME SUCH INTEREST EXPENDITURE IS REQ UIRED TO BE REDUCED FROM THE INTEREST INCOME FOR BRINGING THE NET INTEREST INCOM E TO TAX NET UNDER SECTION 56 OF THE INCOME TAX ACT. 8. WE, THEREFORE, RESTORE THE MATTER BACK TO THE FI LE OF THE ASSESSING OFFICER FOR DECIDING THE ISSUE OF DEDUCTION OF INTEREST EXP ENDITURE OUT OF THE INTEREST ITA-3529/D/2004 5 INCOME EARNED BY THE ASSESSEE AND RECOMPUTATION OF DEDUCTION U/S 80HHC IN THE LIGHT OF OUR OBSERVATION AND THE PROPOSITION LAID D OWN BY JURISDICTIONAL HIGH COURT IN THE CASE OF SHRI RAM HONDA POWER EQUIPMENT (SUPRA). WE DIRECT ACCORDINGLY. 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS ALLO WED IN PART, IN TERMS INDICATED HEREINABOVE. DECISION PRONOUNCED IN THE OPEN COURT ON 30 TH NOVEMBER, 2009. SD/- SD/- (C.L.SETHI) (R.C.SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 30.11.2009. VK. COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT DEPUTY REGISTRAR ITA-3529/D/2004 6