D T CERAMICS P LTD., Jaipur V. ACIT, Jaipur

ITA 395/JPR/2011

• Counselvise Citation: 39523114 RSA 2011
• Duration Of Justice: 6 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-11-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 02-11-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 02-05-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VINOD JOHARI
• Keywords: Source of fund; Set aside
• Section: 80HHC; 80IB; 80IA

Judgement Text

ITA 395(2)-11 IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH A JAIPUR. ( BEFORE SHRI R.K. GUPTA AND SHRI N.L. KALRA ) ITA NO. 395 & 396/JP/2011 ASSTT. YEAR : 2003-04 & 04-05. M/S. D.T. CERAMICS PVT. LTD., VS. THE ACIT, CIRC LE-6, 618, MAHAVEER NAGAR, TONK ROAD, JAIPUR. JAIPUR. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI MAHENDRA GARGIEYA RESPONDENT BY : SHRI VINOD JOHARI DATE OF HEARING : 02.11.2011 DATE OF PRONOUNCEMENT : 18.11.2011 ORDER DATED : 18/11/2011. PER R.K. GUPTA, J.M. THESE ARE TWO APPEALS BY ASSESSEE AGAINST THE ORDE R OF LD. CIT (A) RELATING TO ASSESSMENT YEARS 2003-04 AND 04-05. 2. COMMON ISSUES ARE INVOLVED IN BOTH THESE APPEALS , THEREFORE, THEY ARE BEING DISPOSED OFF TOGETHER. 3. FIRST ISSUE IS AGAINST IN HOLDING THAT THE BANK INTEREST ON FDR IS ASSESSABLE UNDER THE HEAD INCOME FROM OTHER SOURCES AS AGAINST BUSIN ESS INCOME SHOWN BY ASSESSEE. 4. DURING THE ASSESSMENT PROCEEDINGS, THE AO NOTED THAT ASSESSEE HAS CLAIMED DEDUCTION UNDER SECTION 80HHC ON NET BANK INTEREST. THE AO OBSERVED THAT THE INTEREST RECEIVED ON FDR IS ASSESSABLE UNDER THE HEAD OTHER SOURCES OF INCOME IN VIEW OF THE DECISION OF HONBLE KERALA HIGH COURT IN THE CASE O F CIT VS. JOSE THOMAS, 253 ITR 553 (KER.). ACCORDINGLY HE TREATED THE INTEREST INCOME AS INCOME FROM OTHER SOURCES. THE LD. CIT (A) HAS CONFIRMED THE ACTION OF THE AO. 5. AFTER CONSIDERING THE ORDERS OF AO AND LD. CIT ( A), WE FIND THAT THE FACTS HAVE TO BE SEEN ONCE AGAIN. IF INTEREST INCOME AND INTERES T EXPENDITURE ARE HAVING NO DIRECT NEXUS THEN INCOME ON ACCOUNT OF INTEREST FROM FDR HAS TO BE ASSESSED AS INCOME FROM OTHER SOURCES AS HELD NOW BY VARIOUS HIGH COURTS INCLUDIN G HONBLE KERALA HIGH COURT CONSIDERED BY AO. THE DECISIONS RELIED UPON BY ASS ESSEE ARE VERY OLD AND NOW VARIOUS HIGH COURTS HAVE HELD THAT IF THERE IS NO DIRECT NE XUS BETWEEN THE EARNING AND EXPENDITURE THEN INTEREST INCOME FROM FDR HAS TO BE TREATED AS INCOME FROM OTHER SOURCES. HOWEVER, AS STATED BY LD. A/R THAT THERE IS A DIRECT NEXUS BETWEEN EARNING OF INTEREST AND INCURRING EXPENDITURE ON INTEREST, THE REFORE, INTEREST HAS TO BE ALLOWED. SINCE THIS ASPECT HAS NOT BEEN EXAMINED BY THE LOWER AUTH ORITIES, THEREFORE, WE SET ASIDE THE ISSUE TO THE FILE OF AO TO EXAMINE THE NEXUS OF BOT H I.E. EARNING OF INTEREST AND INTEREST EXPENDITURE, AND IF IT IS FOUND THAT THERE IS A DIR ECT NEXUS THEN NETTING OF INTEREST HAS TO BE ALLOWED AND IF IT IS FOUND THAT THERE IS NO DIRECT NEXUS THEN IN THAT CASE INTEREST ON FDR HAS TO BE TREATED AS INCOME FROM OTHER SOURCES. WE ORDER ACCORDINGLY. 6. NEXT ISSUE IN BOTH THE APPEALS IS AGAINST NOT AL LOWING DEDUCTION UNDER SECTION 80HHC AND 80IB SIMULTANEOUSLY AS HELD BY HONBLE BO MAY HIGH COURT IN CASE OF ASSOCIATED CAPSULES PVT. LTD. VS. DCIT, 50 DTR 65 ( BOM.). 7. BRIEF FACTS OF THE CASE ARE THAT THE AO NOTICED THAT ORIGINALLY ASSESSEE HAS CLAIMED DEDUCTION UNDER SECTION 80HHC WITHOUT GIVING EFFECT OF SECTION 80IB(13) READ WITH SECTION 80IA(9) AND THEREAFTER ASSESSEE FILED REVIS ED RETURN OF INCOME IN WHICH DEDUCTION UNDER SECTION 80HHC WAS CLAIMED AFTER REDUCING CLAI M OF DEDUCTION UNDER SECTION 80IB. THE AO OBSERVED THAT FROM PLAIN READING OF SECTION 80IA(9), IT WOULD BE CLEAR THAT DEDUCTION UNDER SECTION 80IB HAS TO BE EXCLUDED FOR COMPUTING ELIGIBLE DEDUCTION UNDER SECTION 80HHC. HE ACCORDINGLY COMPUTED THE TOTAL I NCOME AFTER EXCLUDING DEDUCTION ALLOWED UNDER SECTION 80IB FROM THE PROFIT ELIGIBLE FOR THE PURPOSE OF COMPUTATION OF DEDUCTION UNDER SECTION 80HHC. RELIANCE WAS PLACED BEFORE LD. CIT (A) ON THE DECISION OF ITAT JAIPUR BENCH IN THE CASE OF TOSHICA CREATIO NS 96 TTJ 651 AND ITAT BANGALORE BENCH IN CASE OF MITTAL CLOTHING CO. VS. DCIT, 4 SO T 626 AND ALSO ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN CASE OF ASSOCIATED CAP SULES PVT. LTD. VS. DCIT, 50 DTR 65 (BOM.). 8. AFTER CONSIDERING THE SUBMISSIONS AND PERUSING T HE MATERIAL ON RECORD, THE LD. CIT (A) FOUND THAT IN CASE OF GREAT EASTERN EXPORT VS. CIT, 49 DTR 33 (DEL.), THE HONBLE DELHI HIGH COURT HAS HELD THAT FOR THE PURPOSE OF C OMPUTING DEDUCTION UNDER SECTION 80HHC, DEDUCTION ALREADY ALLOWED UNDER SECTION 80IA HAS TO BE REDUCED. SIMILARLY, THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF FRIENDS CASTING PVT. LTD. VS. CIT, 50 DTR 61 HAS ALSO HELD THAT DEDUCTION UNDER SECTIO N 80HHC IS TO BE ALLOWED ONLY AFTER REDUCING DEDUCTION UNDER SECTION 80IA. THE LD. CIT (A) FOUND THAT SIMILAR VIEW HAS BEEN TAKEN BY HONBLE KERALA HIGH COURT IN CASE OF OLAM EXPORT INDIA LTD. VS. CIT, 34 DTR 132 (KER.). THE LD. CIT (A) FURTHER OBSERVED THAT THREE HIGH COURTS ARE AGAINST THE ASSESSEE AND ONLY ONE HIGH COURT I.E. BOMBAY HIGH C OURT IS IN FAVOUR OF THE ASSESSEE. THEREFORE, IN VIEW OF THE MAJORITY DECISIONS OF HIG H COURTS, THE CLAIM OF DEDUCTION WAS REJECTED AND ORDER OF AO WAS CONFIRMED ON THIS ISSU E FOR BOTH THE YEARS. 9. SIMILAR CONTENTIONS WERE RAISED HERE BEFORE THE TRIBUNAL BY LD. COUNSEL OF THE ASSESSEE. RELIANCE WAS ALSO PLACED ON WRITTEN SUBM ISSIONS FILED. 10. ON THE OTHER HAND, THE LD. D/R PLACED RELIANCE ON THE ORDER OF LD. CIT (A) AND FURTHER RELIANCE WAS PLACED ON THE DECISION OF TRIB UNAL IN CASE OF ROGINI GARMENTS, 294 ITR 15 (AT), (CHENNAI). 11. AFTER CONSIDERING THE SUBMISSIONS AND PERUSING THE MATERIAL ON RECORD, WE FIND THAT THOUGH VARIOUS HIGH COURTS HAVE DECIDED THE IS SUE AGAINST THE ASSESSEE, BUT THE HONBLE BOMBAY HIGH COURT IN CASE OF ASSOCIATED CAP SULES PVT. LTD. (SUPRA) HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. THE SPECIAL BENCH OF THE TRIBUNAL HAS ALSO DECIDED THE ISSUE AGAINST THE ASSESSEE ON WHICH REL IANCE HAS BEEN PLACED BY LD. D/R I.E. IN CASE ROGINI GARMENTS (SUPRA). HOWEVER, WE FIND THA T IN VIEW OF THE DECISION OF HONBLE SUPREME COURT IN CASE OF VEGETABLES PRODUCT LTD., 8 8 ITR 192 (SC), IF TWO VIEWS ARE POSSIBLE THEN THE VIEW FAVOURABLE TO THE ASSESSEE S HOULD BE FOLLOWED. THE DECISION OF HONBLE SUPREME COURT HAS BEEN FOLLOWED IN CASE OF MULTI METALS LTD., 188 ITR 151 (RAJ.) AND IN CASE OF PUTCO PVT. LTD., 141 ITR 740 (DEL.) AND ALSO BY HONBLE A.P. HIGH COURT IN CASE OF INTERNATIONAL COMPUTERS LTD., 131 ITR 1 (AP). THEREFORE, IN VIEW OF THE DECISION OF HONBLE SUPREME COURT IN CASE OF VEGETA BLES PRODUCT LTD. (SUPRA), WE DIRECT THE AO TO ALLOW SIMULTANEOUS DEDUCTION TO THE ASSES SEE I.E. 1 ST DEDUCTION UNDER SECTION 80IB AND THEN AFTER REDUCING THE SAME DEDUCTION UND ER SECTION 80HHC, AS THERE IS NO DISPUTE THAT HONBLE BOMBAY HIGH COURT IN CASE OF A SSOCIATED CAPSULES PVT. LTD. (SUPRA) WHICH IS A LATEST DECISION I.E. DATED 10.1.2011, WH ICH IS AFTER THE DECISION OF SPECIAL BENCH AND OTHER DECISIONS ON WHICH RELIANCE HAS BEE N PLACED BY LD. CIT (A). WE ORDER ACCORDINGLY. 11.1. THERE IS NO OTHER GROUND IN THE APPEAL FOR AS SESSMENT YEAR 2003-04. 12. THERE IS ONE MORE GROUND IN THE APPEAL FOR ASSE SSMENT YEAR 2004-05 I.E. AGAINST CONFIRMING DISALLOWANCE OF RS. 1,52,405/- OUT OF ST AFF WELFARE EXPENSES OF RS. 7,62,027/-. 13. DURING THE ASSESSMENT PROCEEDINGS, THE AO NOTIC ED THAT THERE IS INCREASE IN EXPENSES ON ACCOUNT OF STAFF WELFARE EXPENSES. THE ASSESSEE WAS REQUIRED TO EXPLAIN THE INCREASE IN EXPENSES. THE EXPLANATION OFFERED BY A SSESSEE WAS NOT FOUND SATISFACTORY, THEREFORE, THE AO DISALLOWED 20% OF SUCH EXPENSES W HICH RESULTED IN AN ADDITION OF RS. 1,52,405/-. THE LD. CIT (A) CONFIRMED THE ACTION O F THE AO. 14. AFTER CONSIDERING THE SUBMISSIONS AND PERUSING THE MATERIAL ON RECORD, WE FIND THAT THERE IS NO DENIAL THAT EXPENSES ON STAFF WELF ARE HAS BEEN INCURRED. HOWEVER, THERE WAS CERTAIN INCREASE IN EXPENSES. THEREFORE, THE AO DISALLOWED 20% OF EXPENSES. IN OUR VIEW, EXPENSES DISALLOWED BY AO WHICH WAS CONFIRMED BY LD. CIT (A) ARE ON HIGHER SIDE. THEREFORE, WE ARE OF THE VIEW THAT IF AN ADD ITION OF RS. 75,000/- IS CONFIRMED THAT WILL MEET THE ENDS OF JUSTICE. WE ORDER ACCORDINGL Y. 15. IN THE RESULT, APPEALS OF THE ASSESSEE FOR BOTH THE YEARS ARE ALLOWED IN PART. 16. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 18 .11.2011. SD/- SD/- ( N.L. KALRA ) ( R.K. GUPTA ) ACCOUNTANT MEMBER JUDICIAL MEMBER JAIPUR, D/ COPY FORWARDED TO :- M/S. D.T. CERAMICS PVT. LTD., JAIPUR. THE ACIT, CIRCLE-6, JAIPUR. THE CIT (A) THE CIT THE D/R GUARD FILE (ITA NO. 395(2)/JP/2011) BY ORDER, AR ITAT JAIPUR.