BHILOSA INDUSTRIES LTD ( FORMERLY BHILOSA TEX-N-TWIST P. LTD), MUMBAI V. DCIT 4(1), MUBMAI

ITA 414/MUM/2009

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 3444 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-12-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 07-04-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 19-01-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R S SRIVASTAV
• Assessee Lawyers: M B SANGHVI
• Keywords: Business income; Source of fund
• Section: 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI B BENCH BEFORE SHRI N.V.VASUDEVAN, JUDICIAL MEMBER & SHRI T.R.SOOD, ACCOUNTANT MEMBER I.T.A.NO.414/MUM/2009 A.Y 2005-06 BHILOSA INDUSTRIES PVT. LTD., [FORMERLY: BHILOSA TEX-N-TWIST PVT.LTD.] 75, FREE PRESS HOUSE, NARIMAN POINT, MUMBAI 400 021. AAACB 1538 A VS. DY. COMMISSIONER OF INCOME TAX 4(1), MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : MR. M.B.SANGHVI. RESPONDENT BY : MR. R.S.SRIVASTAV. O R D E R PER T.R.SOOD, AM: IN THIS APPEAL THE ASSESSEE HAS RAISED THE FOLLOWI NG GROUNDS: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE COMMISSIONER OF INCOME TAX- (APPEALS) IV; 1.1 ERRED IN CONFIRMING THE ORDER OF AO IN TREATING INTEREST ON FIXED DEPOSITS AND INTEREST ON REFUND FROM EXCISE DEPARTM ENT AS INCOME NOT DERIVED FROM THE BUSINESS OF THE INDUSTRIAL UNDERTA KING. 1.2 WITHOUT PREJUDICE TO ABOVE ERRED IN CONFIRMING THE ORDER OF AO OF NOT ALLOWI NG NETTING OF INTEREST RECEIVED WITH INTEREST PAID; 1.3 ERRED IN CONFIRMING THE ORDER OF AO IN TREATIN G INSURANCE CLAIM RECEIVED AS INCOME NOT DERIVED FROM THE BUSINESS OF THE INDUSTRIAL UNDERTAKING OUGHT TO HAVE APPRECIATED THAT THE INSURANCE CLAIM WAS JUST REIMBURSEMENT OF EXPENSES DEBITED TO PROFIT AND LOS S ACCOUNT 1.4 ERRED IN CONFIRMING THE ORDER OF AO IN TREATIN G EXCHANGE DIFFERENCE IN FCNRB ACCOUNT AS INCOME NOT DERIVED F ROM THE BUSINESS OF THE INDUSTRIAL UNDERTAKING OUGHT TO HAVE APPRECIATED THAT EXCHANGE DIFFERENCE IS ON ACCOUNT OF LOAN TAKEN IN FOREIGN CURRENCY FOR WORKING CAPITAL AND GOES TO REDUCE THE FINANCIAL COST. 2 2. ERRED IN CONFIRMING THE ADDITION OF ` `` ` .8,93,000/- U/S.68 OF THE I.T.ACT, 1961. WITHOUT PREJUDICE TO ABOVE FAILED TO CONSIDER THE ALTERNATIVE GROUND REGARDIN G DEDUCTION OF ` `` ` .8,93,000/- AS ELIGIBLE DEDUCTION U/S.80IB OF THE I .T.ACT, 1961, 2. GROUND NO.1.1 : THE LD.COUNSEL OF THE ASSESSEE FAIRLY CONCEDED THAT THIS ISSUE IS COVERED AGAINST THE ASSESSEE BY THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF LIBERTY INDIA LTD. 317 ITR 218. 3. ON THE OTHER HAND, LD.DR RELIED ON THE ORDER OF THE CIT(A). 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFUL LY AND FIND THAT INTEREST INCOME HAS BEEN RECEIVED AS INTEREST FROM FIDELITY NORTH STAR FUNDS & OTHERS IN-RE AND INTEREST FROM REFUND FROM EXCISE DEPARTMENT. THE HONBLE SUPREME COURT IN THE CASE O F PANDIAN CHEMICALS LTD. VS. CIT 262 ITR 278 HAS CLEARLY HELD THAT UNLESS AND UNTIL INCOME IS DERIVED FROM INDUSTRIAL UNDERTAKING , THE SAME CANNOT BE CONSIDERED FOR ALLOWANCE OF DEDUCTION U/S.80HHC. SA ME PRINCIPLE SHOULD APPLY EVEN FOR THE PURPOSE OF DEDUCTION U/S. 80IB. THIS BECOMES FURTHER CLEAR FROM THE RECENT DECISION OF THE HONB LE SUPREME COURT IN THE CASE OF LIBERTY INDIA LTD. [SUPRA] WHEREIN IT W AS HELD AS UNDER: ON ANALYSIS OF SS. 80-IA AND 80-IB IT BECOMES CLEA R THAT ANY INDUSTRIAL UNDERTAKING, WHICH BECOMES ELIGIBLE ON S ATISFYING SUB-S. (2), WOULD BE ENTITLED TO DEDUCTION UNDER SUB-S. (1) ONL Y TO THE EXTENT OF PROFITS DERIVED FROM SUCH INDUSTRIAL UNDERTAKING AF TER SPECIFIED DATE. APART FROM ELIGIBILITY, SUB-S. (1) PURPORTS TO REST RICT THE QUANTUM OF DEDUCTION TO A SPECIFIED PERCENTAGE OF PROFITS. THI S IS THE IMPORTANCE OF THE WORDS 'DERIVED FROM INDUSTRIAL UNDERTAKING' AS AGAINST 'PROFITS ATTRIBUTABLE TO INDUSTRIAL UNDERTAKING'. DEPB/DUTY DRAWBACK ARE INCENTIVES WHICH FLOW FROM THE SCHEMES FRAMED BY CENTRAL GOVERNMENT OR FROM S. 75 OF THE C USTOMS ACT, 1962. INCENTIVES PROFITS ARE NOT PROFITS DERIVED FR OM THE ELIGIBLE BUSINESS UNDER S.80IB: THEY BELONG TO THE CATEGORY OF ANCILLARY PROFITS OF SUCH UNDERTAKINGS. PROFITS DERIVED BY WAY OF INC ENTIVES SUCH AS DEPB/DUTY DRAWBACK, DEPB CANNOT BE CREDITED AGAINST THE COST OF 3 MANUFACTURE OF GOODS DEBITED IN THE PROFIT AND LOSS ACCOUNT AND THEY DO NOT FALL WITHIN THE EXPRESSION PROFITS DERIVED FROM INDUSTRIAL UNDERTAKING UNDER SECTION 80-U/S.80IB THEREFORE FOLLOWING THE ABOVE TWO DECISIONS, WE DEC IDE THIS ISSUE AGAINST THE ASSESSEE. 5. GROUND NO.1.2 : THE LD.COUNSEL OF THE ASSESSEE SUBMITTED THAT THOUGH RECENTLY THE JURISDICTIONAL HIGH COURT IN TH E CASE OF ASIAN STAR CO. LTD. 326 ITR 56 HAS HELD THAT NETTING IS NOT PE RMISSIBLE BUT THIS CASE WAS DISTINGUISHABLE BECAUSE IN THE CASE OF ASI AN STAR CO. LTD. THE LOANS WERE OBTAINED FROM THE OUTSIDERS WHEREAS THE ASSESSEE HAD ISSUED A CHEQUE FOR CREDITING FDR FOR THE PURPOSING OF FURNISHING SECURITY TO THE SALES TAX DEPARTMENT AND SUCH OTHER COMPULSORY DEPOSITS FROM THE O.D. ACCOUNT BY OVER-DRAFTING THE BANK LIMITS. HE ALSO FILED A COPY OF THE BALANCE SHEET TO SHOW THAT BORROWINGS HAVE BEEN MADE ONLY FROM THE BANK. HE, THEREFORE, SUBMIT TING THAT NETTING MAY BE PERMITTED. 6. ON THE OTHER HAND, LD.DR SUBMITTED THAT THERE IS NO SUCH FINDING IN THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. ASIAN STAR CO. LTD. [SUPRA] THAT BORROWINGS WERE FROM OUTSIDERS AND, THEREFORE, THE PRINCIPLE LAID DOWN AGAINST THE NETTING IS APPLICABLE IN THIS CASE. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFUL LY AND FIND THAT ISSUE OF NETTING OF INTEREST WAS RAISED BEFORE THE CIT(A) VIDE GROUND NO.2.1.4 BUT THIS ISSUE HAS NOT BEEN ADJUDICATED BY THE LD. CIT(A). WE, THEREFORE, SET ASIDE THE ORDER OF THE CIT(A) AND RE MIT THIS MATTER BACK TO THE FILE OF THE CIT(A) FOR RE-EXAMINATION OF THE ISSUE IN THE LIGHT OF 4 FACTS OF THE CASE AS WELL AS THE DECISION OF THE HO NBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. ASIAN STAR CO. LTD. [S UPRA]. 8. GROUND 1.3 : AFTER HEARING BOTH THE PARTIES, WE FIND THAT DURI NG THE YEAR DEDUCTION U/S.80IB HAS BEEN DENIED AGAINST THE INSURANCE CLAIM. THE LD. CIT(A) HAS CONFIRMED THIS DISALLOWAN CE ON THE BASIS THAT THIS ITEM OF RECEIPT CANNOT BE SAID TO HAVE BEEN DE RIVED FROM THE INDUSTRIAL UNDERTAKING. 9. BEFORE US, LD.COUNSEL OF THE ASSESSEE SUBMITTED THAT THE INSURANCE CLAIM WAS RECEIVED IN RESPECT OF LOSS OF RAW MATERIAL ON TRANSIT WHICH WAS SUPPLIED BY INDORAMA SYNTHETICS L TD. THEREFORE, IT IS BASICALLY DIRECTLY RELATED TO THE MANUFACTURING ACT IVITY OF THE ASSESSEE. HE ALSO SUBMITTED THAT SIMILAR DEDUCTION HAS BEEN A LLOWED BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. PF IZER LTD. 42 DTR 32. 10. ON THE OTHER HAND, LD.DR STRONGLY RELIED ON THE ORDER OF THE CIT(A). 11. AFTER CONSIDERING THE RIVAL SUBMISSIONS CAREFUL LY WE FIND THAT THE HONBLE BOMBAY HIGH COURT IN THE CASE OF PFIZER LTD . [SUPRA] CLEARLY OBSERVED THAT RECEIPT OF INSURANCE CLAIMED ON ACCOU NT OF STOCK-IN-TRADE IS BASICALLY BUSINESS INCOME ONLY BECAUSE IF THE AS SESSEE HAD SOLD THE SAME STOCK, THEN HE WOULD HAVE GOT THE SALE RECEIPT S FROM THE CUSTOMERS AND IF THE STOCK IS LOST THEN RECEIPT WOU LD HAVE COME FROM INSURANCE COMPANY. IN THE CASE BEFORE US, WHAT IS L OST IS RAW MATERIAL WHICH IS AN ITEM OF PURCHASE AND, THEREFORE, THE IN SURANCE CLAIM IS PART OF THE BUSINESS PROFIT. RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE 5 JURISDICTIONAL HIGH COURT IN THE CASE OF PFIZER LTD . [SUPRA], WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE. 12. GROUND NO.1.4 : AFTER HEARING BOTH THE PARTIES, WE FIND THAT THE ASSESSEE HAD RECEIVED CERTAIN EXCHANGE FLUCTUATION RECEIPT ON WHICH DEDUCTION HAS BEEN DENIED AND THE ACTION OF THE AO HAS BEEN CONFIRMED BY THE CIT(A). 13. BEFORE US, LD.COUNSEL OF THE ASSESSEE SUBMITTED THAT FCNRB ACCOUNT IS BASICALLY A DOLLAR ACCOUNT WHICH CAN BE OPENED IN INDIA FROM WHICH PAYMENT ON ACCOUNT OF IMPORTS CAN BE MADE AND PAYMENTS FROM EXPORTS CAN BE DEPOSITED. WHATEVER EXCHANGE FLUCTUA TION IS THERE AT THE END OF THE YEAR, THE SAME IS VALUED ON THE YEAR END EXCHANGE RATE AND PROFIT & LOSS IS TREATED ACCORDINGLY. THEREFORE , IF ANY PROFIT IS THERE, SAME COULD HAVE BEEN ALLOWED AS DEDUCTION. 14. ON THE OTHER HAND, LD.DR SUBMITTED THAT DEDUCTI ON IN SUCH ACCOUNT WAS HELD TO BE NOT ALLOWABLE IN THE CASE OF CIT VS. SHAH ORIGINALS 232 ITR 228 BY HON'BLE BOMBAY HIGH COURT . 15. IN THE REJOINDER, LD.COUNSEL OF THE ASSESSEE SU BMITTED THAT THIS DECISION HAS NOT ALREADY BEEN DISTINGUISHED BY THE HONBLE BOMBAY HIGH COURT ITSELF IN THE CASE OF CIT VS. GEMPLUS JE WELLERY INDIA LTD. 42 DTR 73, BECAUSE IN THE CASE OF SHAH ORIGINALS [SUPR A] THE ACCOUNT INVOLVED WAS EEFC ACCOUNT. 16. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFU LLY. WE FIND THAT THIS ISSUE HAS NOT BEEN DISCUSSED BY THE AO IN DETA IL AND AT THIS STAGE IT IS DIFFICULT TO APPRECIATE THE NATURE OF THE FCN RB ACCOUNT AND THE TRANSACTIONS ROUTED THROUGH THAT ACCOUNT. THEREFORE , WE SET ASIDE THE 6 ORDER OF THE LD. CIT(A) AND REMIT THIS MATTER BACK TO THE FILE OF THE AO WITH A DIRECTION TO FIND OUT THE NATURE OF THE FCNR B ACCOUNT AND TO SEE THAT THE TRANSACTIONS ROUTED THROUGH THE SAME ACCOU NT AND THEN DECIDE THE ISSUE IN THE LIGHT OF THE DECISION OF THE HONB LE BOMBAY HIGH COURT IN THE CASE OF CIT VS. GEMPLUS JEWELLERS INDIA LTD. [SUPRA] AS WELL AS SHAH ORIGINALS LTD. [SUPRA]. 17. GROUND NO.2 : AFTER HEARING BOTH THE PARTIES, WE FIND THAT IT W AS FOUND DURING THE ASSESSMENT PROCEEDINGS THAT ASSESS EE HAS RAISED A LOAN OF RS.8,93,000/- FROM CHAGANLAL R. RAWAL. IT W AS OBSERVED THAT IN THE PRECEDING YEAR I.E. A.Y 2004-05 ALSO A LOAN WAS TAKEN FROM THIS PARTY AND AN ADDITION HAS ALREADY BEEN CONFIRMED BY THE CIT(A). THEREFORE, IN THIS YEAR ALSO THE ADDITION WAS MADE. 18. ON APPEAL, THE ADDITION WAS CONFIRMED BY THE LD . CIT(A). 19. AFTER HEARING BOTH THE PARTIES, WE FIND THAT IN THE LAST YEAR THIS MATTER TRAVELED UPTO THE TRIBUNAL AND THE TRIBUNAL IN I.T.A.NO. 3771/M/2007 SET ASIDE FOR RE-VERIFICATION VIDE PARA -6 WHICH READS AS UNDER: WE HAVE CONSIDERED THE ISSUE AND EXAMINED THE PAPE R BOOK. PRIMA FACIE THERE SEEMS TO BE SALE OF GOODS TO M/S CHHAGA N TEXTILE INDUSTRIES, PROPRIETARY CONCERN OF MR. CHHAGANLAL P. RAWAL AND ADVANCES FROM THE SAID PERSON TO THE ASSESSEE COMPANY. INSTEAD OF CRE DITING THE SAME TO THE RECEIPT OF MONEY THEY HAVE BEEN SHOWN AS SEPARA TE CREDITS AND BOTH THE PARTIES HAVE CONFIRMED THE TRANSACTIONS. HOWEVE R, AS SEEN FROM THE BALANCE SHEET OF CHHAGAN TEXTILE INDUSTRIES THE ASS ESSEE COMPANY WAS SHOWN TO THE EXTENT ` `` ` .2.59 CRORES AS CREDITOR AND AN AMOUNT OF ` `` ` .1.81 CRORES SHOWN IN PROPRIETORS CAPITAL ACCOUNT. IT IS ALSO NOTICED THAT THE SAID PERSON WAS A SALARIED EMPLOYEE DURING THE YEAR OF THE ASSESSEE COMPANY. THERE IS NO P & L ACCOUNT OF THE SAID CONCERN IN THE PAPER BOOK TO VERIFY WHETHER THE GOODS SOLD BY THE ASSESSEE COMPANY TO THE SAID CONCERN WERE IN TURN SOLD OR NO T. THE SOURCE OF CREDIT INTO THE BANK ACCOUNT BY WAY OF CHEQUES CAN ONLY BE SALE PROCEEDS OF THE GOODS SOLD ON CREDIT BY THE ASSESSE E COMPANY, OTHERWISE THERE SEEMS TO BE NO OTHER SOURCE FOR ADV ANCING FUNDS. SINCE 7 THE TRADING ACCOUNT OF THE SAID BUSINESS CONCERN OF MRS. CHHAGANLAL P. RAWAL WAS NOT ON RECORD IT IS NOT POSSIBLE FOR US T O VERIFY ANY OTHER SOURCE OF FUNDS, EVEN THOUGH THE BALANCE SHEETS WER E FILED SUPPORTING THE TRANSACTIONS. ANOTHER ASPECT WAS THAT SUMMONS H AVE NOT BEEN ISSUED AS ONLY A NOTICE UNDER SECTION 133(6) SEEMS TO HAVE BEEN ISSUED AND THE SAID MR. CHHAGANLAL P. RAWAL HAS APPLIED VI DE LETTER DATED 22.12.2006. THE INSPECTORS ENQUIRY REPORT WAS NOT CONFRONTED TO THE ASSESSEE. IN VIEW OF THIS WE ARE OF THE OPINION THA T THE ISSUE REQUIRES RE-EXAMINATION BY THE AO IN ORDER TO VERIFY THE GEN UINENESS OF THE CLAIM OF THE ASSESSEE. ACCORDINGLY, WE SET ASIDE TH E ISSUE AND RESTORE THE MATTER BACK TO THE FILE OF THE AO TO EXAMINE TH E CREDIT SHOWN BY THE ASSESSEE COMPANY IN ITS CORRECT PERSPECTIVE AND DECIDE THE ISSUE AFRESH. NEEDLESS TO SAY THAT THE ASSESSEE SHOULD BE GIVEN OPPORTUNITY. GROUND IS CONSIDERED ALLOWED. FOLLOWING THE ABOVE ORDER FOR THIS YEAR ALSO, WE SE T ASIDE THIS ISSUE TO THE FILE OF THE AO TO RE-EXAMINE THE ISSUE IN THE L IGHT OF THE DIRECTIONS GIVEN EARLIER BY THE TRIBUNAL. 20. IN THE RESULT, APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 23 RD DAY OF DECEMBER, 2010. SD/- SD/- (N.V.VASUDEVAN) (T.R.SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI: 23 RD DECEMBER, 2010. P/-*