M/s Clean Foods Ltd., Bangalore V. DCIT, Bangalore

ITA 486/BANG/2011

• Counselvise Citation: 48621114 RSA 2011
• Duration Of Justice: 1 year(s) 5 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-10-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2003-2004
• Appeal Filed On: 28-04-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A SUNDARARAJAN
• Keywords: Business income
• Section: 80HHC; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE C BENCH, BANGALORE BEFORE SHRI N. BARATHVAJA SANKAR, VICE PRESIDENT AND SHRI N.V.VASUDEVAN, JUDICIAL MEMBER I.T.A.NO.486(B)/2011 (ASSESSMENT YEAR : 2003-04) M/S CLEAN FOODS LTD., ARAKERE GATE, 11 TH KM, BANNERGHATTA ROAD, BANGALORE-560 076 PAN NO.AAACC7602F APPELLANT VS THE DY. COMMISSIONER OF INCOME-TAX, CIRCLE-11(2), BANGALORE. RESPONDENT ASSESSEE BY : SHRI BALRAM R RAO, ADVOCATE REVENUE BY : SHRI A. SUNDARA RAJAN, JCIT DATE OF HEARING : 26 -09-2012 DATE OF PRONOUNCEMENT : 05- 10-2012 O R D E R PER SHRI N.V.VASUDEVAN, JM: THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDE R DATED 13- 01-2011 OF CIT(A)-I, BANGALORE, RELATING TO ASSESSM ENT YEAR 2003-04. ITA NO.486(B)/2011 2 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE REA DS AS FOLLOWS; 1.ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) OUGHT TO HAVE ACCEPTED THE EXPLANATION AND R EFRAINED FROM UPHOLDING THE DISALLOWANCE IN DEDUCTION CLAIME D U/S 80HHC OF THE ACT. 2. THE LD.CIT(A) OUGHT TO HAVE APPRECIATED THE ADDI TIONAL AMOUNT RECEIVED BY THE APPELLANT WAS IN CONNECTION WITH THE EXPORT OF GOODS MANUFACTURED BY THE APPELLANT AND T HE NOMENCLATURE USED IN THE AGREEMENT AS INTEREST WO ULD NOT CHANGE THE CHARACTER AND THE NATURE OF RECEIPT FOR EXCLUDING THE SAME BY APPLYING THE EXPLANATION (BAA) TO SEC.8 0HHC OF THE ACT. 3. ON THE FACTS THE AMOUNT RECEIVED AS INTEREST W AS FOR BELATED LIFTING OF THE GOODS BY PEPSICO IN THE COUR SE OF EXPORT AND INCIDENTALLY IT IS TOWARDS THE VALUE OF THE GOO DS LIFTED AND THUS FORMING PART OF THE EXPORT TURNOVER AND AL SO BUSINESS PROFIT AND ACCORDINGLY THE PROVISIONS OF EXPLANATION(BAA) TO SEC.80HHC OF THE ACT HAS NO APP LICATION FOR THE EXCLUSION OF THE SAME FOR COMPUTING THE REL IEF U/S 80HHC OF THE ACT. 4. WITHOUT PREJUDICE EVEN IF EXPLANATION (BAA) TO S EC.80HHC WAS APPLICABLE, THE EXCLUSION OF 90% WAS ONLY OF NE T INTEREST AS THE APPELLANT HAD TO PAY INTEREST ON THE AMOUNT BORROWED FOR MANUFACTURE AND CONSEQUENTLY THE LD. CIT(A) OUG HT TO HAVE DIRECTED THE ASSESSING AUTHORITY TO CONSIDER T HE NET OF INTEREST FOR THE PURPOSE OF EXCLUSION OF 90% THEREF ROM. 3. THE ASSESSEE IS A COMPANY IT MANUFACTURES FRUIT PULP AND CONCENTRATES AND EXPORTS THE SAME THROUGH M/S PEPSI CO INDIA HOLDING PRIVATE LTD., (M/S PIHPL). AS PER THE AGREEMENT BETWEEN THE ASSESSEE AND M/S PIHPL, M/S PIHPL HAS TO REMOVE THE GOODS MANUFACTURED FOR THEM BY THE ASSESSEE WITHIN A PART ICULAR PERIOD OF TIME. IN CASE OF DELAY IN REMOVING THE GOODS M/S P IHPL AGREED TO ITA NO.486(B)/2011 3 PAY COMPENSATION WHICH IS DESCRIBED AS INTEREST B Y THE ASSESSEE. THIS IS NOTHING BUT INVENTORY CARRYING CHARGES ADDI TIONALLY PAYABLE BY M/S PIHPL. DURING THE PREVIOUS YEAR, THE ASSESEE E RECEIVED A SUM OF RS.1,20,04,595/- FROM M/S PIHPL ON ACCOUNT OF IN TEREST/INVENTORY CARRYING CHARGES. 4. THE ASSESSEE HAD CLAIMED DEDUCTION U/S 80HHC OF THE ACT. THE QUESTION BEFORE THE AO WAS AS TO WHETHER THE AFORES AID SUM NAMELY INTEREST/INVENTORY CARRYING CHARGES SHOULD BE TREAT ED AS PROFITS OF THE BUSINESS FOR THE PURPOSE OF COMPUTATION OF DEDU CTION U/S 80HHC OF THE INCOME TAX ACT, 1961 (THE ACT). 5. ACCORDING TO THE ASSESSEE THE AFORESAID SUM WAS AS GOOD AS EXPORT SALE PROCEEDS AND HAS TO BE CONSIDERED AS PA RT OF THE PROFITS OF THE BUSINESS WHILE COMPUTING DEDUCTION U/S.80-HHC O F THE ACT. THE AO WAS OF THE VIEW THAT AS FAR AS THE INTEREST/ INVENTORY CARRYING CHARGES ARE CONCERNED, THE SAME HAD NO NEXUS WITH T HE EXPORT ACTIVITY. HE WAS OF THE VIEW THAT THE AFORESAID IN COME WAS IN THE NATURE OF INTEREST INCOME, AS REFERRED TO IN EXPLAN ATION(BAA) TO SEC.80HHC OF THE ACT AND THEREFORE, 90% OF THE INTE REST INCOME SHOULD BE REDUCED FROM THE PROFITS OF THE BUSINESS, WHILE COMPUTING THE DEDUCTION U/S 80HHC OF THE ACT. ACCORDINGLY, T HE DEDUCTION CLAIMED U/S.80-HHC OF THE ACT WAS ALLOWED AT A REDU CED SUM THAN WHAT WAS CLAIMED BY THE ASSESSEE. ITA NO.486(B)/2011 4 6. BEFORE THE CIT(A), THE ASSESSEE SUBMITTED THAT THE AMOUNT IN QUESTION CANNOT BE STRICTLY CONSTRUED AS INTEREST A ND IT WAS NOTHING BUT IN THE NATURE OF ADDITIONAL PRICE FOR THE GOODS SUPPLIED TO M/S PIHPL. THE ASSESSEE POINTED OUT THAT HE HAS TO PAY BANK INTEREST, AS IT HAD TAKEN LOAN ON THE GOODS MANUFACTURED AND STO RED FOR M/S PIHPL. THE ASSESSEE POINTED OUT THE INTEREST/INVEN TORY CARRYING COST IS ARRIVED AT BASED ON THE BANK RATE OF INTEREST CA LCULATED ON THE NUMBER OF DAYS AFTER THE GOODS ARE MANUFACTURED AND KEPT WITH THE ASSESSEE TO BE LIFTED BY M/S PIHPL. THE ASSESSEE TH EREFORE, SUBMITTED THAT THE SUM IN QUESTION HAS TO BE TREATED AS ADDIT IONAL PRICE AND HAS TO BE CONSIDERED HAVING DIRECT LINK WITHY THE B USINESS OF EXPORT. ALTERNATIVELY, THE ASSESSEE SUBMITTED THAT THE ASSE SSEE SHOULD BE GIVEN THE BENEFIT OF NETTING I.E. THE INTEREST RECE IVED BY THE ASSESSEE FROM M/S PIHPL SHOULD BE NETTED AGAINST INTEREST PA ID BY THE ASSESSEE TO THE BANK AND IT IS ONLY 90% OF THE RESI DUE THAT SHOULD BE REDUCED FROM THE BUSINESS INCOME INVOKING EXPLANATI ON(BAA) TO SEC.80HHC OF THE ACT. IN THIS REGARD, THE ASSESSEE PLACED RELIANCE ON THE HONBLE DELHI HIGH COURT IN THE CASE OF SRIRAM HONDA POWER EQUP 289 ITR 475(DEL), SUPPORTING THE AFORESAID CON TENTION OF THE ASSESSEE. 7. THE CIT(A) HOWEVER, DID NOT AGREE WITH THE CONT ENTIONS PUT FORTH ON BEHALF OF THE ASSESSEE. THE CIT(A) WAS OF THE V IEW, THE INCOME IN QUESTION CANNOT BE SAID TO BE DERIVED FROM THE BUSI NESS OF EXPORT, AS IT WAS NOT THE DIRECT SOURCE OF EXPORT OF MANGO PUL P. WITH REGARD TO THE ARGUMENT OF THE ASSESSEE THAT ONLY 90% OF THE N ET INTEREST HAS TO ITA NO.486(B)/2011 5 BE EXCLUDED FROM PROFITS OF THE BUSINESS UNDER EXPL ANATION (BAA) TO SEC.80HHC OF THE ACT, THE CIT(A) RELYING ON THE DEC ISION OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS V CHINNAPANDI (2006) 282 ITR 389(MAD.) HELD THAT 90% OF ONLY THE GROSS INTEREST AND NOT THE NET INTEREST THAT HAS TO BE EXCLUDED FR OM THE PROFITS OF THE BUSINESS. THE CIT(A) ALSO REFERRED TO THE DEC ISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS GEM PLUS J EWELLERY INDIA PVT.LTD.,(2011) 330 ITR 175(BOM.) 8. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSES SEE HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. WE HAVE HEA RD THE SUBMISSIONS OF THE LEARNED COUNSEL FOR THE ASSESSEE , WHO REITERATED THE PLEA OF THE ASSESSEE AS PUT FORTH BEFORE THE RE VENUE AUTHORITIES. THE LEARNED DR RELIED ON THE ORDER OF THE CIT(A). 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. EXPLN .(BAA) OF SEC.80HHC OF THE ACT IS AS FOLLOWS: (BAA) 'PROFITS OF THE BUSINESS' MEANS THE PROFITS OF THE BUSINESS AS COMPUTED UNDER THE HEAD 'PROFITS AND GA INS OF BUSINESS OR PROFESSION' AS REDUCED BY-- (1) NINETY PER CENT. OF ANY SUM REFERRED TO IN CLAU SES (IIIA), (IIIB) AND (IIIC) OF SECTION 28 OR OF ANY R ECEIPTS BY WAY OF BROKERAGE, COMMISSION, INTEREST, RENT, CHARGES OR ANY OTHER RECEIPT OF A SIMILAR NATURE INCLUDED IN SUCH PROFITS ; AND (2) THE PROFITS OF ANY BRANCH, OFFICE, WAREHOUSE OR ANY OTHER ESTABLISHMENT OF THE ASSESSEE SITUATE OUTSIDE INDIA ITA NO.486(B)/2011 6 10. AS FAR AS THE PLEA OF THE ASSESSEE IS THAT THE INTEREST INCOME HAS TO BE CONSIDERED AS INCOME FROM BUSINESS FOR THE PU RPOSE OF COMPUTING DEDUCTION U/S 80HHC OF THE IT ACT, 1961, WE ARE OF THE VIEW THAT THE SAID CLAIM CANNOT BE ACCEPTED, AS THE EARNING OF THE SAID INTEREST INCOME HAD NO DIRECT LINK WITH THE EX PORT BUSINESS. EVEN IF WE DO NOT CONSIDER THE RECEIPT IN QUESTION STRICTLY AS INTEREST BUT AS INVENTORY CARRYING CHARGES, THE SAME HAS TO BE EXCLUDED AS CHARGES OR ANY OTHER RECEIPT OF A SIMILAR NATURE. IN THIS REGARD, THE CIT(A) HAS RELIED ON THE DECISION OF THE HONBLE SU PREME COURT IN THE CASE OF LIBERTY INDIA VS CIT(2009) 317 ITR 218(SC). IN VIEW OF THE AFORESAID DECISION OF THE HONBLE SUPREME COURT, TH E PRAYER OF THE ASSESSEE CANNOT BE ACCEPTED. 11. AS FAR AS THE ALTERNATIVE PRAYER FOR EXCLUDING 90% OF THE NET INTEREST INCOME ( GROSS INTEREST INCOME - INTEREST PAID TO THE BANK BY THE ASSESSEE HAVING NEXUS WITH THE INTEREST INCOME) , WE ARTE OF THE VIEW THAT IN THE LIGHT OF THE DECISION OF THE HONB LE SUPREME COURT IN THE CASE OF ACG ASSOCIATED CAPSULES PVT.LTD., VS C IT 343 ITR 89(SC), THE PLEA OF THE ASSESSEE HAS TO BE ACCEPTED . THE HONBLE SUPREME COURT IN THE AFORESAID DECISION HELD AS UND ER; UNDER CLAUSE (1) OF EXPLANATION (BAA), NINETY PER CENT OF ANY RECEIPTS BY WAY OF BROKERAGE, COMMISSION, INTEREST, RENT, CHARGES OR ANY OTHER RECEIPT OF A SIMILAR NATURE IN CLUDED IN ANY SUCH PROFITS ARE TO BE DEDUCTED FROM THE PROFITS OF THE BUSINESS AS COMPUTED UNDER THE HEAD 'PROFITS AND GAINS OF BU SINESS OR PROFESSION'. THE EXPRESSION 'INCLUDED ANY SUCH PROF ITS' IN CLAUSE (1) OF THE EXPLANATION (BAA) WOULD MEAN ONLY SUCH ITA NO.486(B)/2011 7 RECEIPTS BY WAY OF BROKERAGE, COMMISSION, INTEREST, RENT, CHARGES OR ANY OTHER RECEIPT WHICH ARE INCLUDED IN THE PROFITS OF THE BUSINESS AS COMPUTED UNDER THE HEAD 'PROFITS AN D GAINS OF BUSINESS OR PROFESSION'. THEREFORE, IF ANY QUANTUM OF THE RECEIPTS BY WAY OF BROKERAGE, COMMISSION, INTEREST, RENT, CHARGES OR ANY OTHER RECEIPT OF A SIMILAR NATURE IS ALLOWED AS EXPENSES UNDER SS. 30 TO 44D OF THE ACT AND IS NOT INCLUDED IN THE PROFITS OF BUSINESS AS COMPUTED UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION', NINETY PER CENT O F SUCH QUANTUM OF RECEIPTS CANNOT BE REDUCED UNDER CLAUSE (1) OF EXPLANATION (BAA) FROM THE PROFITS OF THE BUSINESS. IN OTHER WORDS, ONLY NINETY PER CENT OF THE NET AMOUNT OF AN Y RECEIPT OF THE NATURE MENTIONED IN CLAUSE (1) WHICH IS ACTUALL Y INCLUDED IN THE PROFITS OF THE ASSESSEE IS TO BE DEDUCTED FROM THE PROFITS OF THE ASSESSEE FOR DETERMINING 'PROFITS OF THE BUSINE SS' OF THE ASSESSEE UNDER EXPLANATION (BAA) TO S. 80HHC. FURTHER, EXPLANATION (BAA) HAS TO BE CONSTRUED ON I TS OWN LANGUAGE AND AS PER THE PLAIN NATURAL MEANING OF TH E WORDS USED IN EXPLANATION (BAA), THE WORDS 'RECEIPTS BY W AY OF BROKERAGE, COMMISSION, INTEREST, RENT, CHARGES OR A NY OTHER RECEIPT OF A SIMILAR NATURE INCLUDED IN SUCH PROFIT S' WILL NOT ONLY REFER TO THE NATURE OF RECEIPTS BUT ALSO THE QUANTU M OF RECEIPTS INCLUDED IN THE PROFITS OF THE BUSINESS AS COMPUTED UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' REFERRED TO IN THE FIRST PART OF THE EXPLANATION (BAA). ACCORDINGL Y, IF ANY QUANTUM OF ANY RECEIPT OF THE NATURE MENTIONED IN C LAUSE (1) OF EXPLANATION (BAA) HAS NOT BEEN INCLUDED IN THE PROF ITS OF BUSINESS OF AN ASSESSEE AS COMPUTED UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION', NINETY PER CE NT OF SUCH QUANTUM OF THE RECEIPT CANNOT BE DEDUCTED UNDER EXP LANATION (BAA) TO SECTION 80HHC. IN THE LIGHT OF THE AFORESAID DECISION OF THE HONB LE SUPREME COURT, THE QUANTUM OF AMOUNT TO BE EXCLUDED UNDER EXPLANAT ION TO (BAA) TO SEC.80HHC OF THE ACT IS REMANDED TO THE AO FOR FRES H CONSIDERATION. ITA NO.486(B)/2011 8 THE AO WILL VERIFY THE NEXUS BETWEEN THE INTEREST R ECEIPTS AND THE EXPENSES CLAIMED BY THE ASSESEEE TO HAVE NEXUS WITH THE INTEREST RECEIPTS AND DECIDE THE ISSUE IN ACCORDANCE WITH LA W LAID DOWN BY THE HONBLE SUPREME COURT. FOR STATISTICAL PURPOSE, T HE APPEAL OF THE ASSESSEE IS TREATED AS PARTLY ALLOWED. 12. IN THE RESULT THE APPEAL OF THE ASSESSEE IS TR EATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN COURT ON THE 5 TH OCTOBER, 2012. SD/- SD/- (N. BARATHVAJA SANKAR) (N.V.VASUDEVAN) VICE PRESIDENT JUDICIAL MEMBER PLACE: BANGALORE DATED: 05-10-2012 AM* COPY TO : 1. THE ASSESSEE 2. THE REVENUE 3. CIT(A) 4. CIT 5. DR 6. GF(BLORE) 7. GF(DELHI) BY ORDER SR. PRIVATE SECRETARY, ITAT, BANGALORE