M/s Gupta Enterprises, Eluru V. The ACIT, Circle-1., Eluru

ITA 513/VIZ/2006

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 2845 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 2 year(s) 11 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-12-2009
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2004-2005
• Appeal Filed On: 18-12-2006
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: D S SUNDER SINGH
• Keywords: Business income; Opportunity of being heard; Set aside
• Section: 80HHC

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH: VISAKHAPATNAM BEFORE: SRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SRI B.R. BASKARAN, ACCOUNTANT MEMBER I.T.A. NO.513/VIZAG/2006 ASSESSMENT YEAR : 2004-05 M/S. GUPTA ENTERPRISES, ELURU VS. ACIT, CIRCLE-1, ELURU (APPELLANT) (RESPONDENT) PAN NO.AACFG6508R I.T.A. NO.504/VIZAG/2004 ASSESSMENT YEAR : 2001-02 ACIT, CIRCLE-1, ELURU VS. M/S. GUPTA ENTERPRISES, ELURU (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI D.S. SUNDER SINGH, DR RESPONDENT BY : SHRI G.V.N. HARI, CA O R D E R PER BENCH: : 1. THE APPEAL NUMBERED AS ITA NO.504/V/2004, FILED BY THE REVENUE, RELATES TO THE ASSESSMENT YEAR 2001-02 AND THE APPEAL NUMBERED AS ITA NO.513/V/2006, FILED BY THE ASSESSEE, RELATES TO THE ASSESSMENT YE AR 2004-05. BOTH THE APPEALS ARE DIRECTED AGAINST ORDER PASSED BY LD CIT(A), RAJ AHMUNDRY. SINCE THESE APPEALS WERE HEARD TOGETHER AND CERTAIN ISSUES ARE COMMON IN NATURE, WE FIND IT CONVENIENT TO DISPOSE THESE TWO APPEALS BY THIS COM MON ORDER. 2 2. FOLLOWING TWO ISSUES ARE AGITATED BY THE REV ENUE IN ITS APPEAL RELATED TO THE ASSESSMENT YEAR 2001-02. (A) TREATMENT OF DOMESTIC TURNOVER THE PUR POSE OF CALCULATION OF DEDUCTION U/S 80HHC OF THE ACT. (B) TREATMENT OF INTEREST INCOME FOR THE P URPOSE OF CALCULATION OF DEDUCTION U/S 80HHC OF THE ACT.. 3. FOLLOWING TWO ISSUES ARE AGITATED IN THE APP EAL OF THE ASSESSEE RELATING TO THE ASSESSMENT YEAR 2004-05. A. TREATMENT OF INTEREST INCOME FOR THE PURPOSE OF CALCULATION OF DEDUCTION U/S 80HHC OF THE ACT. B. TREATMENT OF PROFIT ON SALE OF DEPB LICENSES FOR THE PURPOSE OF DEDUCTION U/S 80HHC OF THE ACT. THUS THE ISSUE RELATING TO THE TREATMENT OF INTERES T INCOME IS COMMON IN BOTH THE APPEALS. 4. THE ASSESSEE IS IN THE BUSINESS OF EXPORTING HUMAN HAIR AND ALSO SELLS IMPORTED BETEL NUTS IN THE LOCAL MARKETS. IT MAINT AINS SEPARATE BOOKS OF ACCOUNT FOR BOTH THE ACTIVITIES. ACCORDINGLY, FOR THE ASSES SMENT YEAR 2001-02, THE ASSESSEE FILED TWO SEPARATE PROFIT AND LOSS ACCOUNT FOR EXPORT BUSINESS AND LOCAL SALE OF IMPORTED BETEL NUTS. HOWEVER, IT FILED A CONSOLIDATED TAX AUDIT REPORT FOR BOTH THE BUSINESSES. FOR THE PURPOSE OF CALCULATIO N OF DEDUCTION U/S 80HHC, THE ASSESSEE DID NOT INCLUDE THE DOMESTIC TURNOVER PERT AINING TO THE IMPORTED BETEL NUT DIVISION IN THE TOTAL TURNOVER. SINCE A CONS OLIDATED TAX AUDIT REPORT WAS FILED, THE AO TOOK THE VIEW THAT THE DOMESTIC TURNOVER OF THE IMPORTED BETEL NUT DIVISION IS INCLUDIBLE IN THE TOTAL TURNOVER AND ACCORDING LY COMPUTED THE DEDUCTION U/S 80HHC. 3 4.1 IN BOTH THE YEARS UNDER CONSIDERATION, THE ASSESSEE HAD EARNED INTEREST FROM BANK DEPOSITS KEPT AS MARGIN MONEY DEPOSITS AN D TREATED THE SAID INCOME AS BUSINESS INCOME. HOWEVER, THE AO ASSESSED THE S AID INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES IN BOTH THE YEARS. 4.2 IN ASSESSMENT YEAR 2004-05, THE AO DID NOT ACCEPT THE CONTENTIONS OF THE ASSESSEE WITH REGARD TO THE TREATMENT OF PROFIT ON SALE OF DEPB LICENSES. 5. LD CIT(A) DECIDED THE APPEAL RELATING TO THE ASSESSMENT YEAR 2001-02 IN FAVOUR OF THE ASSESSEE AND HENCE THE REVENUE IS IN APPEAL BEFORE US. HOWEVER, THE APPEAL OF THE ASSESSEE FILED BEFORE LD CIT(A) F OR ASSESSMENT YEAR 2004-05 WAS DISMISSED BY THE FIRST APPELLATE AUTHORITY AND HENCE THE ASSESSEE IS IN APPEAL BEFORE US. 6. WE HAVE HEARD THE PARTIES AND ALSO CAREFULLY PERUSED THE RECORD. THE FIRST ISSUE IN THE APPEAL OF THE REVENUE RELATING TO THE ASSESSMENT YEAR 2001-02 IS WHETHER THE TURNOVER PERTAINING TO THE IMPORTED BET EL NUT, BEING DOMESTIC TURNOVER, IS INCLUDIBLE IN THE TOTAL TURNOVER OR NOT, FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/S 80HHC. AN IDENTICAL ISSUE WAS CON SIDERED BY THIS BENCH IN THE CASE OF B.CHITTI BABU IN ITA NO.253/VIZAG/2006 AND ITA NO.112 & 113/VIZAG/2007. IN THAT CASE, THIS BENCH BY ITS OR DER DATED 18-09-2009 HAS HELD AS UNDER:- IF WE READ BOTH THE JUDGMENTS OF THE HONBLE MADRA S HIGH COURT AS WELL AS KERALA HIGH COURT, WE WILL FIND THAT ONE CO MMON VIEW HAS BEEN TAKEN BY BOTH THE HIGH COURTS THAT ATLEAST THE LOCAL SALES OF THE SAME ITEM WHICH WAS EXPORTED BY THE ASSESSEES SHOUL D BE TAKEN INTO ACCOUNT AS PART OF THE TOTAL TURNOVER. THE DIF FERENCE IN BOTH THE JUDGMENTS IS WITH REGARD TO THE TURNOVER OF LOCAL S ALES OF THOSE ITEMS WHICH ARE NOT AT ALL RELATED TO THE EXPORTED ITEMS. BUT IN THE INSTANT CASE, THE ASSESSEE HAS NOT TAKEN INTO ACCOUNT THE L OCAL SCALE OF THE GRANITES AS A PART OF THE LOCAL TURNOVER DESPITE A FACT THAT ASSESSEE IS INVOLVED IN EXPORTING OF THE GRANITES. IN THE LIGHT OF THE AFORESAID JUDGMENTS REFERRED TO BY THE PARTIES WE ARE OF THE VIEW THAT CIT (A) HAS PROPERLY ADJUDICATED THE ISSUES AND CONFIRM THE ORDER OF THE AO BECAUSE THE ASSESSEE WAS ENGAGED IN EXPORT AS WELL AS LOCAL SALES OF THE GRANITE ITEMS. AT THE MOST THE TRANSPORT CHA RGES AND STOCK 4 YARD CHARGES CAN BE EXCLUDED FROM THE TOTAL TURNOVE R. BUT BEFORE DOING SO IT IS TO BE ESTABLISHED WHETHER THE TRANSP ORT CHARGES AND THE STOCK YARD CHARGES HAVE ANY LINK OR RELATION WI TH THE EXPORT ACTIVITIES OF THE ASSESSEES. IF IT IS FOUND TO BE I NTERCONNECTED WITH THE EXPORT ACTIVITIES, THESE CAN BE TAKEN AS A PART OF TOTAL TURNOVER. OTHERWISE, IT CAN BE EXCLUDED IN THE LIGHT OF THE J UDGMENT OF THE MADRAS HIGH COURT. SINCE THE COMPLETE FACTS ARE NOT AVAILABLE BEFORE US, WE SET ASIDE THE ORDER OF THE CIT (A) IN THIS REGARD AND RESTORE IT TO THE FILE OF THE AO TO RE-ADJUDICATE T HE ISSUES AND RECOMPUTED THE TOTAL TURNOVER IN ORDER TO COMPUTE D EDUCTION U/S 80HHC OF THE I.T.ACT THE DECISIONS OF HONBLE MADRAS HIGH COURT REFERRED ABOVE ARE CIT V MADRAS MOTORS LTD. 257 ITR 60 AND CIT V ASHOK LEYLAND LTD. 297 ITR 107. THE DECISIONS OF HONBLE KERALA HIGH COURT ARE INDIAN S PICE COMPANY VS CIT 267 ITR 445 AND CIT V JOSH THOMAS 253 ITR 553. 6.1 IN THE INSTANT CASE, THERE IS NO DISPUTE W ITH REGARD TO THE FACT THAT THE PRODUCTS EXPORTED AND THE PRODUCTS SOLD IN THE LOCA L MARKET ARE TOTALLY DIFFERENT PRODUCTS. HENCE THE DECISION OF HONBLE MADRAS IN THE CASE OF MADRAS MOTORS LTD (257 ITR 60) IS APPLICABLE TO THE FACTS OF THE CASE. WE NOTICE THAT THE LD CIT(A) HAS FOLLOWED THE SAID DECISION OF HONBLE MA DRAS HIGH COURT WHILE DECIDING THE ISSUE IN FAVOUR OF THE ASSESSEE. HENC E WE FIND NO REASON TO INTERFERE WITH HIS DECISION. 7. THE NEXT ISSUE WHICH IS COMMON IN BOTH THE A PPEALS RELATES TO THE TREATMENT OF INTEREST INCOME RECEIVED BY THE ASSESSEE. THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT THE FIXED DEPOSITS WERE KEPT WITH THE BANK AS MARGIN MONEY DEPOSITS IN CONNECTION WITH THE BUSINESS ACTIVITIES OF THE A SSESSEE. IN ASSESSMENT YEAR 2004-05, THE ASSESSEE HAS ALSO RECEIVED INTEREST FR OM NSC CERTIFICATE, WHICH WAS DEPOSITED WITH THE SALES TAX DEPARTMENT FOR OBT AINING SALES TAX LICENSE. SINCE THESE DEPOSITS HAVE DIRECT NEXUS WITH BUSINES S ACTIVITIES OF THE ASSESSEE, IN OUR OPINION, THE INTEREST THERE FROM SHOULD BE A SSESSED UNDER THE HEAD INCOME FROM BUSINESS. 7.1 WITH REGARD TO THE ADJUSTMENT OF INTEREST R ECEIPTS AGAINST THE INTEREST PAYMENT, THE AO DID NOT CONSIDER IT IN ASSESSMENT YEAR 2001-02. HOWEVER IN 5 ASSESSMENT YEAR 2004-05, HE REJECTED THE CLAIM FOR SUCH ADJUSTMENT FOR THE REASON THAT THE ASSESSEE WAS HAVING SUBSTANTIAL CAP ITAL/EXPORT BUSINESS RESERVE/SUNDRY DEBTORS. HOWEVER THE CLAIM OF THE A SSESSEE IS THAT THE SAID DEPOSITS WERE MADE OUT OF BORROWED FUNDS. WHAT IS VITAL IS THE NEXUS WITH BORROWED FUNDS AND NOT THE EXISTENCE OF SUBSTANTIAL CAPITAL ETC. IT IS A WELL SETTLED PROPOSITION THAT WHEN THE FIXED DEPOSITS HAVE NEXUS WITH THE BUSINESS AND BORROWING, THEN INTEREST IS ASSESSABLE UNDER THE HE AD INCOME FROM BUSINESS AND THE ASSESSEE IS ENTITLED TO ADJUST THE INTEREST EAR NED ON FIXED DEPOSITS AGAINST THE INTEREST PAID ON BORROWINGS. SUCH A VIEW HAS BEEN EXPRESSED BY THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT V PAWAN KUMAR J AIN (2008) (298 ITR 443). ACCORDINGLY WE HOLD THAT THE ASSESSEE IS ENTITLED T O NETTING OF INTEREST AND DIRECT THE AO TO ADJUST THE INTEREST RECEIPTS AGAINST THE INTEREST PAYMENTS. 8. THE REMAINING ISSUE IN THE APPEAL OF THE ASS ESSEE RELATES TO THE TREATMENT OF PROFIT ON SALE OF DEPB LICENSES. THE CONTROVERS Y ON THIS ISSUE HAS BEEN RESOLVED BY THE MUMBAI SPECIAL BENCH OF ITAT IN THE CASE OF TOPMAN EXPORTS V ITO REPORTED IN (2009) 318 ITR (AT) 87 MUMBAI (SB)) . BOTH THE PARTIES HAVE AGREED THAT THE ISSUE SHOULD BE SET ASIDE TO THE FI LE OF AO TO CONSIDER THE ISSUE AFRESH IN THE LIGHT OF THE DECISION OF THE SPECIAL BENCH REFERRED SUPRA. ACCORDINGLY WE SET ASIDE THIS ISSUE TO THE FILE OF AO TO CONSIDER THE ISSUE AFRESH AFTER AFFORDING THE NECESSARY OPPORTUNITY OF BEING HEARD. 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED AND THE APPEAL OF THE ASSESSEE IS TREATED AS ALLOWED. PRONOUNCED ACCORDINGLY ON 7-12-2009 SD/- SD/- (SUNIL KUMAR YADAV) (B.R. BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PV/SPS VISAKHAPATNAM DATE : 7 TH DECEMBER, 2009 6 A COPY OF THIS ORDER IS FORWARDED TO : 01 M/S. GUPTA ENTERPRISES, (HAIR EXPORTER), EASTERN STREET, ELURU, W.G. DIST. 02 ACIT, CIRCLE-1, ELURU 03 CIT (A), RAJAHMUNDRY, 04 CIT, RAJAHMUNDRY 05 DR, ITAT, VISAKHAPAATNAM 06 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY ITAT, VISAKHAPATNAM BENCH