M/s. POLYCAB WIRES PVT. LTD., MUMBAI V. ACIT CENT. CIR.-33, MUMBAI

ITA 545/MUM/2007

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 7705 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-02-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 19-01-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 17-01-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIRENDRA OJHA
• Assessee Lawyers: A K GHOSH
• Section: 80HHC; 80IB; 80HH; 208

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'C' BENCH, MUMBAI BEFORE SHRI R.K. GUPTA, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO. 545/MUM/2007 (ASSESSMENT YEAR: 2004-05) M/S. POLYCAB WIRES PVT. LTD. ACIT, CENTRAL CIRCLE 3 3 HICO HOUSE, 1ST FLOOR MUMBAI 77, PANDIT SATWALEKAR MARG VS. MAHIM, MUMBAI 400016 PAN - AAACP 6474 E APPELLANT RESPONDENT APPELLANT BY: SHRI A.K. GHOSH RESPONDENT BY: SHRI VIRENDRA OJHA O R D E R PER B. RAMAKOTAIAH, A.M. THIS APPEAL BY THE BY THE ASSESSEE IS AGAINST THE O RDER OF THE CIT(A)- CENTRAL VIII, MUMBAI DATED 20.11.2006. 2. ASSESSEE HAS RAISED THE FOLLOWING FOUR GROUNDS: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN HOLDI NG THAT THE INTEREST INCOME OF RS.33,76,391/- IS ASSESSABLE UND ER THE HEAD INCOME FROM OTHER SOURCES AND CONSEQUENTLY UPHOLD ING THE A.O.S ACTION OF NOT ALLOWING DEDUCTION U/S. 80IB ON THE S AME. 2. IN ANY EVENT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN NOT ALLOWING THE BENEFIT OF NETTING OFF THE INTERES T INCOME OF RS.33,76,391/- AGAINST THE INTEREST EXPENDITURE. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN NOT D IRECTING THE A.O. TO ALLOW THE NETTING OFF OF INTEREST INCOME OF RS.33,76,391/- AGAINST THE INTEREST EXPENDITURE FOR THE PURPOSE OF COMPUTING DEDUCTION U/S. 80HHC. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN UPHOL DING A.O.S ACTION OF REDUCING THE AMOUNT OF DEDUCTION U/S. 80I B AMOUNTING TO RS.7,11,58,524/- FROM THE PROFITS OF THE BUSINESS F OR THE PURPOSE OF COMPUTING DEDUCTION U/S. 80HHC AND THEREBY ERRED IN REDUCING THE CLAIM OF DEDUCTION U/S. 80HHC. ITA NO. 545/MUM/2007 2 3. BRIEFLY STATED, THE ASSESSEE IS HAVING AN INDUSTRIA L UNIT AT DAMAN ON WHICH IT WAS ENTITLED TO DEDUCTION UNDER SECTION 80 IB OF THE INCOME TAX ACT AT 30% OF THE INCOME OF THE UNDERTAKING. ON VERIFIC ATION OF P & L ACCOUNT THE A.O. NOTICED THAT THE ASSESSEE HAS REDUCED A SU M OF RS.33,76,391/- INTEREST RECEIVED FROM THE INTEREST PAID AND ONLY T HE NET AMOUNT HAS BEEN SHOWN AS EXPENDITURE IN THE P & L ACCOUNT. ACCORDIN G TO THE A.O., THE INTEREST INCOME RECEIVED BY THE ASSESSEE MAY BE INC OME ATTRIBUTABLE TO BUSINESS, BUT NOT INCOME DERIVED FROM UNDERTAKING A ND, THEREFORE, WILL NOT QUALIFY FOR DEDUCTION UNDER SECTION 80IB OF THE INC OME TAX ACT. WHEN CONFRONTED, THE ASSESSEE EXPLAINED THAT INTEREST IN COME HAS BEEN RECEIVED ON BANK DEPOSITS KEPT AS MARGIN MONEY TOWARDS BANK GUARANTEE AND, THEREFORE, THE INCOME EARNED IS INCIDENTAL TO THE B USINESS OF THE ASSESSEE. THE INCOME EARNED IS DIRECTLY RELATED TO THE BUSINE SS OF THE ASSESSEE AND NOT MERELY ATTRIBUTABLE TO THE BUSINESS OF THE ASSESSEE . THE A.O., HOWEVER, DISALLOWED THE CLAM OF THE ASSESSEE HOLDING THAT IN TEREST INCOME CANNOT BE SAID TO HAVE BEEN DERIVED FROM THE BUSINESS OF AN I NDUSTRIAL UNDERTAKING AND DISALLOWED THE CLAIM OF THE ASSESSEE FOR DEDUCT ION UNDER SECTION 80IB ON INTEREST INCOME. THE A.O. RELIED ON THE FOLLOWIN G DECISIONS: I. PARAS OIL EXTRACTION LTD. (1981) 230 ITR 266 (M.P) . II. COCHIN REFINERIES LTD. (1982) 135 ITR 278 (KER.) III. CEMENT DISTRIBUTORS LTD. (1984) 208 ITR 355 (DEL.) IV. PANDIAN CHEMICAL LTD. (1988) 233 ITR 497 (MAD.) THE CIT(A) HAS UPHELD THE ORDER OF THE A.O. 4. BEFORE US IT WAS SUBMITTED THAT THE ISSUE WAS DECID ED IN FAVOUR OF THE ASSESSEE BY THE ITAT IN ITA NO. 6687/MUM/2007 FOR A .Y. 2005-06 AND ON SIMILAR FACTS HELD AS UNDER: - 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS MADE B Y BOTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE VARIOUS DECISIONS CITED BEFORE US. THERE IS NO DISP UTE TO THE FACT THAT THE ASSESSEE HAS EARNED INTEREST OF RS.83,84,632/- ON A CCOUNT OF FDRS USED TO OBTAIN BANK GUARANTEE AND LETTER OF CREDIT FROM THE BANK WHICH WERE USED FOR ITS BUSINESS. THERE IS ALSO NO DISPUT E TO THE FACT THAT IT HAS PAID INTEREST @ 11.25% TO THE BANK AS AGAINST WHICH IT HAS EARNED INTEREST ON SUCH FDRS BETWEEN 4.75 TO 5.25%. IT IS THE SUBMISSION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT SUCH INTEREST INCOME SHOULD BE ITA NO. 545/MUM/2007 3 NETTED FROM THE INTEREST EXPENDITURE AND DEDUCTION U/S. 80IB HAS TO BE COMPUTED ACCORDINGLY. HOWEVER, ACCORDING TO THE REV ENUE THE ASSESSEE IS NOT ENTITLED TO SUCH NETTING. 5. WE FIND THE ISSUE HAS SINCE BEEN DECIDED IN FAVO UR OF THE ASSESSEE BY THE HON'BLE ORISSA HIGH COURT IN THE CASE OF TAT A SPONGE IRON LTD. VS. CIT, 292 ITR 175 (ORISSA). WE FIND THE HON'BLE HIGH COURT AT PAGE 187 HAS HELD AS UNDER: IN SO FAR AS THE ALTERNATIVE PLEAS IS CONCERNED, W E ARE IN COMPLETE AGREEMENT WITH THE CONTENTION OF THE APPELLANT THAT THE MERE REFLECTIO N OF TRANSACTIONS IN TWO SEPARATE OR DISTINCT ACCOUNTS IN THE BOOKS OF THE COMPANY DO NO T BY ITSELF QUALIFY INTEREST EARNED AND INTEREST PAID PARTAKE OF THE SAME CHARACTER, SE T OFF AS CLAIMED IS PERMISSIBLE UNDER LAW. IN THIS RESPECT, RELIANCE IS PLACED ON THE JUD GEMENT OF THE APEX COURT IN THE CASE OF KESHAVJI RAVJI AND CO. V. CIT (199) 183 ITR 1. IN VIEW OF THE DISCUSSION MADE HEREINABOVE, WE ANSW ER THE QUESTION FRAMED HEREIN THE FOLLOWING MANNER: (I) .. (II) THE INCOME TAX APPELLATE TRIBUNAL ERRED IN DIS ALLOWING RELIEF UNDER SECTION 80HH OF THE ACT IIN SO FAR AS INTEREST RECEIVED OF RS.1,63, 04,937/- IS CONCERNED AND THE TRIBUNAL ALSO ERRED IN DISALLOWING SER OFF OF INTEREST PAY MENT OF RS.2,35,38,197/- AGAINST INTEREST INCOME OF RS.1,48,81,505. 6. RESPECTFULLY FOLLOWING THE RATIO OF THE DECISION OF THE HON'BLE ORISSA HIGH COURT IN THE CASE OF TATA SPONGE IRON LTD. (SU PRA) WHEREIN NETTING OFF OF INTEREST HAS BEEN ALLOWED, WE HOLD THAT THE ASSESSEE WOULD BE ENTITLED TO SET OFF OF INTEREST INCOME OF RS.83,84, 632/ AGAINST THE INTEREST EXPENDITURE AND THEREBY ENTITLED TO HIGHER AMOUNT O F DEDUCTION U/S. 80IB OF THE ACT. WE HOLD AND DIRECT ACCORDINGLY. TH E GROUND RAISED BY THE ASSESSEE IS ALLOWED. RESPECTFULLY FOLLOWING THE ABOVE ORDER OF THE COORD INATE BENCH, AS THE FACTS ARE SAME THE GROUNDS OF THE ASSESSEE ARE ALLOWED. 5. WITH REFERENCE GROUND NO. 3, THIS ISSUE IS DECIDED BY THE HON'BLE SPECIAL BENCH IN THE CASE OF LALSONS ENTERPRISES A S REPORTED IN 89 ITD 25 WHEREIN FOR THE PURPOSE OF CONSIDERATION OF INTERES T INCOME NETTING OF INTEREST IS TO BE CONSIDERED. ACCORDINGLY WE MODIF Y THE DIRECTION OF THE CIT(A) AND DIRECT THE A.O. TO CONSIDER NET OF INTER EST INCOME, IF ANY, ONLY TO BE CONSIDERED FOR EXCLUSION UNDER EXPLANATION (BAA) OF SECTION 80HHC. ACCORDINGLY THE ASSESSEES GROUND IS ALLOWED. 6. WITH REFERENCE TO GROUND NO. 4, DURING THE COURSE O F HEARING THE LEARNED COUNSEL FAIRLY CONCEDED THAT THE ISSUE IN C OVERED AGAINST THE ASSESSEE BY THE DECISION OF THE SPECIAL BENCH IN TH E CASE OF HINDUSTAN MINT AND AGRO PRODUCTS LTD. 315 ITR 318 (AT) (SB) (MUM) . RESPECTFULLY FOLLOWING ITA NO. 545/MUM/2007 4 THE ABOVE DECISION OF THE SPECIAL BENCH, WE REJECT THIS GROUND OF THE ASSESSEE. 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON 12 TH FEBRUARY 2010. SD/- SD/- (R.K. GUPTA) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 12 TH FEBRUARY 2010