ACIT, Dehradun V. M/s. Windlass Steel Craft, Dehradun

ITA 5506/DEL/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 97745 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-11-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 02-09-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 31-10-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P DUM KANUNJNA
• Keywords: Business income; Competent authority
• Section: 80HHC; 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH H , NEW DELHI BEFORE SH. N. K. SAINI, AM AND SMT. BEENA PILLAI , JM ITA NO. 5506/DEL/2012 : ASSTT. YEAR : 2009 - 10 ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE - 1, DEHRADUN VS M/S WINDLASS STEEL CRAFT, 11 - A, RAJPUR ROAD, DEHRADUN (APPELLANT) (RESPONDENT) PAN NO. AAAFW0958M ASSESSEE BY : SH. ASHWANI KUMAR, CA REVENUE BY : SH. P. DUM KANUNJNA , SR. DR DATE OF HEARING : 30.09 .2 015 DATE OF PRONOUNCEMENT : 06 .11 .2015 ORDER PER N. K. SAINI, AM : THIS IS AN APPEAL BY THE DEPARTMENT AGAINST THE ORDER DATED 28.08.2012 OF LD. CIT(A) - II, DEHRADUN. 2. FOLLOWING GROUND S HAVE BEEN RAISED IN THIS APPEAL: 1. TH E LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN ALLOWING CLAIM OF THE ASSESSEE MADE U/S 10B TO THE ASSESSEE IGNORING SPECIFIC PROVISIONS OF SECTION 10B OF THE I.T. ACT, 1961 WHICH SPECIFIES THAT THE DEDUCTION U/S 10B OF PROFITS AND GAINS IS TO BE ALLOWED FOR A PERIOD OF TEN CONSECUTIVE ASSESSMENT YEARS BEGINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEARS IN WHICH THE UNDERTAKING B EGIN S TO MANUFACTURE OR PR ODUCE ARTICLES OR THINGS ETC. L D. ITA NO . 5506 /DEL /201 2 WINDLASS STEEL CRAFT 2 CIT(A) HAS COMPLETELY OVERLOOKED THE FACT THAT THE BASIC R EQUIREMENT OF SECTION 10B IS NOT FULFILLED IN AS MUCH AS ASSESSEE HAD BEEN CLAIMING DEDUCTION U/S 80HHC FROM ASSESSMENT YEAR 1992 - 93 TO 2003 - 04 AND U/S 80IC FROM ASSESSMENT YEAR 2004 - 05 TO 2008 - 09 AND FROM THIS ASSESSMENT YEAR I.E. 2009 - 10 THE ASSESSEE STA RTED CLAIMING DEDUCTION U/S 10B. 2. THE LD. CIT(A) HAS ERRED IN LAW AND ON THE FACTS IN MAKING HIS OWN INTERPRETATION OF PROVISIONS OF SECTION 80IC(5) VIS - - VIS SECTION 10B, COMPLETELY IGNORING THAT IN THE CASE OF ADDL. CIT VS SURAT ART SILK CLOTH MANUFAC TURE S ASSOC I ATION (1980 2SSC 31) THE APEX COURT HAS OBSERVED THAT IF THE LANGUAGE OF A STATUTORY PROVISION IS AMBIGUOUS AND CAPABLE OF TWO CONSTRUCTIONS THAT CONSTRUCTION MUST BE ADOPTED WHICH WILL GIVE MEANING AND EFFECT TO OTHER PROVISIONS OF THE ENACTM ENT RATHER THAN THAT WHICH WILL GIVE NONE AND IN THIS CASE THERE IS NO AMBIGUITY AT ALL IN THE LANGUAGE OF SECTION 10B, WHICH SECTION WAS ENACTED TO GIVE SPECIAL BENEFIT ONLY TO EXCLUSIVELY THOSE UNDERTAKINGS WHICH ARE NEWLY ESTABLISHED AND 100% EXPORT ORI ENTED UNDERTAKING, WHILE THE ASSESSEE FIRM IS NOT A NEWLY ESTABLISHED UNDERTAKING. 3. THE LD. CIT(A) HAS ERRED IN LAW IN NOT FOLLOWING THE GOLDEN RULE OF LITERA SCRIPTA FOR INTERPRETATION OF STATUTES AND HAS ERRED IN LAW IN MAKING HIS OWN INTERPRETATION O F PROVISION OF SECTION 10B. 4. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN NOT DWELLING ON THE CATEGORIC FINDING GIVEN BY THE AO VIDE PARA 7 OF THE ASSESSMENT ORDER WHEREIN HE ITA NO . 5506 /DEL /201 2 WINDLASS STEEL CRAFT 3 HAS BROUGHT ON RECORD THE PARTICULARS OF DEDUCTION CLAIMED BY THE ASSESSEE UNDER SECTION 80HHC AND 80IC FOR EARLIER ASSESSMENT YEARS AND ALLOWED BY THE DEPARTMENT. MORE OVER NO REMAND REPORT WAS CALLED FOR BY THE LD. CIT(A) FROM THE CONCERNED ASSESSING OFFICER. 5. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN NOT ADJUDICATING THE ISSUE AS TO HOW THE ASSESSEE CAN BE TERMED AS A NEW UNDERTAKING FOR CLAIMING BENEFIT OF DEDUCTION U/S 10B WHILE IT HAD CLAIMED AND HAD BEEN ALLOWED DEDUCTION U/S 80HHC AND 80IC IN EARLIER ASSESSMENT YEARS. 6. THE LD. CIT(A) HAS ERRED IN LAW IN PLACING RELIANCE IN THE CASE OF MARAL OVERSEAS LTD. VS ADDL. CIT(IND)/SB REPORTED IN ALL INDIA TRIBUNALS JUDGMENTS (15 TH MAY 2012 VOL. 146 PAGES 129 TO 175) WHICH DO NOT TALK ABOUT THE PROVISIONS OF SECTION 10B OF IT ACT AND SUCH RELIANCE IS TOTALLY MISPLACED. 7. THE ORDER OF LD. CIT(A) IN ALLOWING CLAIM OF DEDUCTION U/S 10B TO THE ASSESSEE IS BAD IN LAW WARRANTED TO BE SET ASIDE AND THAT OF THE AO BE RESORTED. 8. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS. 2,14,669/ - MADE BY TH E AO DISALLOWING INTEREST ON UNSECURED LOAN ADVANCED TO OTHERS AT A HIGHER RATE OF INTEREST. 9. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN GIVING RELIEF OF RS. 17,79,442/ - TO THE ASSESSEE OUT OF ITA NO . 5506 /DEL /201 2 WINDLASS STEEL CRAFT 4 TOTAL DISALLOWANCE OF RS. 21,79,448/ - MADE BY THE AO ON ACCOUNT OF DEBIT OF INTEREST AND ADVANCING OF INTEREST FROM LOAN TO SHRI PRADEEP WINDLASS AND HAS FAILED TO APPRECIATE THAT DURING THIS PERIOD, ASSESSEE FIRM DID NOT HAVE ANY INTEREST FREE FUND WHICH COULD HAVE BEEN ADVANCED TO MR. PRADEEP WINDLASS. 10. THE LD. CIT(A) HAS FAILED TO APPRECIATE THAT AS ON 31.03.2008 AMOUNT ADVANCED TO SHRI PRADEEP WINDLASS, PARTNER WAS RS. 1,05,57,380/ - AND THEREAFTER FURTHER AMOUNTS WERE ADVANCED TO HIM MAKING A TOTAL ADVANCE OF RS. 2,72,43,107/ - AS ON 31.03.2009 AND THE A MOUNTS WERE ADVANCED EXCLUSIVELY FOR CONSTRUCTION OF OWN HOUSE PROPERTY OF SHRI PRADEEP WINDLASS. LD. CIT(A) HAS FAILED TO APPRECIATE THAT TOTAL DEBIT ON ACCOUNT OF PAYMENT OF INTEREST IS SHOWN IN THE BOOKS OF ACCOUNTS AT RS. 1,41,87,428/ - WHICH CLEARLY SH OWS THAT THERE WAS NO INTEREST FREE FUND AVAILABLE WITH THE ASSESSEE AND AS SUCH THE INTEREST AMOUNT OF RS. 21,79,448/ - @ 8% ON ADVANCE OF RS. 2,72,43,107/ - WAS RIGHTLY ADDED TO THE INCOME OF THE ASSESSEE BY THE AO. 11. THAT THE ORDER OF THE LD. CIT(A) BE ING ERRONEOUS IN LAW AND ON FACTS BE SET ASIDE AND THAT OF AO BE RESTORED. 3. THE MAIN GRIEVANCE OF THE DEPARTMENT IN THIS APPEAL VIDE GROUND NOS. 1 TO 7 RELAT E S T O THE DEDUCTION U/S 10B OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) DIRECTED TO BE ALLOWED BY THE LD. CIT(A) . ITA NO . 5506 /DEL /201 2 WINDLASS STEEL CRAFT 5 4 . FACTS OF THE CASE RELATED TO THIS ISSUE IN BRIEF ARE THAT THE ASSESSEE FILED THE RETURN OF INCOME THROUGH E - FILING ON 23.09.2009 DECLARING NIL INCOME. LATER ON, THE CASE WAS SELECTED FOR SCRUTINY. THE AO DURIN G THE COURSE OF ASSESSMENT PROCEEDINGS NOTICED THAT THE TRADING RESULTS FOR THE YEAR UNDER CONSIDERATION WERE BETTER AS COMPARED TO THE PRECEDING YEAR AND THAT THE ASSESSEE FURNISHED REPORT IN FORM NO. 10CCB IN RESPECT OF DEDUCTION AS PER THE PROVIS IONS OF SECTION 80IC OF THE ACT AND ALSO ENCLOSED FORM NO. 3CEB READ WITH RULE 10E ALONG WITH FORM NO. 56G READ WITH RULE 16A FOR CLAIMING THE DEDUCTION U/S 10B OF THE ACT . THE AO ALSO MENTIONED THAT THE ASSESSEE STATED IN THE NOTES TO THE STATEMENT OF INCOME THA T THE EXEMPTION U/S 10B OF THE ACT WAS CLAIMED, HENCE, THE DEDUCTION U/S 80IC OF THE ACT WAS NOT BEING CLAIMED. ACCORDING TO THE AO THE DEDUCTION U/S 10B OF THE ACT WAS TO BE ALLOWED FROM THE PROFIT AND GAINS WHICH WERE DERIVED DIRECTLY FROM EXPORT OF ARTI CLE OR THING ETC. AND THAT IN THE ASSESSEE S CASE THE OTHER INCOME OF RS. 3,05,248/ - AND EXPORT INCENTIVE OF RS. 13,56,209/ - WERE NOT DERIVED DIRECTLY FROM EXPORT OF ARTICLE OR THING. THEREFORE, THE CLAIM OF THE ASSESSEE ON THESE TWO ITEMS WAS REJECTED AND GOT REDUCED TO RS. 4,80,32,616/ - AS AGAINST RS. 4,96,94,073/ - CLAIMED BY THE ASSESSEE . THE AO ALSO OBSERVED THAT THE ASSESSEE WAS CLAIMING THE DEDUCTIONS U/S 80HHC AND 80IC OF THE ACT FOR A NUMBER OF YEARS AND SUDDENLY IN THIS YEAR SWITCHED OVER TO LODGIN G A CLAIM OF DEDUCTION U/S 10B OF THE ACT. HE ASKED THE ASSESSEE TO GIVE THE BREAK - UP OF DEDUCTION ALLOWED/CLAIMED UNDER CHAPTER - VI IN THE ITA NO . 5506 /DEL /201 2 WINDLASS STEEL CRAFT 6 PRECEDING YEARS. IN RESPONSE THE ASSESSEE FURNISHED THE CHART WHICH HAS BEEN REPRODUCED AT PAGE NO. 4 OF THE ASSESSME NT ORDER DATED 28.12.2011 FOR THE COST OF REPETITION, THE SAME IS NOT REPRODUCED HEREIN. THE AO OBSERVED THAT THE ASSESSEE HAD BEEN CLAIMING DEDUCTION U/S 80IC OF THE ACT , SINCE THE ASSESSMENT YEAR 2004 - 05 AND BEFORE THAT IT HAD BEEN CLAIMING DEDUCTION U/S 80HHC OF THE ACT. HE FURTHER OBSERVED THAT SECTION 10B OF THE ACT WAS NOT RELEVANT IN THE CASE OF THE ASSESSEE AND THIS CLAIM WAS BOUND TO BE SEEN AS A DELIBERATE ACTION TO AVAIL A BENEFIT TO WHICH IT WAS NOT ENTITLED. THE AO POINTED OUT THAT THE ASSESSEE RIGHT FROM ASSESSMENT YEAR 1992 - 93 TILL ASSESSMENT YEAR 2008 - 09 HAD BEEN CLAIMING DEDUCTION U/S 80HHC/80IC OF THE ACT AND THAT THE PROVISIONS CONTAINED IN SUB - SECTION (5) TO SECTION 80IC OF THE ACT PROVIDES THAT NOTWITHSTANDING ANYTHING CONTAINED IN ANY O THER PROVISION OF THIS ACT IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE, NO DEDUCTION SHALL BE ALLOWED UNDER ANY OTHER SECTION CONTAINED IN CHAPTER - VIA OR SECTION 10A OR SECTION 10B OF THE ACT IN RELATION TO THE PROFITS AND GAINS OF THE UNDERTAKING OR ENT ERPRISE WHICH CLARIFIES THAT IN THE SAME ASSESSMENT YEAR ONCE DEDUCTION IS CLAIMED U/S 80IC, DEDUCTION IS FORBIDDEN U/S 10B OF THE ACT. THE AO WAS OF THE VIEW THAT EVEN A SWITCH OVER TO SECTION 10B FROM SECTION 80IC OF THE ACT WAS NOT ADMISSIBLE SUBSEQUENT LY. HE, THEREFORE, HELD THAT THE CLAIM OF THE ASSESSEE FOR DEDUCTION U/S 10B OF THE ACT WAS NOT TENABLE IN LAW. ITA NO . 5506 /DEL /201 2 WINDLASS STEEL CRAFT 7 5 . BEING AGGRIEVED THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A) AND SUBMITTED AS UNDER: 1.0 CLAIM U/S 10B OF THE INCOME TAX ACT 1.1 A SSESSEE FULFILLS ALL THE ESSENTIAL CONDITIONS TO CLAIM DEDUCTION U/S 10B OF THE INCOME TAX ACT WHICH ARE AS FOLLOWS: - (1) THE UNDERTAKING SHOULD BE APPROVED 100% EXPORT ORIENTED UNDERTAKING. IT MUST BE APPROVED AS 100% EOU BY THE BOARD APPOINTED BY THE C ENTRAL GOVERNMENT IN THIS BEHALF. (2) IT MANUFACTURES OR PRODUCES ANY ARTICLE OR THINGS OR COMPUTER SOFTWARE. (3) IT SHOULD NOT BE FORMED BY SPLITTING UP OR RECONSTRUCTION OF AN EXISTING BUSINESS. (4) IT SHOULD NOT BE FORMED BY TRANSFER OF MACHINERY OR PLANT, PREVIOUSLY USED FOR ANY PURPOSE, TO A NEW BUSINESS. (5) THE SALE PROCEEDS OF ARTICLES OR THINGS OR COMPUTER SOFTWARE EXPORTED OUT OF INDIA SHOULD BE RECEIVED IN, OR BROUGHT INTO, INDIA BY THE ASSESSEE IN CONVERTIBLE FOREIGN EXCHANGE, WITHIN A PERIO D OF SIX MONTHS FROM THE END OF THE PREVIOUS YEAR OR, WITHIN SUCH FURTHER PERIOD RBI MAY ALLOW IN THIS BEHALF. (6) ASSESSEE FURNISHED REPORT OF THE ACCOUNTANT UNDER S. 10B (5) IN FORM 56G. ITA NO . 5506 /DEL /201 2 WINDLASS STEEL CRAFT 8 (7) THE CIRCULAR 01/2005 (TAX HOLIDAY TO 100 PERCENT EXPORT ORIEN TED UNDERTAKING) & INSTRUCTION NO. 02/2009 DATED 09.03.2009 SUPPORTS THE ASSESSEE FIRM. 1.2 ASSESSEE UNIT WAS ACCEPTED 100% EOU BY MINISTRY OF COMMERCE & INDUSTRY, NOIDA VIDE F. NO. 12388/2007 - 100% EOU/5666 DATED 17.09.2007. SINCE IT WAS IN MID YEAR ASSES SEE FIRM DECIDED TO CLAIM THE DEDUCTION FROM THE CURRENT ASSESSMENT YEAR I.E. 2009 - 2010 (31.03.2009) WHICH HAPPENS TO BE THE FIRST FULL YEAR. ASSESSEE BECOMES ENTITLED TO DEDUCTION U/S 10B ONLY ONCE HE RECEIVES THE GREEN CARD FROM THE COMPETENT AUTHORITY. THIS HE RECEIVED ON 17.09.2007. ASSESSEE FIRM IS A LAW ABIDING FIRM AND HAS NO INTENTIONS TO EVADE ITS TAX LIABILITY. AT THE SAME TIME ASSESSEE FIRM HAS BEEN CLAIMING THE VARIOUS EXEMPTIONS PROVIDED IN THE ACT AS APPARENT FROM RECORD FOR WHICH HE WAS LEGIT IMATELY ENTITLED. 1.3 ASSESSEE FIRM HAS CLAIMED DEDUCTION U/S 10B IN THE CURRENT YEAR FOR WHICH IT BECAME ENTITLED DURING THE CURRENT YEAR ONLY ON RECEIPT OF GREEN CARD ON 17.09.2007 AND HAS FORGONE THE DEDUCTION U/S 80IC CLAIMED TILL THE PREVIOUS YEARS. ASSESSEE HAD FILED THE REPORT IN FORM 56G AS PRESCRIBED U/S 10B(5) OF THE INCOME TAX ACT. AS APPARENT ASSESSEE FIRM HAS BEEN TRYING TO GET REGISTERED U/S 10B WITH THE COMPETENT AUTHORITY FROM ASSESSMENT YEAR 1999 - 2000. ASSESSEE FIRM HAS NO WHERE CLAIMED DE DUCTION U/S 80IC AND 10B SIMULTANEOUSLY DURING THE YEAR UNDER CONSIDERATION. SECTION 80IC(5) READ WITH SECTION 80IA(9) BARS DOUBLE DEDUCTION DURING THE YEAR. IN CITATION MARAL OVERSEAS LTD. VS ADDL. CIT (IND.) (SB) REPORTED IN ALL INDIA TRIBUNALS JUDGMENTS (15 TH MAY 2012 VOL. 146 PAGES 129 TO 175) STATES AS UNDER: 10.9 SO FAR AS THE OBJECTIONS OF THE LEARNED CIT(A) REGARDING CONDUCT OF THE ASSESSEE FIRM IN NOT CLAIMING THE EXEMPTION IN EARLIER YEAR IS CONCERNED, THE APPROACH ITA NO . 5506 /DEL /201 2 WINDLASS STEEL CRAFT 9 OF THE LEARNED CIT(A) RAISING T HIS OBJECTION, CANNOT BE LEGALLY JUSTIFIED BECAUSE IF THE ASSESSEE IS ENTITLED TO ANY BENEFIT UNDER ANY STATUT ORY PROVISION THEN THE PAST CONDUCT CANNOT BE RELEVANT PARTICULARLY WHEN REFERENCE TO SUCH CONDUCT IS NOT MADE IN THE ACT. THE ELIGIBILITY OF THE ASSESSEE HAS TO BE SEEN IN THE YEAR IN WHICH THE CLAIM IS PREFERRED AND IF IN EARLIER YEARS THE ASSESSEE WAIVED HIS RIGHT THEN HE CANNOT BE STOPPED IN CLAIMING THE BENEFIT IN THE SUBSEQUENT YEARS. 1.4 SECTION 10B(6)(III) CLEARLY STATES THAT NO DEDUCTION U /S 80HH, 80HHA, OR SECTION 80I OR SECTION 80 - IA OR SECTION 80 - IB WILL BE ALLOWED. SECTION DOES NOT SPELL OUT ANY CONDITION FOR SECTION 80IC OF THE ACT. 1.5 ASSESSEE IS CLAIMING EXEMPTION U/S 10B OF THE INCOME TAX ACT UNDER CHAPTER - III AS THE ASSESSEE FIRM IS A 100% EXPORT ORIENTED UNDERTAKING WHICH NO WHERE TALKS ABOUT THE EARNINGS IN INDIAN RUPEE ONLY CRITERIA IS THAT IT SHOULD BE 100% EXPORT ORIENTED UNIT AND MUST BE EARNING FOREIGN EXCHANGE. FURTHER IT WILL NOT BE OUT OF PLACE TO MENTION THAT SECTION 10 B IS DIFFERENT FROM THE SECTIONS UNDER CHAPTER - VIA. SECTION 80AB IN CHAPTER - VIA WOULD HAVE NO APPLICATION EVEN IN THE EXTENDED SENSE RIGHTLY OR WRONGLY FOR SECTION 10B UNDER CHAPTER - III, SO THAT THERE COULD HAVE BEEN NO RESTRICTIONS OF RELIEF WITH REFERENC E TO SECTION 80AB. IT IS FAIRLY WELL SETTLED THAT ON CONSTRUING A BENEFICIAL ENACTMENT AND IT SERVES ITS PURPOSE MUST BE PREFERRED TO ONE WHICH OBSTRUCTS THE OBJECTS AND PARALYSES THE PURPOSE OF THE BENEFICIAL ENACTMENT. IT IS TOO WELL KNOWN A PRINCIPLE OF CONSTRUCTION OF STATUES THAT THE LEGISLATURE ENGRAFTED EVERY PART OF THE STATUTE FOR A PURPOSE. THE LEGISLATIVE INTENTION IS THAT EVERY PART OF THE STATURE SHOULD BE GIVEN EFFECT. THE LEGISLATURE IS DEEMED NOT TO WASTE ITS WORDS OR TO SAY ANYTHING IN VAIN AND A CONSTRUCTION WHICH ITA NO . 5506 /DEL /201 2 WINDLASS STEEL CRAFT 10 .REDUNDANCY TO THE LEGISLATURE WILL NOT BE ACCEPTED, EXCEPT FOR COMPELLING REASONS. EXPORT INCENTIVES/ENTITLEMENTS AND DUTY DRAWBACK KINDLY REFER TO PARA 3 OF OUR REPLY DATED 21.05.2012 AND 16.07.2012 FILED WITH YOUR OFFICE. AS SESSEE FIRM IS ENTITLED FOR EXEMPTION U/S 10B AS IT IS CLEARLY ALLOWABLE IN VIEW OF SPECIFIC PROVISIONS CONTAINED UNDER SECTION 10B(4) OF THE ACT WHICH PROVIDED A SPECIFIC FORMULA FOR COMPUTING PROFITS DERIVED BY THE UNDERTAKING FROM THE EXPORT. REFER EXHI BIT 2 OF THE PAPER BOOK FILED WITH OUR REPLY DATED 21.05.2012. IN CITATION MARAL OVERSEAS LTD. VS ADDL. CIT(IND)(SB) REPORTED IN ALL INDIA TAX TRIBUNALS JUDGMENTS (15 TH MAY 2012 VOL. 146 PAGES 129 TO 175) STATES AS UNDER: 79. THUS, SUB - SECTION (4) OF SECT ION 10B STIPULATED THAT DEDUCTION UNDER THAT SECTION SHALL BE COMPUTED BY APPORTIONING THE PROFITS OF THE BUSINESS OF THE UNDERTAKING IN THE RATIO OF EXPORT TURNOVER TO THE TOTAL TURNOVER. THUS, NOTWITHSTANDING THE FACT THAT SUB - SECTION (1) OF SECTION 10B REFERS THE PROFITS AND GAINS AS ARE DERIVED BY A 100% EOU, YET THE MANNER OF DETERMINING SUCH ELIGIBLE PROFITS HAS BEEN STATUTORILY DEFINED IN SUB - SECTION (4) OF SECTION 10B OF THE ACT. AS PER THE FORMULA STATED ABOVE, THE ENTIRE PROFITS OF THE BUSINESS AR E TO BE TAKEN WHICH ARE MULTIPLIED BY THE RATIO OF THE EXPORT TURNOVER TO THE TOTAL TURNOVER OF THE BUSINESS. SUB - SECTION (4) DOES NOT REQUIRE AN ASSESSEE TO ESTABLISH A DIRECT NEXUS WITH THE BUSINESS OF THE UNDERTAKING AND ONCE AN INCOME FORMS PART OF THE BUSINESS OF THE UNDERTAKING, THE SAME WOULD BE INCLUDED IN THE PROFITS OF THE BUSINESS OF THE UNDERTAKING. THUS, ONCE AN INCOME FORMS PART OF THE BUSINESS OF THE ELIGIBLE UNDERTAKING, THERE IS NOT FURTHER MANDATE IN THE PROVISIONS OF SECTION 10B TO EXCLUD E THE SAME FROM THE ELIGIBLE PROFITS. THE MODE OF DETERMINING ITA NO . 5506 /DEL /201 2 WINDLASS STEEL CRAFT 11 THE ELIGIBLE DEDUCTION UNDER SECTION 10B IS SIMILAR TO THE PROVISIONS OF SECTION 80HHC IN AS MUCH AS BOTH THE SECTIONS MANDATE DETERMINATION OF ELIGIBLE PROFITS AS PER THE FORMULA CONTAINED THER EIN. THE ONLY DIFFERENCE IS THAT SECTION 80HHC CONTAINS A FURTHER MANDATE IN TERMS OF EXPLN. (BAA) FOR EXCLUSION OF CERTAIN INCOME FROM THE PROFITS OF THE BUSINESS WHICH IS, HOWEVER, CONSPICUOUS BY ITS ABSENCE IN S. 10B. ON THE BASIS OF THE AFORESAID DIS TINCTION, SUB - SECTION (4) OF SECTION 10A/10B OF THE ACT IS A COMPLETE CODE PROVIDING THE MECHANISM FOR COMPUTING THE PROFITS OF THE BUSINESS ELIGIBLE FOR DEDUCTION UNDER SECTION 10B OF THE ACT. ONCE AN INCOME FORMS PART OF THE BUSINESS INCOME OF THE ELIG IBLE UNDERTAKING OF THE ASSESSEE, THE SAME CANNOT BE EXCLUDED FROM THE ELIGIBLE PROFITS FOR THE PURPOSE OF COMPUTING DEDUCTION UNDER SECTION 10B OF THE ACT. AS PER THE COMPUTATION MADE BY THE AO HIMSELF, THERE IS NO DISPUTE THAT BOTH THESE INCOMES HAVE BEE N TREATED BY THE AO AS BUSINESS INCOME. THE CBDT CIRCULAR NO. 564, DT. 5 TH JULY, 1990 REPORTED IN (1990) 85 CTR (ST) 53: (1990) 184 ITR (ST) 37 EXPLAINED THE SCOPE AND AMBIT OF S. 80HHC AND THE MODE OF DETERMINATION OF PROFITS DERIVED BY AN ASSESSEE FROM T HE EXPORT OF GOODS. TRIBUNAL, SPECIAL BENCH IN THE CASE OF INTERNATIONAL RESEARCH PARK LABORATORIES LTD. VS ASSTT. CIT (SUPRA), AFTER FOLLOWING THE AFORESAID CIRCULAR, HELD THAT STRAIGHTJACKET FORMULA GIVEN IN SUB - S. (3) HAS TO BE FOLLOWED TO DETERMINE THE ELIGIBLE DEDUCTION. THE HON BLE SUPREME COURT IN THE CASE OF P.R. PRABHAKAR VS CIT (2006) 204 CTR (SC) 27 : (2006) 284 ITR 548 (SC) HAD APPROVED THE PRINCIPLE LAID DOWN IN THE SPECIAL BENCH DECISION IN INTERNATIONAL RESEARCH PARK LABORATORIES VS CIT (SUPR A). IN THE ASSESSEE S OWN CASE THE TRIBUNAL IN THE PRECEDING YEARS, AFTER CONSIDERING THE DECISION IN THE CASE OF LIBERTY INDIA (SUPRA) HELD THAT PROVISIONS OF S. 10B ARE DIFFERENT FROM ITA NO . 5506 /DEL /201 2 WINDLASS STEEL CRAFT 12 THE PROVISIONS OF S. 80IA WHEREIN NO FORMULA HAS BEEN LAID DOWN FOR CO MPUTING THE ELIGIBLE BUSINESS PROFIT. 80. IN VIEW OF THE ABOVE DISCUSSION, QUESTION NO. 2 ANSWERED IN AFFIRMATIVE AND IN FAVOUR OF THE ASSESSEE. ACCORDINGLY , THE ASSESSEE IS ELIGIBLE FOR CLAIM OF DEDUCTION ON EXPORT INCENTIVE RECEIVED BY IT IN TERMS OF PR OVISIONS OF S. 10B(1) R.W.S. 10B(4). HENCE LOOKING INTO THE ABOVE FACTS CLAIM OF ASSESSEE FIRM U/S 10B, EXPORT INCENTIVES AND OTHER DISALLOWANCES MADE BE ALLOWED. 6 . THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE OBSERVED THAT THE A O MISDIRECTED HIMSELF IN READING MORE IN THE STATUTORY PROVISION OF SECTION 80IC(5) OF THE ACT THAN WHAT WAS WARRANTED. ACCORDING TO THE LD. CIT(A) THE PROVISIONS CONTAINED IN SECTION 80IC(5) OF THE ACT ITSELF LEAD TO BELIEVE THAT IT WOULD APPLY ONLY IF CL AIM U/S 80IC OF THE ACT HAD BEEN PUT FORTH BY AN ASSESSEE . THE LD. CIT(A) OBSERVED THAT SINCE THE ASSESSEE HAD NOT SIMULTANEOUSLY CLAIMED ANY RELIEF U/S 80IC OF THE ACT , THIS SUB - SECTION CANNOT BE USED TO DEBAR THE ASSESSEE FROM CLAIMING RELIEF UNDER ANY O F THE OTHER SECTIONS OF CHAPTER - VIA OR SECTION 10A OR 10B OF THE ACT (A REFERENCE WAS MADE TO THE DECISION OF THE ITAT BANGALORE BENCH IN THE CASE OF MITTAL CLOTHING CO. VS DCIT REPORT AT 4 SOT 626 ) . THE LD. CIT(A) FURTHER OBSERVED THAT SECTION 80IC(5) OF THE ACT M E RELY PROHIBITS AN ASSESSEE FROM CLAIMING ANY REBATE/RELIEF UNDER ANY SECTION OF CHAPTER - VIA OR 10A OR 10B OF THE ACT BUT THERE IS NO DIRECTIVE TO DEBAR AN ASSESSEE FROM CLAIMING RELIEF ITA NO . 5506 /DEL /201 2 WINDLASS STEEL CRAFT 13 UNDER ANY OTHER OF THE STATED SECTIONS , PROVIDED THAT A CLAIM IS NOT TENDERED U/S 80IC O F THE ACT FOR A PARTICULAR YEAR, T HEREFORE, SECTION 80IC(5) CANNOT BE USED TO DENY THE BENEFIT OF SECTION 10B OF THE ACT IN THE CASE OF THE ASSESSEE. AS REGARDS TO THE OBSERVATION OF THE AO THAT THE ASSESSEE HAD BEEN OPPORTUNISTI C IN CLAIMING RELIEF U/S 10B OF THE ACT NOT FROM THE YEAR WHEN HE HAD BEGUN TO MANUFACTURE OR PRODUCE ANY ARTICLE OR THING BUT WHEN IT SUITED HIM THE MOST, T HE LD. CIT(A) OBSERVED THAT THE ASSESSEE BECAME ELIGIBLE FOR RELIEF U/S 10B ONLY WITH THE RECEIPT O F NECESSARY APPROVAL FROM THE MINISTRY OF COMMERCE AND INDUSTRY THROUGH THEIR LETTER DATED 17.09.2007 AND THAT THE NECESSARY SUBSTANTIVE AND PROCEDURAL FORMALITIES FOR CLAIMING RELIEF U/S 10B WERE FULFILLED FOR THE YEAR UNDER CONSIDERATION, THEREFORE, THE ASSESSEE WAS ELIGIBLE FOR RELIEF U/S 10B OF THE ACT. AS REGARDS TO DENYING THE BENEFIT OF RELIEF U/S 10B OF THE ACT TO THE EXPORT INCENTIVES AND OTHER INCOME ON THE GROUND THAT SUCH RECEIPTS WERE NOT DER IVED FROM THE ELIGIBLE BUSINESS, T HE LD. CIT(A) C ONFIRMED THE ACTION OF THE AO. 7 . NOW THE DEPARTMENT IS IN APPEAL. THE LD. DR STRONGLY SUPPORTED THE ORDER OF THE AO AND FURTHER SUBMITTED THAT THE DEDUCTION U/S 10B OF THE ACT IS ALLOWED TO AN EXPORT O RIENTED U NDERTAKING IN RESPECT OF SUCH PROFITS AND GAINS AS ARE DERIVED BY IT FROM THE EXPORT OF ARTICLES OR THINGS FOR A PERIOD OF 10 CONSECUTIVE ASSESSMENT YEAR S BEGINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE UNDERTAKING BEGINS TO MANUFACTURE OR PRODUCE ARTICLES OR THINGS O R COMPUTER ITA NO . 5506 /DEL /201 2 WINDLASS STEEL CRAFT 14 SOFTWARE, AS THE CASE MAY BE AND THAT THERE ARE ALSO CERTAIN PROCEDURAL CONDITIONS ATTACHED TO THE DEDUCTION . IT WAS FURTHER STATED THAT THE ASSESSEE FIRM WAS CONSTITUTED IN 1950S AND CLAIMED TO BE INVOLVED IN THE BUSINESS OF PRODUCING ARTICLES OF HANDICRAFTS EVER SINCE AND THE NATURE OF THE BUSINESS HAD REMAINED THE SAME THOUGH THE RANGE OF PRODUCTS, PRODUCTION PROCESS ETC. MIGHT HAVE UNDERGONE CHANGE OVER THE YEARS AND IT STARTED CLAIMING DEDUCTION U/S 8 0IC OF THE ACT W.E.F ASSESSMENT YEAR 2004 - 05 (WHEN IT CLAIMED TO HAVE ACHIEVED SUBSTANTIAL EXPANSION OF THE EXISTING UNDERTAKING) AND THAT CONTINUED TILL ASSESSMENT YEAR 2009 - 10 WHEN IT STARTED CLAIMING DEDUCTION U/S 10B OF THE ACT WHICH DEDUCTION WAS DENIED TO IT IN ASSESSMENT YEAR UNDER CONSIDE RATION. THE LD. DR FURTHER SUBMITTED THAT THE ASSESSEE CLAIMED TO HAVE SET - UP A NEW UNDERTAKING IN ASSESSMENT YEAR 2004 - 05, SO IT WAS ELIGIBLE TO CLAIM DEDUCTION U/S 10B OF THE ACT W.E.F ASSESSMENT YEAR 2004 - 05 ITSELF. HOWEVER, NO SUCH DEDUCTION WAS CLAIME D FOR THE ASSESSMENT YEARS 2004 - 05 TO 2008 - 09. IT WAS STATED THAT THE DEDUCTION U/S 80IC OF THE ACT IS AVAILABLE FOR A TOTAL PERIOD OF 10 ASSESSMENT YEARS AND THE ASSESSEE HAD AVAILED THE SAME FOR 5 ASSESSMENT YEARS, SO IT W AS DISQUALIFIED FOR CLAIMING THE DEDUCTION U/S 10B OF THE ACT, IN ANY ASSESSMENT YEAR FALLING WITHIN THE BLOCK OF THE 10 ASSESSMENT YEARS. IT WAS VEHEMENTLY ARGUED THAT THE DEDUCTION U / S 10B OF THE ACT IS AVAILABLE TO AN UNDERTAKING FOR A PERIOD OF 10 CONSECUTIVE ASSESSMENT YEAR BEGINNIN G WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE UNDERTAKING BEGAN TO ITA NO . 5506 /DEL /201 2 WINDLASS STEEL CRAFT 15 MANUFACTURE OR PRODUCE ARTICLES OR THINGS AND THE ASSESSEE BEGUN TO PRODUCE ARTICLES IN THE YEAR 1950 AND MERELY ACHIEVED SUBSTANTIAL EXPANSION DURING THE PREVIOUS Y EAR RELEVANT TO ASSESSMENT YEAR 2004 - 05. THEREFORE, THE ASSESSEE CANNOT BE CALLED A NEW INDUSTRIAL UNDERTAKING IN THE ASSESSMENT YEAR 2004 - 05 NOR IT CAN BE SAID TO HAVE BEGU N TO PRODUCE THE ARTICLES OR THINGS DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESS MENT YEAR 2004 - 05. IT WAS ALSO STATED THAT THE SHARE OF THE OLD PLANT & MACHINERY WAS BEYOND THE PERMISSIBLE TOLERANCE OF 20% , HENCE, IT WAS NOT ELIGIBLE FOR DEDUCTION U/S 10B OF THE ACT. 8 . IN HIS RIVAL SUBMISSIONS THE LD. COUNSEL FOR THE ASSESSEE REI TERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND FURTHER SUBMITTED THAT THE ASSESSEE WAS AN EXPORT ORIENTED UNIT UNDER EOU SCHEME AND APPLIED FOR CONVERSION OF DTA INTO UNIT UNDER THE EOU SCHEME FOR THE MANUFACTURING AND EXPORT OF HANDICRAFT M ADE OUT OF STEEL, BRUSH, LEATHER AND MISCELLANEOUS ITEMS VIDE APPLICATION DATED 21.05 .2007 TO THE GOVERNMENT OF INDIA, MINISTRY OF COMMERCE & INDUSTRY OFFICE OF THE DEVELOPMENT COMMISSIONER, NOIDA, SPECIAL ECONOMIC ZONE, GREATER NOIDA AND THE PERMISSION WA S GRANTED VIDE LETTER DATED 21.06.2007 BY THE CONCERNED AUTHORITY (A REFERENCE WAS MADE TO PAGE NOS. 16 & 17 OF THE ASSESSEE S PAPER BOOK). IT WAS EMPHASIZED THAT THE STATUS OF THE ASSESSEE AS AN EOU IS STILL CONTINUING, THEREFORE, THE ASSESSEE WAS ELIGIBL E FOR DEDUCTION U/S 10B OF THE ACT AND THE AO WAS NOT JUSTIFIED IN REJECTING THE CLAIM OF THE ASSESSEE WHICH THE LD. CIT(A) HAS ALLOWED ITA NO . 5506 /DEL /201 2 WINDLASS STEEL CRAFT 16 SINCE THE ASSESSEE FULFILLED ALL THE CONDITIONS TO CLAIM THE DEDUCTION U/S 10B OF THE ACT. IT WAS FURTHER SUBMITTED THAT IN THE SUBSEQUENT YEAR I.E. ASSESSMENT YEAR 2011 - 12 ALSO THE DEDUCTION U/S 10B OF THE ACT WAS ALLOWED. THEREFORE, THE AO WAS NOT JUSTIFIED IN REJECTING THE CLAIM OF THE ASSESSEE AND THE LD. CIT(A) RIGHTLY ALLOWED THE SAME. 9. WE HAVE CONSIDERED THE SUBMI SSIONS OF BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON THE RECORD. IN THE PRESENT CASE, IT IS AN ADMITTED FACT THAT THE DEDUCTION U/S 10B OF THE ACT IS AVAILABLE TO AN INDUSTRIAL UNDERTAKING WHICH IS AN APPROVED 100% EXPORT ORIENTE D UNDERTAKING BY THE BOARD APPOINTED BY CENTRAL GOVERNMENT OF INDIA AND IT MANU FACTURES OR PRODUCE ANY ARTICLE OR THING OR COMPUTER SOFTWARE AND HAS NOT BEEN FORMED BY SPLITTING UP OR RECONSTRUCTION OF EXISTING BUSINESS , IT SHOULD ALSO NOT BE FORMED BY TRA NSFER OF MACHINERY OR PLANT PREVIOUSLY USED FOR ANY PURPOSE, TO A NEW BUSINESS AND THAT THE SALE PROCEEDS O F ARTICLES O R THINGS OR COMPUTER SOFTWARE EXPORTED OUT OF INDIA SHOULD BE RECEIVED IN, OR BROUGHT INTO, INDIA BY THE ASSESSEE IN CONVERTIBLE FOREIGN EXCHANGE WITHIN A PERIOD OF 6 MONTHS FROM THE END OF THE PREVIOUS YEAR OR WITHIN SUCH FURTHER PERIOD AS THE RBI MAY ALLOW IN THIS BEHALF FOR CLAIMING THE DEDUCTION U/S 10B OF THE ACT. THE ASSESSEE IS REQUIRED TO FURNISH A REPORT FROM AN ACCOUNTANT IN FORM NO. 56G. IN THE PRESENT CASE, TH E ASSESSEE WAS REGISTERED AS AN EOU VIDE LETTER DATED 21.06 .2007 BY MINISTRY OF COMMERCE & INDUSTRY, NOIDA (COPY OF WHICH IS PLACED AT PAGE NOS. 16 ITA NO . 5506 /DEL /201 2 WINDLASS STEEL CRAFT 17 & 17 OF THE ASSESSEE S PAPER BOOK ) . HOWEVER, THE ASSESSEE WAS NOT CLAIMING D EDUCTION U/S 10B FOR THE ASSESSMENT YEAR 2008 - 09 BECAUSE THE REGISTRATION WAS GRANTED IN THE MID YEAR , THEREFORE, THE ASSESSEE CLAIMED THE DEDUCTION U/S 10B OF THE ACT FIRST TIME FOR THE ASSESSMENT YEAR UNDER CONSIDERATION I.E. ASSESSMENT YE AR 2009 - 10. THE ASSESSEE BECAME ENTITLED TO CLAIM THE DEDUCTION U/S 10B OF THE ACT ONLY WHEN IT RECEIVED THE GREEN CARD FROM THE COMPETENT AUTHORITY. IN THE PRESENT CASE, THE ASSESSEE FILED THE APPLICATION WITH THE DEVELOPMENT COMMISSIONER, NOIDA ON 21.05.2007 (COPY OF W HICH IS PLACED AT PAGE NOS. 3 TO 14 OF THE ASSESSEE S COMPILATION). THE SAID APPLICATION WAS FORWARDED TO THE COMMISSIONER CUSTOMS & CENTRAL EXCISE, MEERUT VIDE LETTER DATED 22.05.2007 (COPY OF WHICH IS PLACED AT PAGE NO. 15 OF THE ASSESSEE S PAPER BOOK). THE ASSESSEE GOT THE REGISTRATION U/S 10B OF THE ACT ON 21.06.2007. IN THE PRESENT CASE, T HE CLAIM OF THE ASSESSEE WAS UNDER THE STATUTORY PROVISIONS , ONLY WHEN IT BECAME ELIGIBLE FOR SUCH CLAIM U/S 10B OF THE ACT . IN THE PRESENT CASE, THE AO DISALLOWED TH E CLAIM OF THE ASSESSEE ONLY FOR THE REASON THAT IT WAS EARLIER CLAIMING THE DEDUCTION U/S 80IC(5) OF THE ACT. HOWEVER , THE ASSESSEE HAD FORGONE ITS EARLIER CLAIM OF DEDUCTION U/S 80IC OF THE ACT . IN THE INSTANT CASE, THE ASSESSEE HAD NOT SIMULTANEOUSLY CL AIMED THE RELIEF U/S 80IC OF THE ACT , THEREFORE, THE SUB - SECTION (5) OF THE SAID SECTION 80IC OF THE ACT CANNOT BE USED TO DEBAR THE ASSESSEE FOR CLAIMING THE DEDUCTION UNDER ANY OTHER SECTION OF CHAPTER - VIA O R SECTION 10A OR 10B OF THE ACT, PARTICULARLY W HEN THE ITA NO . 5506 /DEL /201 2 WINDLASS STEEL CRAFT 18 AO HAD NOWHERE STATED THAT THE ASSESSEE HAD NOT FULFILLED THE CONDITIONS NECESSARY FOR CLAIMING THE DEDUCTION U/S 10B OF THE ACT, HE ONLY DISALLOWED THE CLAIM OF THE ASSESSEE BY RELYING UPON THE PROVISIONS OF SECTION 80IC(5) OF THE ACT WHICH ARE NO T APPLICABLE FOR THIS YEAR AS THE ASSESSEE DID NOT CLAIM DEDUCTION U/S 80IC OF THE ACT. WE, THEREFORE, DO NOT SEE ANY VALID GROUND TO INTERFERE WITH THE FINDINGS GIVEN BY THE LD. CIT(A) ON THIS ISSUE. 10. THE NEXT ISSUE VIDE GROUND NO. 8 RELATES TO THE DE LETION OF ADDITION OF RS. 2,14,669/ - MADE BY THE AO BY DISALLOWING THE INTEREST ON UNSECURED LOAN ADVANCED TO OTHER S BY OBSERVING THAT IT WAS ON HIGHER RATE OF INTEREST. 11. FACTS RELATED TO THIS ISSUE IN BRIEF ARE THAT THE AO RESTRICTED THE RATE OF INTE REST ALLOWED ON UNSECURED LOAN AT 8% INSTEAD OF 15% CLAIMED BY THE ASSESSEE AND MADE THE DISALLOWANCE OF RS. 2,14,669/ - BY OBSERVING AS UNDER: FURTHER SINCE NO INTEREST HAS BEEN CHARGED FROM SHRI PRADEEP WINDLASS AND FURTHER RATE OF INTEREST CHARGED BY T HE BANK IS QUITE LOW AS SUCH THERE IS NO JUSTIFICATION FOR DEBITING INTEREST AT THE RATE OF 15% OF UNSECURED LOANS. IN FACT THE ASSESSEE COULD HAVE EASILY REPAID ITS UNSECURED LOAN INSTEAD OF ADVANCING INTEREST FREE AMOUNT TO SHRI PRADEEP WINDLASS. HENCE R ATE OF INTEREST ALLOWED ON UNSECURED LOAN IS NOT JUSTIFIED AND IS RESTRICTED AT 8% ONLY. THIS RESULTS IN ITA NO . 5506 /DEL /201 2 WINDLASS STEEL CRAFT 19 DISALLOWANCE OF INTEREST AT RS. 2,14,669/ - WHICH IS ADDED TO INCOME. 12. BEING AGGRIEVED THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A) AND SU BMITTED THAT A SIMILAR PAYMENT OF INTEREST HAD BEEN ALLOWED IN THE EARLIER YEARS, SO IT SHOULD BE ALLOWED IN THIS YEAR ALSO. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE DELETED THE DISALLOWANCE BY OBSERVING THAT THE QUANTUM OF INTEREST TO BE PAID TO THE CREDITOR WAS DEBITED ON THE BASIS OF BUSINESS EXIGENCIES AND THERE WAS NO COGENT REASON TO SUBSTITUTE ON E S OWN JUDGMENT WITH THE JUDGMENT OF THE BUSINESSMAN. 13. NOW THE DEPARTMENT IS IN APPEAL. THE LD. DR SUPPORTED THE ORDER OF THE AO WHILE THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND STRONGLY SUPPORTED THE IMPUGNED ORDER. 14. AFTER CONSIDERING THE SUBMISSIONS OF BOTH THE PARTIES AND THE MATERIAL ON RECORD, IT IS NOTICED THAT THE AO HAD NOT BROUGHT ANY MATERIAL ON RECORD TO SUBSTANTIATE THAT THE INTEREST PAID BY THE ASSESSEE TO THE CREDITORS WAS NOT FOR THE BUSINESS EXIGENCIES OR THAT THE UNSECURED LOAN S WERE UTILIZED BY THE ASSESSEE ELSEWHERE AND NOT FOR THE BUSINESS PURPOSE S . THERE FORE, THERE WAS NO JUSTIFICATION IN RESTRICTING THE PAYMENT OF INTEREST AT 8% INSTEAD OF THE ACTUAL RATE OF INTEREST AT 15%. ITA NO . 5506 /DEL /201 2 WINDLASS STEEL CRAFT 20 ACCORDINGLY, WE DO NOT SEE ANY MERIT IN THIS GROUND OF THE DEPARTMENTAL APPEAL. 15. THE LAST ISSUE VIDE GROUND NOS. 9 & 10 RELATES TO THE RELIEF OF RS. 17,79,442/ - ALLOWED TO THE ASSESSEE OUT OF TOTAL DISALLOWANCE OF RS. 21,79,448/ - MADE BY THE AO. 16. FACTS RELATED TO THIS ISSUE IN BRIEF ARE THAT THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTICED THAT IN COLUMN NO. 18 OF TH E AUDIT REPORT , IT HAD BEEN CERTIFIED THAT RS. 4,00,006/ - WAS PAID AS INTEREST TO FAMILY MEMBERS AND A SUM OF RS. 2,72,43,107/ - WAS PAID AS ADVANCE TO MR. PRADEEP KUMAR WINDLASS, BROTHER OF THE PARTNER. THE AO ASKED THE DETAILS OF THE INTEREST PAID AND COP Y OF ACCOUNT OF SHRI PRADEEP KUMAR WITH THE EVIDENCE AS TO WHAT USE OF SUCH AMOUNT HAD BEEN MADE BY SHRI PRADEEP KUMAR , IN REPLY THE ASSESSEE SUBMITTED AS UNDER: ..COPY OF ACCOUNT OF MR. PRADEEP KUMAR WINDLASS IN THE BOOKS OF ACCOUNT OF M/S WINDLASS ST EEL CRAFTS FOR THE YEAR ENDING 31.03.2009 IS ENCLOSED. MR. PRADEEP KUMAR WINDLASS HAD A DEPOSIT IN THE FIRM FROM 2001 THE BALANCES WERE AS UNDER: FINANCIAL YEAR BALANCE DEBIT AS ON 31.03 . BALANCE CREDIT AS ON 31.03 . 31.03.2000 31.03.2001 65,07,130 31.03.2002 82,24,075 31.03.2003 79,72,424 ITA NO . 5506 /DEL /201 2 WINDLASS STEEL CRAFT 21 31.03.2004 1,35,58,837 31.03.2005 86,82,805 31.03.2006 26,73,892 31.03.2007 2,26,131 31.03.2008 1,05,57,380 31.03.2009 2,72,43,107 DURING THE PERIOD OF DEPOSIT WITH THE FIRM MR. PRADEEP WINDLASS WAS NOT PAID ANY INTEREST SIMILARLY NO INTEREST HAS BEEN CHARGED FROM HIM ON THE WITHDRAWALS. MAJOR WITHDRAWALS HAVE BEEN MADE BY HIM FOR CONSTRUCTION OF HOUSE AT 53 R RAJPUR ROAD, DEHRADUN. HENCE NO ADVERSE INFERENCE CAN BE DRAWN FROM THE DEBIT BALANCE OF MR. PRADEEP WINDLASS IN THE BOOKS OF ACCOUNTS OF THE FIRM .. 17. THE AO DID NOT FIND MERIT IN THE SUBMISSIONS OF THE ASSESSEE AND MADE THE ADDITION OF RS. 21,79,448/ - BY OBSERVING IN PARA 11 OF THE ASSESSMENT ORDER DATED 08.12.2011 AS UNDER: 11. IT WAS THUS ASSERTED THAT NO INTEREST WAS CHARGED FROM SHRI PRADEEP BECAUSE EARLIER ALSO NO INTEREST HAD BEEN ALLOWED TO HIM. I HAVE CONSIDERED THE REPLY OF THE ASSESSEE. IT IS IRRELEVANT AS TO WHY MR. PRADEEP WINDLASS DID NOT CHARGE ANY INTEREST DURING TH E PERIOD HIS DEPOSIT WAS WITH THE FIRM. HOWEVER, UNDISPUTED FACT BEING THAT AS ON 31.03.2008, THE AMOUNT ADVANCED TO MR. PRADEEP WINDLASS WAS RS. 1,05,57,380/ - WHICH WAS NOT RECOVERED FROM HIM AND INSTEAD OF RECOVERING THIS AMOUNT FROM HIM FURTHER AMOUNT W ERE ADVANCED TO HIM AND TOTAL AMOUNT ADVANCED WAS ENHANCED TO RS. 2,72,43,107/ - AS ON 31.03.2009. DURING THIS PERIOD, THE ASSESSEE FIRM DID NOT HAVE ANY INTEREST FREE FUND WHICH COULD HAVE BEEN ADVANCED TO MR. PRADEEP WINDLASS. THIS IS ALSO EVIDENT FROM TH E FACT THAT TOTAL DEBIT OF INTEREST IN THE BOOKS OF ITA NO . 5506 /DEL /201 2 WINDLASS STEEL CRAFT 22 THE FIRM IS AT RS. 1,41,87,428/ - . APART FROM THIS DEBIT OF INTEREST THERE I S ANOTHER DEBIT OF RS. 4,00,00 6 / - ON ACCOUNT OF INTEREST CREDITED IN THE ACCOUNT OF FOUR PERSONS WHO HAD GIVEN TOTAL ADVANCE OF R S. 30,66,704/ - . THUS, IT IS SEEN THAT ON THE ONE HAND THE ASSESSEE IS INCURRING HEAVY EXPENDITURE ON PAYMENT OF INTEREST ON THE LOANS RAISED BY IT, WHEREAS, ON THE OTHER HAND, IT IS ADVANCING MONEY TO SHRI PRADEEP WINDLASS FOR CONSTRUCTION OF HIS PERSONAL HOUSE AT RAJPUR ROAD, DEHRADUN AGAINST WHICH NO INTEREST IS BEING CHARGED. THEREFORE, ON THE AMOUNT OF RS. 2,72,43,107/ - INTEREST IS CHARGEABLE AND ACCORDINGLY PROPORTIONATE DEBIT OF INTEREST IS TO BE DISALLOWED. HENCE ON THE SUM ADVANCED AT RS. 2,72,43,10 7/ - INTEREST @ 8% COMES TO RS. 21,79,448/ - WHICH INTEREST SHOULD HAVE BEEN CHARGED FROM SHRI PRADEEP WINDLASS. BUT THIS WAS NOT DONE AND AS SUCH OUT OF TOTAL DEBIT OF INTEREST AS DISCUSSED ABOVE AN AMOUNT OF RS. 21,79,448/ - IS BEING DISALLOWED AND ADDED TO INCOME. 18. BEING AGGRIEVED THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A) WHO RESTRICTED THE DISALLOWANCE TO RS. 17,79,442/ - BY OBSERVING AS UNDER: ON A CAREFUL CONSIDERATION OF THE FACTS, IT IS SEEN THAT FOR SEVERAL YEARS IN THE PAST THERE WAS A CREDIT BALANCE WHICH GOT CONVERTED INTO A DEBIT BALANCE ONLY FROM F.Y. 2007 - 08. SINCE NO INTEREST WAS PAID TO SHRI PRADEEP WINDLASS IN THE PAST ON HIS CREDIT BALANCES, IN ALL FAIRNESS NONE SHOULD BE CHARGED FROM HIM AT THIS POINT IN TIME ON HIS DEBIT BALA NCE. HOWEVER, IT IS SEE N THAT AN AMOUNT OF RS. 4,00,00 6/ - HAS BEEN PAID TO PERSONS SPECIFIED U/S 40A(2)(B) OF THE ACT AS PER NOTATION AT POINT NUMBER 18 IN THE AUDIT REPORT IN FORM 3CD (COPY OF THIS HAS BEEN FILED DURING APPELLATE PROCEEDINGS) IN LIEU OF D EPOSITS STANDING IN THEIR NAMES. IN THE INTEREST OF PARITY AND ITA NO . 5506 /DEL /201 2 WINDLASS STEEL CRAFT 23 FAIRNESS THIS AMOUNT OF RS. 21,79,448/ - SINCE THIS OUTGOING WOULD NOT BE JUSTIFIABLE ON DEPOSITS MADE BY RELATIVES WHEN NO INTEREST IS CHARGED ON ADVANCES MADE TO FAMILY MEMBERS. THE APPELLANT THUS GETS RELIEF OF RS. 17,79,442/ - (RS. 21,79,448 RS. 4,00,006/ - = RS. 17,79,442/ - ) ON THIS COUNT. 19. NOW THE DEPARTMENT IS IN APPEAL. THE LD. DR REITERATED THE OBSERVATION MADE BY THE AO AND STRONGLY SUPPORTED THE ASSESSMENT ORDER DATED 28.12.2011. 20. IN HIS RIVAL SUBMISSIONS THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND STRONGLY SUPPORTED THE IMPUGNED ORDER PASSED BY THE LD. CIT(A). 21. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON THE RECORD. IN THE PRESENT CASE, THE LD. CIT(A) HAS GIVEN A CATEGORICAL FINDING THAT IN ALL THE EARLIER YEARS SHRI PRADEEP WINDLASS WAS HAVING THE CREDIT BALANCE AND NO INTEREST WAS PAID TO HIM. THE LD. CIT (A) ALSO FOUN D THAT AN AMOUNT OF RS. 4,00,00 6/ - HAD BEEN PAI D TO THE PERSONS SPECIFIED U/S 4 0A(2)(B) OF THE ACT IN LIEU OF THE DEPOSIT STANDING IN THEIR NAMES AND THE SAID AMOUNT WAS TO BE DISALLOWED WHEN NO INTEREST IS CHARGED ON THE ADVANCED GIVEN TO THE FAMILY MEMBERS . THE ASSESSEE IS NOT IN APPEAL AGAINST THE SAID DISALLOWANCE OF RS. 4,00,006/ - . IN THE PRESENT CASE, THE INTEREST HAS BEEN PAID BY THE ASSESSEE ON THE ADVANCES OR LOANS UTILIZED FOR THE BUSINESS PURPOSES AND IT IS NOT THE CASE OF THE AO THA T THE LOANS OR ADVANCES ON ITA NO . 5506 /DEL /201 2 WINDLASS STEEL CRAFT 24 WHICH THE INTEREST AMOUNTING TO RS. 21,79,448/ - WAS PAID BY THE ASSESSEE WERE NOT USED FOR THE BUSINESS PURPOSES. IN THE INSTANT CASE, THE CONTENTION OF THE ASSESSEE THAT NO SUCH DISALLOWANCE WAS MADE IN THE EARLIER YEAR WAS NOT REBUTTED AND NO REASON HAS BEEN GIVEN FOR DEVIATING FROM THE PAST HISTORY. IN THE PRESENT CASE, THE CONTENTION OF THE ASSESSEE BEFORE THE LD. CIT(A) WAS THAT THERE WAS A CREDIT BALANCE OF RS. 3,81, 09,510/ - IN THE PARTNER S CAPITAL ACCOUNT AS ON 31.03.2009 A ND EVEN IF THE BALANCE OF RS. 2,72,43,107/ - IN THE ACCOUNT OF MR. PRADEEP WINDLASS WAS TO BE ADJUSTED , A NET BALANCE OF RS. 1,80,66,403/ - IS LEFT IN THE PARTNER S CAPITAL ACCOUNT. THE SAID CONTENTION OF THE ASSESSEE HAD NOT BEEN REBUTTED. WE, THEREFORE, BY CONSIDERING THE TOTALITY OF THE PECULIAR FACT S OF THE PRESENT CASE, DO NOT SEE ANY VALID GROUND TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A). 2 2 . IN THE RESULT, THE APPEAL OF THE DEPARTMENT IS DI S MISSED. ( ORDER PRON OUNCED IN THE COURT ON 06 /11 /20 15 ) SD/ - SD/ - (BEENA PILLAI ) (N. K. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 06 /11 /2015 *SUBODH* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSIST ANT REGISTRAR