MANGALAM DRUGS & ORGANICS LTD, MUMBAI V. DCIT 4(2), MUMBAI

ITA 5913/MUM/2009

• Counselvise Citation: 591319914 RSA 2009
• Duration Of Justice: 2 year(s) 2 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-01-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 12-01-2012
• Assessment Year: 2003-2004
• Appeal Filed On: 06-11-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PARTHSARTHY NAIK
• Assessee Lawyers: M SUBRAMANIAN
• Keywords: Business income; Depreciation; Notional interest; Bonafide mistake
• Section: 143(3); 80HHC; 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH -MUMBAI BEFORE SHRI R.S. PADVEKAR,(J.M.) AND SHRI RAJENDRA SINGH,(A.M.) ITA NO.2972/MUM/2006 ASSESSMENT YEAR : 2002-03 ITA NO.4476/MUM/2006 ASSESSMENT YEAR : 2003-04 AND ITA NO.5913/MUM/2009 ASSESSMENT YEAR : 2003-04 MANGALAM DRUGS & ORGANICS LTD. 292, PRINCESS STREET SECOND FLOOR, NEAR FLYOVER MUMBAI P.A. NO.(AAACM 7880 P) DY. COMMISSIONER OF INCOME TAX ; CIRCLE 4(2); AAYAKAR BHAVAN M.K. MARG MUMBAI-400 020. ( APPELLANT ) VS. ( RESPONDENT ) APPELLANT BY SHRI M. SUBRAMANIAN RESPONDENT BY : : SHRI PARTHSARTHY NAIK DATE OF HEARING : 12/01/2012 DATE OF PRONOUNCEMENT :20.1.2012 O R D E R PER RAJENDRA SINGH (AM) THESE APPEALS BY THE ASSESSEE ARE DIRECTED AGAINST DIFFERENT ORDERS DATED 22/2/2006, 11/5/2006 AND 11/8/2009 OF CIT(A) RELATING TO ASSESSMENT ORDERS AND PENALTY ORDERS FOR THE ASS ESSMENT YEARS 2002-03 AND 2003-04. ALL THESE APPEALS WHICH ARE I NTER-CONNECTED ARE BEING DISPOSED BY A SINGLE CONSOLIDATED ORDER F OR THE SAKE OF CONVENIENCE. ITA NO.2972/4476/06 & 5913/09 A.Y. :02-03 & 03-04 2 2. WE FIRST TAKE UP THE APPEALS OF THE ASSESSEE IN ITA NO.2972/M/06 AND 4476/M/06 . THESE TWO APPEALS RELATE TO ASSESSMENT ORDERS FOR ASSESSMENT YEARS 2002-03 AND 2003-04 AND ISSUES BEING MOSTLY IDENTICAL, THESE ARE BEING DEAL T WITH TOGETHER. 2.1 THE FIRST GROUND WHICH IS COMMON IN BOTH THE AP PEALS IS REGARDING DISALLOWANCE OF NOTIONAL INTEREST. THE A O NOTED THAT THE ASSESSEE HAD BORROWED HEAVY LOANS ON WHICH SUBSTANT IAL INTEREST RUNNING INTO CRORES HAD BEEN PAID. HOWEVER, IT WAS A LSO NOTED BY HIM THAT THE ASSESSEE HAD GIVEN LOANS/DEPOSITS TO CERTA IN PARTIES ON WHICH NO INTEREST WAS CHARGED. THE DETAILS ARE GIVEN BEL OW:- NAME OF PARTY ASSESSMENT YEAR 2002-03 (AMT. IN RS.) ASSESSMENT YEAR 2003-04 (AMT. IN RS.) ROSY KONODIA 25,00,000.00 25,00,000.00 SHRINKHALA SECURITIES 37,50,000.00 NIL TOTAL 62,50,000.00 25,00,000.00 2.1.1 THE ASSESSEE EXPLAINED THAT LOANS TO SHRINKH ALA SECURITIES HAD BEEN GIVEN IN CONNECTION WITH SOME B USINESS WHICH DID NOT MATERIALIZE. THE ASSESSEE, HOWEVER, COULD NOT GIVE DETAILS OF BUSINESS. IN RELATION TO ROSY KONODIA, NO REASONS WERE GIVEN FOR GIVING LOAN. AO, THEREFORE, CONCLUDED THAT THE LOA NS/DEPOSITS HAD NOT BEEN ADVANCED FOR THE PURPOSE OF BUSINESS. ACCORDI NGLY HE DISALLOWED THE NOTIONAL INTEREST @ 18% IN RELATION TO SAID PA RTIES WHICH CAME TO RS.11,25,000/- AND RS.4,50,000/- RESPECTIVELY FOR A SSESSMENT YEAR 2002-03 AND 2003-04. IN APPEAL, CIT(A) CONFIRMED T HE DISALLOWANCE ON THE GROUND THAT THERE WAS NO EVIDENCE TO SHOW TH AT LOANS/DEPOSITS HAD BEEN GIVEN FOR THE PURPOSE OF BUSINESS. AGGRIE VED BY THE SAID DECISION ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 2.1.2 BEFORE US, THE LD. AR FOR THE ASSESSEE SUBMI TTED THAT LOANS/DEPOSITS HAD BEEN GIVEN OUT OF OWN FUNDS WHIC H HAD ALSO BEEN NOTED BY THE AO AND, THEREFORE, NO DISALLOWANCE COU LD BE MADE OUT OF ITA NO.2972/4476/06 & 5913/09 A.Y. :02-03 & 03-04 3 INTEREST PAYABLE ON BORROWINGS MADE BY THE ASSESSEE . RELIANCE WAS PLACED ON THE JUDGMENT OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. RELIANCE UTILITIES AND POWER LTD. (313 ITR 340). THE LD. DR ON THE OTHER HAND PLACED RELIANCE ON THE ORDERS OF AUT HORITIES BELOW. 2.1.3 WE HAVE PERUSED THE RECORDS AND CONSIDERED T HE RIVAL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING NO TIONAL DISALLOWANCE OF INTEREST OUT OF INTEREST PAID ON BORROWINGS PROP ORTIONATE TO INTEREST FREE LOANS/DEPOSITS GIVEN TO SAME PARTY. IT HAS BEE N SUBMITTED BY THE ASSESSEE THAT LOANS AND DEPOSITS HAD BEEN GIVEN OUT OF OWN FUNDS AND THEREFORE, EVEN IF THERE WAS NO CONNECTION WITH BUS INESS, NO DISALLOWANCE COULD BE MADE OUT OF INTEREST PAID ON BORROWINGS. WE FIND THAT THREE IS NO DISPUTE THAT LOANS/DEPOSITS H AD BEEN GIVEN FROM OWN FUNDS AS AO HIMSELF IN PARA 4.3 OF THE ORDER HA S NOTED THAT THE ASSESSEE HAD USED SURPLUS FUNDS FOR NON BUSINESS PU RPOSES. ONCE THE LOANS/DEPOSITS HAVE BEEN GIVEN OUT OF OWN FUNDS, DI SALLOWANCE OF INTEREST PAID ON BORROWINGS WILL NOT BE JUSTIFIED. WE, THEREFORE, SET ASIDE THE ORDERS OF CIT(A) ON THIS POINT AND DELETE THE ADDITIONS MADE. 2.2 THE SECOND DISPUTE WHICH IS ALSO COMMON IN BOTH YEARS IS REGARDING DISALLOWANCE OF CLAIM OF DEDUCTION UNDER SECTION 80IB OF THE IT ACT. THE AO NOTED THAT THE ASSESSEE HAD MADE CL AIM OF DEDUCTION UNDER SECTION 80IB IN RESPECT OF THE FOLLOWING ITEM S OF INCOME ALSO. ITEM OF INCOME ASSESSMENT YEAR- 2002-03(IN RS.) ASSESSMENT YEAR 2003-04 (IN RS.) EXCISE DUTY REBATE CLAIM 6,02,176 5,44,249 SALES TAX SET OFF 4,19,232 11,65,529 HOUSE RENT RECEIVED 1,96,596 1,45,123 INTEREST INCOME 1,98,32,095 1,67,79,954 2.2.1 THE AO OBSERVED THAT DEDUCTION UNDER SECTION 80IB WAS ALLOWABLE ONLY IN RESPECT OF INCOME DERIVED FROM TH E INDUSTRIAL ITA NO.2972/4476/06 & 5913/09 A.Y. :02-03 & 03-04 4 UNDERTAKING BUT THE ITEMS OF INCOME MENTIONED ABOVE IN RESPECT OF WHICH DEDUCTION WAS CLAIMED WERE NOT OF THE NATURE OF INCOME DERIVED FROM THE INDUSTRIAL UNDERTAKING. THE AO THEREFORE, EXCLUDED THE AFORESAID ITEMS OF INCOME WHILE COMPUTING DEDUCTION UNDER SECTION 80IB AND ALLOWED DEDUCTION OF RS.4,75,010/- AND RS. 24,10,220/- ONLY AGAINST THE CLAIMS OF RS.30,53,027/-, RS.47,86,825/ - RESPECTIVELY FOR THE TWO YEARS. IN APPEAL, CIT(A) AGREED WITH THE A O THAT THE IMPUGNED ITEMS OF INCOME WERE NOT INCOME DERIVED FR OM INDUSTRIAL UNDERTAKING AND THEREFORE, CONFIRMED DISALLOWANCE M ADE BY AO AGGRIEVED BY WHICH ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 2.2.2 BEFORE US, THE LD. AR FOR THE ASSESSEE SUBMI TTED THAT THE ISSUE WAS COVERED BY THE DECISION OF THE TRIBUNAL I N ASSESSEES OWN CASE IN ASSESSMENT YEAR 2001-02 IN ITA NO.6550/M/06 AND THEREFORE, THE ISSUE MAY BE DECIDED IN THE LIGHT OF THE DECISI ON OF THE TRIBUNAL IN THAT YEAR. THE LD. DR PLACED RELIANCE ON THE ORDER S OF THE AUTHORITIES BELOW. 2.2.3 WE HAVE PERUSED THE RECORDS AND CONSIDERED T HE RIVAL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING AL LOWABILITY OF DEDUCTION UNDER SECTION 80IB IN RELATION TO ITEMS O F INCOME SUCH AS EXCISE DUTY REBATE CLAIM, SALES TAX SET OFF, HOUSE RENT RECEIVED AND INTEREST INCOME. WE FIND THAT THE SAME ISSUE HAS A LREADY BEEN CONSIDERED BY THE TRIBUNAL IN ASSESSEES OWN CASE F OR ASSESSMENT YEAR 2001-02 IN ITA NO.6550/M/06 IN WHICH THE TRIBUNAL I N THE ORDER DATED 24.8.2011 NOTED THAT THE HON'BLE SUPREME COURT IN CA SE OF LIBERTY INDIA LTD. (317 ITR 218) HAD HELD THAT SECTION 80IB DID NOT COVER PROFIT OTHER THAN PROFIT FROM THE SOURCE OF FIRST D EGREE, THUS MAKING IT CLEAR THAT ANY INCIDENTAL INCOME OR INCOME ATTRIBUT ABLE TO BUSINESS HAS TO BE EXCLUDED AND ONLY INCOME DERIVED FROM BUSINES S OPERATIONS HAS TO BE CONSIDERED. THE TRIBUNAL FURTHER HELD THAT S ALES TAX SET OFF AND EXCISE DUTY REFUND HAD ARISEN FROM THE BUSINESS OPE RATIONS OF THE UNDERTAKING AND THEREFORE, SAME WILL BE ELIGIBLE FO R DEDUCTION UNDER ITA NO.2972/4476/06 & 5913/09 A.Y. :02-03 & 03-04 5 SECTION 80IB. THE TRIBUNAL ALSO HELD THAT RENT AND INTEREST INCOME WAS ONLY INCIDENTAL BUSINESS INCOME AND DID NOT FORM PA RT OF THE INCOME FROM ELIGIBLE BUSINESS OF THE UNDERTAKING AND THERE FORE, DEDUCTION UNDER SECTION 80IB WILL NOT BE AVAILABLE. RESPECTF ULLY FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2001-02 (SUPRA), WE HOLD THAT THE DEDUCTION UNDER S ECTION 80IB WILL BE ALLOWABLE IN RESPECT OF SALES TAX SET OFF AND EX CISE DUTY REBATE BUT NOT IN RELATION TO THE RENTAL AND INTEREST INCOME. THE GROUND RAISED IS THUS PARTLY ALLOWED. 2.3 THE THIRD DISPUTE IS REGARDING INCLUSION OF EXC ISE DUTY AND SALES TAX IN TOTAL TURNOVER WHILE COMPUTING DEDUCTION UND ER SECTION 80HHC. THE AO HAD INCLUDED EXCISE DUTY AND SALES TAX IN TO TAL TURNOVER IN COMPUTATION OF DEDUCTION UNDER SECTION 80HHC. CIT(A) DIRECTED THE AO TO EXCLUDE THE EXCISE DUTY AND SALES TAX FROM TO TAL TURNOVER FOLLOWING THE JUDGMENT OF HONBLE HIGH COURT OF BOMBA Y IN CASE OF SUDERSHAN CHEMICALS (245 ITR 769) AGGRIEVED BY THE SAID DECISION THE ASSESSEE HAS RAISED THE GROUND. 2.3.1 WE HAVE HEARD BOTH PARTIES, PERUSED RECORDS AND CONSIDERED THE MATTER CAREFULLY. THE EXCISE DUTY A ND SALES TAX ARE NOT REQUIRED TO BE INCLUDED IN THE TOTAL TURNOVER WHILE COMPUTING DEDUCTION UNDER SECTION 80HHC IN VIEW OF JUDGMENT OF HONBLE HI GH COURT OF BOMBAY IN CASE OF SUDERSHAN CHEMICALS (SUPRA), WHIC H HAS ALSO BEEN AFFIRMED BY THE HON'BLE SUPREME COURT IN CASE OF LAX MI MACHINE WORKS (290 ITR 667). THE DECISION OF CIT(A) TO DIR ECT THE AO TO EXCLUDE EXCISE DUTY AND SALES TAX FROM TOTAL TURNOV ER IS IN ACCORDANCE WITH THE ABOVE JUDGMENTS WHICH HAS BEEN FOLLOWED BY CIT(A) AND WHICH IS IN FAVOUR OF THE ASSESSEE. THE GROUND HAS BEEN WRONGLY RAISED BY THE ASSESSEE AND IS DISMISSED. 2.4 THE FOURTH DISPUTE IS REGARDING EXCLUSION OF CE RTAIN SALE PROCEEDS FROM TURNOVER ON THE GROUND OF NON REALIZA TION IN CONVERTIBLE ITA NO.2972/4476/06 & 5913/09 A.Y. :02-03 & 03-04 6 FOREIGN EXCHANGE WITHIN THE SPECIFIED PERIOD. THE AO NOTED THAT EXPORT PROCEEDS FROM CERTAIN PARTIES HAD NOT BEEN R EALIZED WITHIN A SPECIFIED PERIOD NOR PERMISSION OF RBI HAD BEEN OBT AINED FOR EXTENSION OF TIME. THE DETAILS WERE AS UNDER :- NAME ASSESSMENT YEAR 2002-03 (IN RS.) ASSESSMENT YEAR 2003-04 (IN RS.) KAMPALA PHARMACEUTICALS 38,00,286 2,67,650 OLLA MEDICINE PRODUCT LTD. 2,22,644 NIL PHYTO RIKER PHARMACEUTICAL 1,44,260 NIL 2.4.1 THE AO, THEREFORE, EXCLUDED THE ABOVE SALE P ROCEEDS FROM EXPORT TURNOVER AND TOTAL TURNOVER WHILE COMPUTING DEDUCTION UNDER SECTION 80HHC. IN APPEAL CIT(A) CONFIRMED THE ORDER OF AO AGGRIEVED BY WHICH ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL . 2.4.2 BEFORE US, THE LD. AR FOR THE ASSESSEE SUBMI TTED THAT THE ASSESSEE HAD MADE APPLICATION TO RBI IN TIME FOR EX TENSION OF TIME AND EXPORT PROCEEDS HAD BEEN RECEIVED WITHIN THE EXTEND ED TIME PERIOD WHICH HAD ALSO BEEN CONFIRMED BY RBI VIDE LETTER DA TED 19.10.2005 WHICH WAS NOT AVAILABLE AT THE TIME OF PASSING OF O RDER BY AO. IT WAS POINTED OUT THAT THE SAID POSITION HAD BEEN BROUGHT TO THE NOTICE OF THE CIT(A) IN THE WRITTEN SUBMISSIONS MADE TO HIM W HICH IS AVAILABLE AT PAGE 37 OF THE PAPER BOOK. IT WAS ACCORDINGLY R EQUESTED THAT THE AO MAY BE REQUESTED TO INCLUDE THE SAID PROCEEDS IN THE TURNOVER WHILE COMPUTING DEDUCTION UNDER SECTION 80HHC. THE L D. DR PLACED RELIANCE ON THE ORDERS OF AUTHORITIES BELOW. 2.4.3 WE HAVE PERUSED THE RECORDS AND CONSIDERED T HE MATTER CAREFULLY. THE DISPUTE IS REGARDING EXCLUSION OF C ERTAIN EXPORT PROCEEDS WHILE COMPUTING DEDUCTION UNDER SECTION 80 HHC ON THE GROUND THAT THE SAME HAD NOT BEEN RECEIVED IN CONVE RTIBLE FOREIGN EXCHANGE WITHIN THE PERIOD SPECIFIED IN THE ACT OR WITHIN THE PERIOD ITA NO.2972/4476/06 & 5913/09 A.Y. :02-03 & 03-04 7 EXTENDED BY RBI. THE LD. AR HAS SUBMITTED THAT THE ASSESSEE HAD APPLIED TO RBI FOR EXTENSION OF TIME FOR RECEIVING THE EXPORT PROCEEDS WHICH HAD BEEN ALLOWED AND THE SAID PROCEEDS HAD BE EN RECEIVED WITHIN THE EXTENDED TIME PERIOD WHICH WAS CLEAR FRO M THE SUBMISSION MADE BEFORE CIT(A). IN OUR VIEW EXPORT PROCEEDS HA VE TO BE INCLUDED IN THE TURNOVER IF THE SAME HAD BEEN RECEIVED WITHI N EXTENDED PERIOD. HOWEVER, THIS ASPECT REQUIRES VERIFICATION BY THE AO AS DETAILS REGARDING APPLICATION TO RBI AND THE PERMISSION OF RBI EXTENDING THE TIME PERIOD WAS NOT AVAILABLE BEFORE AO. WE, THERE FORE, RESTORE THIS ASPECT TO THE AO FOR PASSING A FRESH ORDER AFTER NE CESSARY VERIFICATION AND AFTER ALLOWING OPPORTUNITY OF HEARING TO THE AS SESSEE. 2.5 THE FIFTH DISPUTE IS REGARDING SET OFF OF LOSS FROM TRADING ACTIVITIES AGAINST PROFIT FROM THE MANUFACTURING AC TIVITIES WHILE COMPUTING DEDUCTION UNDER SECTION 80HHC. THE ASSESSE E HAD SHOWN LOSS IN BOTH THE YEARS FROM TRADING OF GOODS WHICH HAD NOT BEEN SET OFF AGAINST PROFIT FROM MANUFACTURING AND EXPORT OF GOO DS AND ENTIRE PROFIT FROM MANUFACTURING HAD BEEN CLAIMED AS ELIGIBLE FOR DEDUCTION UNDER SECTION 80HHC. THE AO HOWEVER SET OFF LOSS FROM TRAD ING ACTIVITY AGAINST PROFIT FROM MANUFACTURING ACTIVITY AND ONLY NET PROFIT WAS CONSIDERED FOR DEDUCTION UNDER SECTION 80HHC. ORDER OF AO WAS UPHELD BY CIT(A) AGAINST WHICH ASSESSEE IS IN APPEA L BEFORE THE TRIBUNAL. 2.5.1 BEFORE US, THE LD. AR FOR THE ASSESSEE SUBMI TTED THAT THE TRADING ACTIVITIES AND MANUFACTURING ACTIVITIES UND ERTAKEN BY THE ASSESSEE WERE SEPARATE AND INDEPENDENT AND, THEREFO RE, THESE SHOULD NOT BE CONSIDERED TOGETHER. IT WAS ACCORDINGLY REQ UESTED THAT ONLY PROFIT FROM MANUFACTURING ACTIVITY SHOULD BE CONSID ERED FOR DEDUCTION UNDER SECTION 80 HHC AND LOSS FROM TRADING WHICH WAS LOCAL ACTIVITY SHOULD BE IGNORED. THE LD. DR ON THE OTHER HAND PL ACED RELIANCE ON THE ORDERS OF AUTHORITIES BELOW. ITA NO.2972/4476/06 & 5913/09 A.Y. :02-03 & 03-04 8 2.5.2 WE HAVE PERUSED THE RECORDS AND CONSIDERED T HE RIVAL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING SE T OFF OF LOSS FROM TRADING ACTIVITIES AGAINST PROFIT FROM MANUFACTURIN G ACTIVITIES WHILE COMPUTING DEDUCTION UNDER SECTION 80HHC. THE LD. AR FOR THE ASSESSEE SUBMITTED THAT THE TRADING ACTIVITIES WERE LOCAL AND SEPARATE AND THEREFORE, SHOULD NOT BE CONSIDERED WHILE COMPU TING DEDUCTION UNDER SECTION 80HHC. THE LD. AR HOWEVER COULD NOT PR ODUCE ANY EVIDENCE TO SHOW THAT SEPARATE ACCOUNTS HAD BEEN MA INTAINED FOR TRADING ACTIVITIES NOR ANY SEPARATE AUDITED ACCOUNT S IN RESPECT OF THESE ACTIVITIES HAD BEEN PRODUCED EITHER BEFORE LOWER AU THORITIES OR BEFORE US. THEREFORE, THE TRADING AND MANUFACTURING ACTIVI TIES HAVE TO BE TAKEN TOGETHER AND LOSS FROM TRADING ACTIVITIES HAS TO BE SET OFF AGAINST PROFIT FROM MANUFACTURING ACTIVITY AND ONLY NET PRO FIT SHALL BE ELIGIBLE FOR DEDUCTION UNDER SECTION 80 HHC. THE POSITION IS SETTLED BY THE JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF IPC A LABORATORIES LTD. (266 ITR 521) IN WHICH IT HAS BEEN HELD THAT T HE PROFITS/LOSS FROM BOTH MANUFACTURING AND TRADING ACTIVITIES HAS TO BE CONSIDERED AND ONLY NET PROFIT/LOSS WILL BE ELIGIBLE FOR DEDUCTION UNDER SECTION 80HHC AND THAT THE DEDUCTION WILL BE ALLOWABLE ONLY IF TH ERE IS NET PROFIT. WE, THEREFORE, SEE NO INFIRMITY IN THE ORDERS OF AUTHOR ITIES BELOW IN DISALLOWING THE CLAIM OF THE ASSESSEE. THE ORDER O F CIT(A) IS ACCORDINGLY UPHELD. 2.6 THE NEXT DISPUTE IS REGARDING NATURE OF CERTAIN RECEIPTS WHILE COMPUTING DEDUCTION UNDER SECTION 80HHC. THE ASSESSE E HAD TREATED THE FOLLOWING RECEIPTS AS INTEGRAL PART OF BUSINESS OPERATIONS AND 90% OF THE SAME HAD NOT BEEN REDUCED FROM PROFIT OF BUS INESS AS PER EXPLANATION (BAA). THE DETAILS ARE AS UNDER :- NATURE OF RECEIPTS ASSESSMENT YEAR 2002-03 (IN RS.) ASSESSMENT YEAR 2003-04 (IN RS.) EXCISE DUTY REBATE CLAIM 6,02,176.00 5,49,249.00 SALES TAX SET 4,19,232.00 11,65,529.00 ITA NO.2972/4476/06 & 5913/09 A.Y. :02-03 & 03-04 9 OFF HOUSE RENT RECEIVED 1,96,596.00 1,45,523.00 INTEREST INCOME 1,98,32,098.00 1,67,79,954.00 TOTAL 2,10,50,099.00 1,86,34,855.00 2.6.1 AO HOWEVER HELD THAT ABOVE RECEIPTS WERE COV ERED BY EXPLANATION (BAA) AS PER WHICH 90% OF BROKERAGE, CO MMISSION, INTEREST, RENT, CHARGES, OR ANY RECEIPT OF SIMILAR NATURE HAS TO BE EXCLUDED FROM THE PROFIT OF BUSINESS. THE AO THER EFORE, REDUCED 90% OF THE ABOVE RECEIPTS FROM THE PROFITS OF BUSINESS WHILE COMPUTING DEDUCTION UNDER SECTION 80HHC. IN APPEAL, CIT(A) CON FIRMED THE ORDER OF AO AGGRIEVED, BY WHICH THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 2.6.2 BEFORE US, THE LD. AUTHORISED REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT THIS ISSUE HAS ALREADY BEEN CONSIDERED BY THE TRIBUNAL IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2001-02 IN ITA NO.6550/M/2006 AND THEREFORE, THE ISSUE MAY BE DECI DED FOLLOWING THE SAID DECISION. THE LD. DR ON THE OTHER HAND PL ACED RELIANCE ON THE ORDERS OF AUTHORITIES BELOW. 2.6.3 WE HAVE PERUSED THE RECORDS AND CONSIDERED T HE RIVAL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING APP LICABILITY OF PROVISIONS OF EXPLANATION (BAA) IN RELATION TO RECE IPTS LIKE EXCISE DUTY REBATE, SALES TAX SET OFF, HOUSE RENT RECEIVED AND INTEREST INCOME. AS PER EXPLANATION (BAA), 90% OF BROKERAGE, COMMISSION , RENT, INTEREST, ANY CHARGES OR ANY RECEIPT OF SIMILAR NATURE IS REQ UIRED TO BE REDUCED FROM PROFIT OF BUSINESS WHILE COMPUTING DEDUCTION U NDER SECTION 80HHC. WE FIND THAT THIS ASPECT HAS ALREADY BEEN CON SIDERED BY THE TRIBUNAL IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2001-02 IN ITA NO.6550/M/06. THE TRIBUNAL TOOK THE VIEW THAT EXCI SE DUTY REBATE AND SALES TAX SET OFF ARE DIRECTLY RELATED TO BUSINESS OPERATIONS AND THEREFORE, THESE WILL NOT BE COVERED UNDER THE PRO VISIONS OF EXPLANATION (BAA) AND THEREFORE, 90% OF THESE RECEI PTS ARE NOT ITA NO.2972/4476/06 & 5913/09 A.Y. :02-03 & 03-04 10 REQUIRED TO BE EXCLUDED AS PER EXPLANATION (BAA). THE TRIBUNAL ALSO HELD THAT RENT AND INTEREST WERE COVERED BY EXPLANA TION (BAA) AND 90% OF THESE RECEIPTS ARE REQUIRED TO BE DEDUCTED F ROM PROFIT OF BUSINESS. THE TRIBUNAL ALSO HELD THAT 90% OF GROSS INTEREST AND RENT AND NOT NET INTEREST AND RENT WILL BE REDUCED FROM PROFITS OF THE BUSINESS IN VIEW OF THE JUDGMENT OF HONBLE BOMBAY HI GH COURT IN CASE OF ASIAN STAR CO. LTD. (326 ITR 56). RESPECTF ULLY FOLLOWING THE SAID DECISION, WE HOLD THAT 90% OF GROSS INTEREST A ND GROSS RENT WILL BE REDUCED FROM PROFITS OF BUSINESS AND THERE WILL BE NO DEDUCTION ON ACCOUNT OF SALES TAX SET OFF AND EXCISE DUTY REBATE . THE GROUND RAISED BY THE ASSESSEE IS THUS PARTLY ALLOWED. 2.7 THE NEXT DISPUTE IS REGARDING APPLICABILITY OF PROVISIONS OF SECTION 80IA (9). THE AO NOTED THAT IN TERMS OF TH E SAID PROVISIONS, WHERE ANY AMOUNT OF PROFIT OR GAIN OF INDUSTRIAL UN DERTAKING WAS CLAIMED AND ALLOWED AS DEDUCTION UNDER SECTION 80IA , THE DEDUCTION TO THE EXTENT OF SUCH PROFIT/GAIN SHALL NOT BE ALLOWED UNDER ANY OTHER PROVISIONS OF CHAPTER VI-A. THE AO, THEREFORE, HE LD THAT DEDUCTION ALLOWED UNDER SECTION 80IA WOULD BE REDUCED FROM TH E DEDUCTION ALLOWABLE UNDER SECTION 80HHC AND ONLY NET AMOUNT WOU LD BE ALLOWED UNDER SECTION 80HHC. THE ORDER OF AO WAS CONFIRMED BY CIT(A) AGGRIEVED BY WHICH ASSESSEE IS IN APPEAL BEFORE TRI BUNAL. 2.7.1 BEFORE US THE LD. AR FOR THE ASSESSEE SUBMIT TED THAT THE ISSUE RAISED IN THIS GROUND WAS COVERED BY THE JUDG MENT OF HONBLE BOMBAY HIGH COURT IN CASE OF ASSOCIATED CAPSULES P. LTD. VS. DCIT (332 ITR 42) IN WHICH IT HAS BEEN HELD THAT DEDUCTI ON UNDER SECTION 80IA AND 80 HHC HAD TO BE ALLOWED WITH RESPECT TO PRO FIT OF BUSINESS OF THE UNDERTAKING AND PROFIT ALLOWED AS DEDUCTION UNDER SECTION 80IA IS NOT REQUIRED TO BE REDUCED FROM THE PROFIT OF BU SINESS WHILE COMPUTING DEDUCTION UNDER SECTION 80 HHC. THE ONLY CONDITION WAS THAT THE TOTAL DEDUCTION ALLOWED UNDER THE TWO PROV ISIONS SHOULD NOT EXCEED THE PROFITS OF BUSINESS OF THE UNDERTAKING. WE, THEREFORE, SET ITA NO.2972/4476/06 & 5913/09 A.Y. :02-03 & 03-04 11 ASIDE THE ORDER OF CIT(A) AND DIRECT THE AO TO COMP UTE DEDUCTION UNDER SECTION 80IA AND 80HHC IN VIEW OF THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT (SUPRA). 3. ITA NO.5913/MUM/2009 ASSESSMENT YEAR 2003-04): IN THIS APPEAL, THE ONLY DISPUTE RAISED IS REGARDIN G LEVY OF PENALTY UNDER SECTION 271(1)(C) FOR ASSESSMENT YEAR 2003-04 . 3.1 THE AO NOTED THAT WHILE COMPUTING TOTAL INCOME UNDER SECTION 143(3) FOR THE SAID ASSESSMENT YEAR, ASSESSEE HAD C LAIMED DEPRECIATION ON ELECTRICAL FITTINGS @ 25% TREATING THE SAME AS PLANT AND MACHINERY WHEREAS DEPRECIATION ACTUALLY WAS ALL OWABLE ONLY @ 15% FROM ASSESSMENT YEAR 2003-04. THE AO THUS DISA LLOWED EXCESS DEPRECIATION OF RS.1,01,484/- AND ALSO INITIATED PE NALTY PROCEEDINGS UNDER SECTION 271(1)(C) AND LEVIED PENALTY @ 100% O F TAX SOUGHT TO BE EVADED AMOUNTING TO RS.37,295/-. IN APPEAL CIT (A) CONFIRMED THE ORDER OF AO AGGRIEVED BY WHICH THE ASSESSEE IS IN A PPEAL BEFORE THE TRIBUNAL. 3.2 BEFORE US, THE LD. AR SUBMITTED THAT THERE WAS A BONAFIDE MISTAKE IN THE CLAIM OF DEPRECIATION ON ELECTRICAL FITTINGS. EARLIER TILL ASSESSMENT YEAR 2002-03, DEPRECIATION HAD BEEN CLAI MED ON ELECTRICAL FITTINGS TREATING THE SAME AS PLANT AND MACHINERY A S THERE WAS NO SPECIFIC PROVISION. THE AMENDMENT WAS MADE ONLY FR OM 2003-04 IN WHICH ELECTRICAL FITTINGS WERE MADE PART OF FURNITU RE AND FIXTURES ENTITLED FOR DEPRECIATION @ 15%. THIS WAS THE FIRS T YEAR OF THE AMENDED PROVISIONS WHICH HAD BEEN OMITTED TO BE CON SIDERED BY THE ACCOUNTANT AND ALSO GOT UNNOTICED BY THE AUDITORS. IT WAS ACCORDINGLY URGED THAT PENALTY SHOULD BE DELETED. THE LD. DR O N THE OTHER HAND PLACED RELIANCE ON THE ORDERS OF AUTHORITIES BELOW. ITA NO.2972/4476/06 & 5913/09 A.Y. :02-03 & 03-04 12 3.3 WE HAVE PERUSED THE RECORDS AND CONSIDERED THE MATTER CAREFULLY. THE DISPUTE IS REGARDING LEVY OF PENALT Y UNDER SECTION 271(1)(C) IN RELATION TO DISALLOWANCE OF CLAIM OF D EPRECIATION ON ELECTRICAL FITTINGS. TILL 2002-03, THERE WAS NO SP ECIFIC PROVISION FOR DEPRECIATION ON ELECTRICAL FITTINGS AND THEREFORE T HESE WERE BEING CONSIDERED UNDER THE RESIDUAL HEAD OF PLANT AND MAC HINERY ENTITLED FOR DEPRECIATION @ 25%. FROM ASSESSMENT YEAR 2003-04, ELECTRICAL FITTINGS WERE MADE PART OF FURNITURE AND FITTINGS E NTITLED FOR DEPRECIATION AT A LOWER RATE OF 15%. THE CASE OF T HE ASSESSEE IS THAT THIS WAS A TRANSITIONAL YEAR AND THEREFORE, CLAIM W AS MADE AT THE OLD RATE DUE TO BONAFIDE MISTAKE BY THE ACCOUNTANT WHIC H HAD ALSO GONE UNNOTICED BY THE AUDITORS. CONSIDERING THE SMALLNE SS OF THE AMOUNT AND THIS BEING THE FIRST YEAR OF AMENDED PROVISIONS , IN OUR VIEW THE CLAIM OF DEPRECIATION AT A HIGHER RATE HAS TO BE CO NSIDERED DUE TO BONAFIDE MISTAKE. THEREFORE, IN OUR VIEW IT IS NOT A FIT CASE FOR LEVY OF PENALTY FOR CONCEALMENT OF INCOME WHEN ALL NECESSAR Y DETAILS HAD BEEN FILED WITH THE RETURN OF INCOME. WE ACCORDINGLY SE T ASIDE THE ORDER OF CIT(A) AND DELETE THE PENALTY LEVIED. 17. IN THE RESULT, APPEAL OF THE ASSESSEE IN ITA NO .5913/M/09 FOR ASSESSMENT YEAR 2003-04 IS ALLOWED WHEREAS THOSE IN ITA NOS. 2972/M/06 AND 4476/M/06 ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 20.1.2012. SD/- SD/- (R.S. PADVEKAR) JUDICIAL MEMBER (RAJENDRA SINGH) ACCOUNTANT MEMBER MUMBAI, DATED: 20.1.2012. JV. ITA NO.2972/4476/06 & 5913/09 A.Y. :02-03 & 03-04 13 COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.