ITO, New Delhi V. M/s Solman Export (India), New Delhi

ITA 5975/DEL/2010

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 0235 (ITAT-DELHI)
• Duration Of Justice: 2 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-03-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Assessment Year: 2000-2001
• Appeal Filed On: 29-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KISHORE B
• Assessee Lawyers: RAJESH ARORA
• Keywords: Business income; Difference of opinion
• Section: 80HHC; 148; 12

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH G NEW DELHI) BEFORE SHRI C.L. SETHI, JUDICIAL MEMBER AND SHRI K.G. BANSAL, ACCOUNTANT MEMBER I.T.A. NO.5975/D/2010 ASSESSMENT YEAR :2000-01 INCOME TAX OFFICER, VS. M/S SOLMAN EXPORTS (INDIA), WARD 24(3), NEW DELHI 501/A-8, SAINIK FARMS,N.D. PAN NO.AAOFS 9045 B (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI KISHORE B. SR. DR RESPONDENT BY : SHRI RAJESH ARORA, FCA ORDER PER K.G. BANSAL: AM: THE FACTS OF THE CASE ARE THAT THE ASSESSEE FILED ITS RETURN ON 30.20.2000 DECLARING NIL INCOME. THE RETURN WAS PROCESSED U/S 143( 3)(1)(A) OF THE I.T. ACT, 1961 (THE ACT). THEREAFTER, ASSESSMENT PROCEEDINGS WERE INITIATED BY ISSUING A NOTICE U/S 148 ON 29.03.2004. THIS ASSESSMENT WAS COMPLETED ON 18 .03.2005 AT TOTAL INCOME OF `94,05,380/-. PENALTY PROCEEDINGS WERE ALSO IN ITIATED U/S 271(1)(C) OF THE ACT. THE PENALTY PROCEEDINGS WERE COMPLETED ON 28.06.20 10 BY LEVYING PENALTY OF `15,59,138/-, BEING THE MINIMUM PENALTY IMPO SABLE ON THE ASSESSEE. THE ASSESSEE MOVED AN APPEAL BEFORE THE CIT(A)-XIII, NEW DELH I. HE DISPOSED OFF THE APPEAL ON 05.10.2010 IN APPEAL NO.56/10-11, IN WHI CH PENALTY WAS DELETED. THE POINT OF LEVY OF THE PENALTY WAS IN REGARD TO THE TR EATMENT OF INTEREST OF `40,49,711/- EARNED ON FIXED DEPOSITS PLACED WITH THE BA NK FROM THE SURPLUS FUNDS OF THE ASSESSEE. THE ASSESSING OFFICER HELD THAT THE INTEREST WAS TAXABLE UNDER THE RESIDUARY HEAD AND NOT BUSINESS INCOME. CONSEQUENTLY, DEDUCTION U/S 80HHC AND SECTION 80 IA BECAUSE NOT ADMISSIBLE ON THE INTEREST I NCOME. THE LEARNED 5975-2010-SEI 2 CIT(A) INTER ALIA HELD THAT THE ISSUE IS HIGHLY DEBATABL E AND, THEREFORE, THE CLAIM DOES NOT CONSTITUTE FURNISHING OF INACCURATE PARTICUL ARS OF INCOME. THUS, THE EXPLANATION OF THE ASSESSEE WAS HELD TO BE BONAFIDE. AGGR IEVED BY THIS ORDER, THE REVENUE IS IN APPEAL BEFORE US, AND THE ONLY SUBSTANTIVE G ROUND IS TO THE EFFECT THAT THE LEARNED ERRED IN DELETING THE PENALTY OF `15,59,138/-, I MPOSED BY THE ASSESSING OFFICER U/S 271(1)(C) OF THE ACT. 2. BEFORE US, THE LEARNED DR REFERRED TO THE DECISION BY HON BLE DELHI HIGH COURT RENDERED ON 12.01.2007, IN THE CASE OF CIT VS. SRI RAM HONDA POWER EQUIPMENT (2007) 289 ITR 475 IN WHICH IT HAS BEEN HELD THAT INTEREST EARNED ON FIXED DEPOSITS PLACED WITH THE BANK FROM THE SURPLUS FUN DS OF THE BUSINESS DOES NOT CONSTITUTE BUSINESS INCOME FOR THE PURPOSE OF DEDUCTION U/S 80HHC. IT WAS SUBMITTED THAT EVEN AFTER RECEIPT OF THE JUDGMENT, THE ASSES SEE DID NOT REVISE ITS CLAIM BUT PERSISTED IN ARGUING THAT THE INTEREST INCOME W AS ELIGIBLE FOR DEDUCTION U/S 80HHC. THEREFORE, THE CONDUCT OF THE ASSESSEE IS AGAINST T HE FINDINGS OF THE HONBLE DELHI HIGH COURT, WHICH IS THE JURISDICTIONAL HIGH COURT. SUCH A CONDUCT AMOUNTS TO CONTUMACIOUS CONDUCT. THEREFORE, IT IS STR ONGLY URGED THAT THE PENALTY LEVIED BY THE ASSESSING OFFICER MAY BE RESTORED AND THE ORD ER OF THE LEARNED CIT(A) MAY BE SET ASIDE. 3. IN REPLY, THE LEARNED COUNSEL REFERRED TO PAGE NOS.16, 2 2 AND 36 OF THE PAPER BOOK. PAGE NO.16 IS THE PROFIT AND LOSS ACCOUNT OF THIS YEAR WHICH SHOWS GROSS PROFIT OF ABOUT `3.82 CRORES AND INTEREST OF ABO UT `40.49 LAC. PAGE NOS. 22 TO 33 CONTAIN THE TAX AUDIT REPORT IN FORM NO.3CD. P AGE NOS. 34 TO 36 CONTAIN FORM NO.10CCAC, SIGNED BY THE CA AND COMPUTING DEDUCTI ON U/S 80HHC AT `3,22,47,295/-. WHILE COMPUTING THE DEDUCTION, THE AUDI TOR HAS REDUCED 90% OF INTEREST ON THE FIXED DEPOSITS FROM THE PROFITS OF BUSINES S. THE CASE OF THE LEARNED 5975-2010-SEI 3 COUNSEL IS THAT ALL THE FACTS HAVE BEEN DISCLOSED TRULY AND FULLY IN THE RETURN OF INCOME. THE CLAIM IS MADE ON THE BASIS OF THE REPORT OF THE AUDITOR AS PRESCRIBED IN THE STATUTE. THEREFORE, NO MALA FIDE CONDUCT CAN BE ATTRIB UTED TO THE ASSESSEE. THIS IS ONLY A CASE OF DIFFERENCE OF OPINION, WHICH CANNOT LEAD TO THE LEVY OF THE PENALTY. 4. WE HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSION S MADE BEFORE US. THE ASSESSEE HAD FILED THE RETURN OF INCOME ON 30.10.2000. THE DECISION IN THE CASE OF SRI RAM HONDA POWER EQUIPMENT WAS RENDERED ON 12.0 1.2007, MUCH AFTER THE FILING OF THE RETURN OF INCOME. THEREFORE, MALA FIDE C ONDUCT CANNOT BE ATTRIBUTED TO THE ASSESSEE ON THE BASIS OF THE DECISION WHEN THE RETURN OF INCOME WAS FILED. THE ASSESSMENT WAS COMPLETED ON 18.03.2005 AND THE AFORESA ID DECISION HAD NOT BEEN RENDERED EVEN TILL DATE. THEREFORE, THERE COULD HAVE BEEN NO OCCASION FOR THE ASSESSEE TO REVISE THE CLAIM IN THE COURSE OF ASSESSMENT ON THE BASIS OF THIS DECISION. THE FURTHER POINT WHICH GO IN FAVOUR OF THE ASSESSEE IS T HAT 90% OF THE INTEREST WAS REDUCED FROM THE BUSINESS INCOME IN THE LIGHT OF THE PROV ISION CONTAINED IN CLAUSE (BAA) OF THE EXPLANATION TO SECTION 80HHC. THEREFORE, TH E CLAIM WAS MADE ONLY IN RESPECT OF 10% OF THE INTEREST. IF THIS AMOUNT IS ALSO REDUCED FROM THE BUSINESS INCOME FOR THE PURPOSE OF TAXATION U/S 56, EXPENDITURE IN CURRED ON EARNING INTEREST INCOME, THOUGH NOMINAL, WOULD HAVE TO BE ALLOWED IN CO MPUTING THE INCOME CHARGEABLE UNDER THE RESIDUARY HEAD. THEREFORE, ULTIMATELY T HE CLAIM IS IN RESPECT OF ONLY A SMALL FRICTION OF THE INTEREST EARNED BY THE A SSESSEE. 4.1 COMING TO THE LEGAL ISSUES, IT HAS BEEN STATED EVEN BY THE APEX COURT THAT COMPUTATION OF DEDUCTION U/S 80HHC IS BESET WITH PROBL EMS AS THE PROVISION IS QUITE COMPLICATED. THE DISPUTE WHETHER INTEREST INCOME EARN ED ON SURPLUS FUNDS IS BUSINESS INCOME OR OTHER INCOME HAD BEEN SUBJECT MATTER OF LITIGATION. THIS ISSUE WAS SET AT REST BY THE JURISDICTIONAL HIGH COURT ON 12 .01.2007 IN SO FAR AS THE 5975-2010-SEI 4 TERRITORIES OF DELHI ARE CONCERNED. PRIOR TO THE DECISION, THERE WERE DIFFICULTIES IN DECIDING THE NATURE OF INTEREST INCOME. IN SUCH CIRCUMST ANCES, WE ARE OF THE VIEW THAT THE CLAIM CANNOT BE SAID TO BE MALA FIDE. IN OTHER WORDS, THE EXPLANATION TENDERED BY THE ASSESSEE IN PROCEEDINGS U/S 271(1)(C) HAS TO BE HELD BONA FIDE AS DONE BY THE LEARNED CIT(A). 5. IN RESULT, THE APPEAL IS DISMISSED. THIS ORDER WAS PRONOUNCED IN OPEN COURT ON 11.03.2011. SD/- SD/- ( C.L. SETHI ) ( K.G. BANSAL ) JUDICIAL MEMBER ACCOUNTANT ME MBER DT.11.03.2010. NS COPY FORWARDED TO:- 1. INCOME TAX OFFICER, WARD-24(3), NEW DELHI 2. M/S SOLMAN EXPORTS (INDIA) 501/A-8, SAINIK FARMS, NEW DELHI. 3. THE CIT 4. THE CIT (A), NEW DELHI. 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DELHI. TRUE COPY BY ORDER (ITAT, NEW DELHI).