M/S. OVERSEAS TRADERS, MUMBAI V. A.C.I.T. CIRCLE 18(3), MUMBAI

ITA 6113/MUM/2008

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 56348 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 2 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-12-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 27-12-2011
• Assessment Year: 2002-2003
• Appeal Filed On: 10-10-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PARTHA SARATHI NAIK
• Assessee Lawyers: P NARAYANAN; D C SEJPAL
• Keywords: Business income
• Section: 80HHC; 14A

Judgement Text

ITA NO.6113 OF 2008 OVERSEAS TRADERS MUMBAI PAGE 1 OF 6 IN THE INCOME TAX APPELLATE TRIBUNAL 'C' BENCH, MUMBAI BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI V. DURGA RAO, JUDICIAL MEMBER ITA NO. 6113/MUM/2008 (ASSESSMENT YEAR: 2002-03) M/S OVERSEAS TRADERS A.C.I.T. CIRCLE18 (3) 5/6 GREEN BUILDING 2 ND FLOOR, PIRAMAL CHAMBERS DR.RAIKAR MARG, MAHIM (W) LALBAUG MUMBAI 400 016 VS MUMBAI 400016 PAN AAAFO 0183 E APPELLANT RESPONDENT APPELLANT BY: SHRI P. NARAYANAN & D.C.SEJPAL RESPONDENT BY: SHRI PARTHASARATHI NAIK, SR.DR DATE OF HEARING: 27/12/2011 DATE OF PRONOUNCEMENT: 30 /12/2011 O R D E R PER B. RAMAKOTAIAH, A.M. THIS IS AN APPEAL BY ASSESSEE AGAINST THE ORDERS OF THE CIT (A) DATED11.7.2008 IN WHICH THE ASSESSEE RAISED GROUNDS INITIALLY ON THE CLAIM OF DEDUCTION UNDER SECTION 80HHC, DISALLO WANCE OF INTEREST REGARDING PURCHASE OF RBI BONDS AND MAKING AN ADDITION OF 8,18,670/- AS INTEREST NOT ACCOUNTED. IN THE COURSE OF ARGUMENTS THE LEARNED COUNSEL REFERRED TO THE EARLI ER YEAR ORDER OF THE COORDINATED BENCH ON ALLOWING OF NETTING OF INT EREST WHILE ALLOWING DEDUCTION U/S 80HHC. WHEN IT WAS POINTED O UT THAT THE NETTING OF INTEREST CANNOT BE PERMITTED IN VIEW OF THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. AS IAN STAR CO. LTD 326 ITR 56 AND FURTHER NO SUCH GROUND WAS TAKEN SEPARATELY, THE ASSESSEE FILED REVISED GROUNDS AS UNDER: GROUND NO.1 IS NOT PRESSED AND HENCE BE ALLOWED TO BE WITHDRAWN. ITA NO.6113 OF 2008 OVERSEAS TRADERS MUMBAI PAGE 2 OF 6 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT (A) ERRED IN CONFIRMING THE DISALLOWANCE OF 4,32,330/- (PAGE 8 TO 10 OF HIS ORDER) ON THE INVESTMENT IN PURCHASE OF RBI BONDS AS THE RBI BONDS ARE TAX-FREE AND ARE HELD IN THE PERSONAL NAMES OF THE PARTNERS AND THE INTEREST INCOME CANNOT BE INCLUDED IN THE CASE OF THE APPELLANT FIRM. THE APPELLANT FIRM HAD ALSO EXPLAINED BEFORE THE LEARNED CIT (A) THAT THE INVESTMENTS WERE SOLELY MADE OUT OF THE CAPITAL ACCOUNTS OF THE PARTNERS. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT (A) ERRED IN CONFIRMING THE ADDITION OF RS. 8,18,670/- ON ACCOUNT OF FDR INTEREST UNDER INCOME FROM OTHER SOURCES IN PLACE O F RS. 4,34,945/- WHICH IS ON THE BASIS OF CERTIFICATE S FROM THE BANK. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT (A) ERRED IN NOT CONSIDERING THE REDUCTION OF THE AMOUNT OF FDR INTEREST OF RS. 4,34,945/-(AS PER THE GROUND NO.3 ABOVE) FROM THE TOTAL INCOME AS THE SAID INTEREST H AD ALREADY BEEN INCLUDED IN THE BUSINESS INCOME OF THE APPELLANT FOR THE PURPOSE OF CLAIMING DEDUCTION UNDER SECTION 80HHC. THE APPELLANT SUBMITS THAT SINCE THE FDR INTEREST WAS NOT CONSIDERED FOR GRANTING DEDUCTION UNDER SECTION 80HHC AND TAXED SEPARATELY AS INCOME FROM OTHER SOURCES SUCH INTEREST INCLUDED IN THE BUSINESS COMPUTATION BY TH E APPELLANT SHOULD HAVE BEEN REDUCED FROM THE BUSINESS INCOME, AS OTHERWISE THE AMOUNT OF FDR INTEREST WILL BE ASSESSED TO TAX TWICE I.E. IN BUSI NESS INCOME AS WELL AS UNDER INCOME FROM OTHER SOURCE. 2. THE ISSUES INVOLVED IN THESE GROUNDS ARE INTER-CON NECTED IN THE SENSE THAT THE ASSESSEE PURCHASED RBI BONDS FRO M THE FIRM FUNDS AND SINCE THEY CANNOT BE HELD IN THE NAME OF THE FIRM, THEY WERE HELD IN THE NAME OF THE ASSESSEE PARTNERS. THE ASSESSEE RECEIVED INTEREST OF RS. 4,11,960/- WHICH IS TAX FR EE. THE SAME WAS CREDITED TO THE PROFIT & LOSS A/C AND IN THE COMPUT ATION OF INCOME REDUCED FROM NET PROFIT. THE ASSESSING OFFICER CONS IDERED AN ITA NO.6113 OF 2008 OVERSEAS TRADERS MUMBAI PAGE 3 OF 6 AMOUNT OF 4,32,414/- AS ATTRIBUTABLE TO EARNING OF INTEREST UNDER SECTION 14A AND DISALLOWED THE AMOUNT. HOWEVE R, IN THE WORKING HE HAS ARRIVED AT NET INCOME FROM OTHER SOU RCES RS. 20,454/- AND ALLOWED EXEMPTION WHEREAS THE AMOUNT I S A NEGATIVE FIGURE. IN ADDITION TO THAT THE ASSESSING OFFICER A LSO EXCLUDED AN AMOUNT OF RS. 6,66,798/- RECEIVED AND ACCOUNTED FOR IN THE BOOKS OF ACCOUNT ON FDS, FROM INCOME FROM BUSINESS TO INC OME FROM OTHER SOURCES. FURTHER, ON EXAMINATION OF TDS CERTIFICATE S, AO MADE AN ADDITION OF RS. 8,18,670/- AS INCOME WHICH WAS RECE IVED BUT NOT ACCOUNTED FOR BY THE ASSESSEE. WHILE WORKING DEDUCT ION UNDER SECTION 80HHC, OUT OF TOTAL CLAIM OF RS.10,41,335/ - INTEREST PAID THE ASSESSING OFFICER PROPORTIONATELY ALLOWED THE I NTEREST EXPENDITURE OF RS. 4,56,630/- AFTER EXCLUDING THE I NTEREST ATTRIBUTABLE TO INVESTMENT MADE IN RBI BONDS. THE A SSESSEE IS AGGRIEVED ON THE ACTION OF THE ASSESSING OFFICER WH ICH WAS CONFIRMED BY THE CIT (A). 3. WE HAVE HEARD THE LEARNED COUNSEL AND THE LEARNED DEPARTMENTAL REPRESENTATIVE IN THIS REGARD. AFTER C ONSIDERING THE SUBMISSIONS AND EXAMINING THE RECORD, WE ARE OF THE OPINION THAT THE MATTER REQUIRES EXAMINATION BY THE ASSESSING OF FICER AFRESH. FIRST OF ALL NO BASIS WAS GIVEN WHY THE BANK INTERE ST WAS EXCLUDED FROM THE INCOME FROM BUSINESS. IT WAS NOT VERIFIED WHETHER THE FDRS ARE MADE AS PART OF EXPORT ACTIVITY OR FROM SU RPLUS FUNDS. JUST BECAUSE INTEREST WAS RECEIVED FROM THE BANKS, WITHOUT GIVING CLEAR FINDING WHETHER THAT IS ATTRIBUTABLE TO THE B USINESS ACTIVITY OR NOT, THE AMOUNT CANNOT BE EXCLUDED FROM THE COMPUTA TION OF BUSINESS INCOME. EVEN OTHERWISE IF IT IS INCLUDED A S INCOME FROM BUSINESS, THE SAME IS ALSO COVERED BY THE PROVISION S OF EXPLANATION (BAA) TO SECTION 80HHC WHILE COMPUTING THE DEDUCTIO N UNDER SECTION 80HHC. APART FROM THE ABOVE ASPECT, IT IS A LSO SUBMISSION THAT AN AMOUNT OF RS. 8,18,670/- BROUGHT TO TAX BY THE ASSESSING ITA NO.6113 OF 2008 OVERSEAS TRADERS MUMBAI PAGE 4 OF 6 OFFICER ON THE BASIS OF TDS CERTIFICATE WAS WRONGLY CONSIDERED, AS THE CERTIFICATES ISSUED BY THE BANKS WERE NOT CORRE CT AND SUBSEQUENTLY REVISED THE CERTIFICATES WERE FILED. T HIS ASPECT ALSO REQUIRES EXAMINATION BY THE ASSESSING OFFICER. WITH REFERENCE TO ATTRIBUTION OF INTEREST TO RBI BONDS WHICH IS CLAIM ED AS EXEMPT, THE ASSESSEES CONTENTION WAS THAT NO BORROWED FUNDS WE RE UTILIZED IN MAKING THE INVESTMENT IN RBI BONDS AND THE ASSESSEE FIRM HAS SUFFICIENT OWN FUNDS FOR MAKING THE INVESTMENT. THI S ASPECT ALSO REQUIRE EXAMINATION BY THE ASSESSING OFFICER AS THE RE SHOULD BE A CLEAR FINDING WITH REFERENCE TO UTILIZATION OF THE BORROWED FUNDS FOR THE PURPOSE OF BUSINESS SO AS TO ALLOW INTEREST CLA IMED UNDER SECTION 36(1)(III). THE ASSESSEES CLAIM THAT ENTIR E INTEREST OF RS. 10,41,355/- WAS UTILIZED FOR THE PURPOSE OF BUSINES S REQUIRE EXAMINATION AND WE ARE OF THE VIEW THAT THE ASSESSI NG OFFICER CANNOT RESTRICT IT ON THE BASIS OF THE EXPORT TURNO VER TO TOTAL TURNOVER AS WAS DONE IN COMPUTATION UNDER SECTION 8 0HHC. WE ARE UNABLE TO UNDERSTAND HOW ONLY FOR THE PURPOSE OF SE CTION 80HHC DIFFERENT WORKING CAN BE MADE WHEN THE ENTIRE INTER EST WAS ALLOWED IN THE NORMAL COMPUTATION UNDER THE HEAD BUSINESS. AS THERE ARE INCONSISTENCIES IN THE ASSESSING OFFICERS WORKING AND FURTHER AS MANY ASPECTS REQUIRE EXAMINATION ON FACTS, THE ISSU ES AGITATED BY THE ASSESSEE IN THE ABOVE GROUNDS ARE RESTORED TO T HE FILE OF THE ASSESSING OFFICER FOR FRESH CONSIDERATION. FOR THES E REASONS THE GROUNDS ARE TREATED AS ALLOWED FOR STATISTICAL PURP OSES. ITA NO.6113 OF 2008 OVERSEAS TRADERS MUMBAI PAGE 5 OF 6 4. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH DECEMBER, 2011. SD/- SD/- (V.DURGA RAO) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED 30 TH DECEMBER, 2011. VNODAN/SPS COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, C BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI S.NO. DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 27.12.11 SR. PS/PS 2 DRAFT PLACED BEFORE AUTHOR 28.12.11 SR. PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 28.12.11 JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER 29.12.11 AM/AM 5 APPROVED DRAFT COMES TO THE SR. PS/PS 29.12.11 SR. PS/PS ITA NO.6113 OF 2008 OVERSEAS TRADERS MUMBAI PAGE 6 OF 6 6 KEPT FOR PRONOUNCEMENT 30.12.11 SR. PS/PS 7 FILE SENT TO BENCH CLERK 30.12.11 SR. PS/PS 8 DATE ON WHICH THE FILE GOES TO HEAD CLERK 9 DATE ON WHICH FILE GOES TO A.R. 10 DATE OF DISPATCH OF ORDER