HASTI PETROCHEMICALS &, MUMBAI V. ACIT CIR 2(1), MUMBAI

ITA 6302/MUM/2010

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9412 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 2 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-11-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Next Hearing Date: 11-10-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 23-08-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: OM PRAKASH MEENA
• Assessee Lawyers: G P MEHTA
• Keywords: Business income
• Section: 80IB; 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH H, MUMBAI BEFORE SHRI RAJENDRA SINGH, ACCOUNTANT MEMBER AND SHRI VIVEK VARMA, JUDICIAL MEMBER ITA NO. 6302/MUM/2010 (ASSESSMENT YEAR: 2006-07) M/S HASTI PETROCHEMICALS & SHIPPING LTD., C/O. G P MEHTA & CO., CAS, 807, TULSIANI CHAMBERS, 212, NARIMAN POINT, MUMBAI -400 021 PAN: AAACH 7828 N VS. ASST. COMMISSIONER OF INCOME-TAX CIRCLE 2(1), ROOM NO. 575, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020 (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI G P MEHTA RESPONDENT BY : SHRI OM PRAKASH MEENA DATE OF HEARING: 11-10-2012 DATE OF PRONOUNCEMENT: 21-11-2012 O R D E R PER VIVEK VARMA, JM: THE APPEAL FILED BY THE ASSESSEE IS AGAINST THE ORDER OF CIT(A) 4, MUMBAI, DATED 08.03.2010. 2. AT THE TIME OF FILING OF THE APPEAL, IT WAS FOUND OUT T HAT THE APPEAL WAS DELAYED BY 107 DAYS. THE ASSESSEE, VIDE LETTER DATED 10/04/2012 FILED THE REQUEST FOR CONDONATION OF DELAY, WHER EIN, IT WAS INFORMED THAT THE DIRECTOR RESPONSIBLE FOR SIGNING OF THE M EMORANDUM OF APPEAL WAS OUT OF STATION. THE DIRECTOR, MR. RAMESHCHAND PAREKH, ALSO FILED AN AFFIDAVIT, CITING THE REASONS FOR DELAY IN FILING OF TH E APPEAL. 3. THE BENCH ASKED THE DR FOR ANY OBJECTIONS ON THE DELAY IN FILING OF THE APPEAL. THE DR CONVEYED HIS NO OBJECTIONS. WE, THEREFORE, M/S HASTI PETROCHEMICALS & SHIPPING LTD. ITA 6302/M/2010 2 CONDONE THE DELAY IN FILING OF THE APPEAL AND PROCEED WITH T HE APPEAL, AS FILED BY THE ASSESSEE. 4. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: 01 THE ORDERS PASSED BY THE LEARNED LOWER AUTHORI TIES ARE BAD IN LAW AND BAD IN FACTS. 02 THE LEARNED LOWER AUTHORITIES HAVE GROSSLY ERRED IN HOLDING THAT THE INTEREST EARNED ON FDR AT RS.311,602/- WAS NOT INCIDENTAL TO OPERATION OF INFRASTRUCTURE FACILITIE S VIZ., (INLAND CONTAINER DEPOT) AND HAS FURTHER ERRED IN H OLDING THAT IT WOULD NOT FORM PART OF ELIGIBLE BUSINESS PR OFIT. 03 THE LEARNED LOWER AUTHORITIES HAVE GROSSLY ERRE D IN HOLDING THAT THE DISALLOWANCE U/S. 40(A)(IA) OF THE I.T. AC T, 1961, AT RS. 931,465/- (FOR WANT OF TDS) WAS NOT INCIDENTAL TO OPERATION OF INFRASTRUCTURE FACILITY AND HAVE FURTH ER ERRED IN HOLDING THAT IT WOULD NOT FORM PART OF ELIGIBLE PROFITS AS PER PROFIT & LOSS ACCOUNT FOR THE YEAR. 04 HAVING REGARD TO THE FACTS OF THE CASE, PROVISI ONS OF LAW AND JUDICIAL PROPOSITIONS, THE IMPUGNED EXCLUSION O F INCOME FROM ELIGIBLE PROFITS U/S. 801A OF THE I.T. ACT, 1961 IS WRONG AND ARBITRARY. 5. GROUND NO. 1 IS GENERAL. 6. GROUND NO. 2 IS AGAINST THE DISALLOWANCE INTEREST OF RS 3,11,602 EARNED ON FIXED DEPOSITS PLACED WITH THE BANK AND HOLDING THE SAME TO BE INCOME FROM OTHER SOURCES. 7. THE FACTS ARE THAT THE ASSESSEE IS ENGAGED IN THE BU SINESS OF OPERATING DRY PORT (INLAND CONTAINER DEPOT) FOR FACILITATIN G EXPORT/IMPORT ACTIVITIES OF VARIOUS BUSINESS ORGANIZATIONS. THE ASSESSEE FILED ITS RETURN, DECLARING NIL INCOME UNDER NORMAL PROVISION S AND AT RS. 1,15,00,565 UNDER MAT PROVISIONS. 8. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO N OTICED INCOME OF RS. 3,11,602, BEING INTEREST, RECEIVED FROM THE BANK AGAINST FDRS. THE AO QUESTIONED THE ASSESSEE, AS TO WHY THIS AM OUNT BE NOT TREATED AS INCOME FROM OTHER SOURCES. THE ASSESSEE VIDE ITS LETTER DATED 11/12/2008 HAS SUBMITTED AS UNDER; THE ASSESSEE COMPANY HAS EARNED INTEREST ON FDR AT RS. 3,11,602/- ON FDS TAKEN AT RS 40,00,000/-. THESE FD RS M/S HASTI PETROCHEMICALS & SHIPPING LTD. ITA 6302/M/2010 3 ARE GIVEN TO BANK OF BARODA M.I.E., BASNI JODHPUR, AS A MARGIN AGAINST THE GUARANTEE GIVEN BY SAID BANK ON BEHALF OF THE ASSESSEE COMPANY TO COMMISSIONER OF CUSTOMS FOR GRANTING THE CUSTOM STATION STATUS TO I CD OWNED AND OPERATED BY THE ASSESSEE COMPANY. THUS TH E INTEREST ON FDR IS INCIDENTAL TO THE OPERATION OF I CD AND HENCE INCOME DERIVED FROM THE OPERATION OF ICD. THE ASSESSEE COMPANY HAS NOT TAKEN FDR TO DEPLOY ITS SU RPLUS FUNDS FOR EARNING INTEREST INCOME BUT SAME HAS BEEN DONE OUT OF BUSINESS COMPULSIONS. ALSO, THE ASSESSEE COM PANY HAS BORROWED LARGE AMOUNT OF LOANS FROM THE BANKS F OR BUSINESS UTILITIES INCLUDING TAKING FDRS FOR PROVID ING MARGIN MONEY TO. BANK, INTEREST RECEIVED AND INTERE ST PAID HAS A DIRECT NEXUS. IT IS THEREFORE, SUBMITTED THAT THE INTEREST RECEIVED SHOULD BE TREATED AS BUSINESS REC EIPT ONLY. 9. THE AO, TAKING INTO CONSIDERATION THE REPLY, REJECTED THE CONTENTION OF THE ASSESSEE AND HELD THAT INTEREST OF RS 3,11,602 SHALL BE TREATED AS INCOME FROM OTHER PURPOSES AND AS A CO NSEQUENCE SHALL NOT BE CONSIDERED FOR DEDUCTION U/S 80IA. 10. AGGRIEVED, THE ASSESSEE APPROACHED THE CIT(A), WHO SU STAINED THE DISALLOWANCE. 11. AGGRIEVED, THE ASSESSEE IS BEFORE THE ITAT. 12. BEFORE US, THE AR REITERATED THE SUBMISSIONS MADE BEFO RE THE REVENUE AUTHORITIES AND REFERRED TO THE DECISION OF VOLTAS INTERNATIONAL LTD. VS ACIT REPORTED IN 2 ITR (TRIB) 410, WHEREIN THE CO -ORDINATE BENCH AT MUMBAI, HELD, (I) THAT THE ASSESSEE HAD TO KEEP FUNDS READILY AV AILABLE TO IT FOR PURPOSES OF ITS PROJECTS AND, THEREFORE, TIL L THE FUNDS WERE ACTUALLY REQUIRED FOR PROJECT ACTIVITIES, THE ASSESSEE KEPT THEM IN FIXED DEPOSITS FOR TEMPORARY PERIOD. I T WAS A CASE OF TEMPORARY SURPLUS FUNDS AVAILABLE TO THE AS SESSEE NOT IMMEDIATELY REQUIRED FOR ITS BUSINESS PURPOSES WHICH WERE KEPT IN FIXED DEPOSITS BUT NEVERTHELESS, THE F UNDS WERE MEANT ONLY FOR THE ASSESSEES CONSTRUCTION ACTIVITI ES AND, THEREFORE, THEY WERE INEXTRICABLY LINKED TO THE ASS ESSEES ACTIVITIES AND HENCE, ASSESSABLE AS INCOME FROM BUS INESS. THEREFORE, THE INTEREST WAS ASSESSABLE AS BUSINESS INCOME. CIT V. INDO SWISS JEWELS LTD. [2006] 284 1TR 389 (B ORN) AND CIT V. LOK HOLDINGS [2009] 308 1TR 356 (BORN) RELIED ON. M/S HASTI PETROCHEMICALS & SHIPPING LTD. ITA 6302/M/2010 4 (II) THAT INTEREST HAD BEEN RECEIVED ON MARGIN MONE Y DEPOSITED WITH THE BANK FOR AVAILING OF CREDIT FACI LITIES. THUS, THE INTEREST WAS INEXTRICABLY LINKED TO THE EXECUTION OF FOREIGN PROJECT AND HENCE THE INTEREST INCOME ON MARGIN MONEY WAS ASSESSABLE AS BUSINESS INCOME. CIT V. KOSHIKA TELECOM LTD. [2006] 287 ITR 479 (DEL HI) RELIED ON 13. THE AR ALSO CITED THE CASE OF SHYAM BIHARI VS CIT, REP ORTED IN 73 DTR 41, WHEREIN, THE HONBLE PATNA HIGH COURT HELD, INTEREST ON NSCS AND FDRS KEPT AS SECURITY INTER EST ON SECURITY DEPOSITS IN THE FORM OF NSCS AND FDRS T O THE EXTENT USED FRO THE PURPOSE OF SECURING CONTRACT WO RK IS ASSESSABLE AS BUSINESS INCOME AND NOT AS INCOME FR OM OTHER SOURCES 14. THE AR FURTHER CITED THE CASE OF CIT VS CHINNA NACHIM UTHU CONSTRUCTIONS REPORTED IN 297 ITR 70, WHEREIN HONBLE KA RNATAKA HIGH COURT HELD, THE ASSESSEE, BEING A CONTRACTOR IN ORDER TO SECUR E A CONTRACT WORK, WAS REQUIRED TO OFFER A BANK GUARANT EE TO THE KPTCL. IN ORDER TO AVAIL OF THE BANK GUARANTEE, CERTAIN AMOUNTS WERE INVESTED IN FIXED DEPOSITS ON WHICH INTEREST ACCRUED. THE INVESTMENT OF AMOUNT I N FIXED DEPOSITS BY THE ASSESSEE WAS ONLY TO SECURE A BANK GUARANTEE TO BE OFFERED TO KPTCL IN ORDER TO ACQUIRE A CONTRACT WORK. THEREFORE, THE INTEREST A CCRUED ON THE DEPOSIT MADE BY THE ASSESSEE TO AVAIL OF THE BANK GUARANTEE HAD TO BE TREATED AS INCOME FROM BUSINESS AND NOT INCOME FROM OTHER SOURCES. 15. IN THIS CASE, THE HONBLE KARNATAKA HIGH COURT FOL LOWED THE DECISION OF HONBLE SUPREME COURT OF INDIA, IN THE CASE O F CIT VS GOVINDA CHOUDHARY & SONS, REPORTED IN 203 ITR 881 (SC), W HEREIN THE HONBLE SUPREME COURT HELD, HELD, THAT, IF THE AMOUNTS UNDER A CONTRACT WERE N OT PAID AT THE PROPER TIME AND INTEREST WAS AWARDED TO THE RESPONDENT FOR SUCH DELAY, THE INTEREST WAS ONLY AN ACCRETION TO THE RESPONDENTS RECEIPTS FROM THE CON TRACT AND WAS ATTRIBUTABLE TO AND INCIDENTAL TO THE BUSIN ESS CARRIED ON BY IT. THE INTEREST PAYABLE TO THE RESPO NDENT PARTOOK OF THE SAME CHARACTER AS THE RECEIPTS FOR T HE PAYMENT OF WHICH IT WAS OTHERWISE ENTITLED UNDER TH E CONTRACTS AND WHICH PAYMENT HAD BEEN DELAYED AS A RESULT OF DISPUTES BETWEEN THE PARTIES. THE INTERES T AWARDED COULD NOT BE SEPARATED FROM THE OTHER AMOUN TS GRANTED TO THE RESPONDENT UNDER THE AWARDS AND TREA TED AS INCOME FROM OTHER SOURCES. IT IS WELL-SETTLED T HAT M/S HASTI PETROCHEMICALS & SHIPPING LTD. ITA 6302/M/2010 5 INTEREST CAN BE ASSESSED UNDER THE HEAD INCOME FRO M OTHER SOURCES ONLY IF IT CANNOT BE BROUGHT WITHIN ONE OR THE OTHER OF THE SPECIFIC HEADS OF CHARGE (SEE P. 8 84D, E). 16. THE AR ALSO REFERRED TO THE CASES AS MENTIONED IN TH E IMPUGNED ORDER AND PLEADED THAT THE CHARACTER OF INCOME CANNOT CHANGE AND THUS, THE CLAIM OF THE ASSESSEE WAS CORRECT AND THE OBS ERVATIONS OF THE REVENUE AUTHORITIES WERE INCORRECT. 17. THE DR STRONGLY SUPPORTED THE ORDERS OF THE REVEN UE AUTHORITIES AND CITED THE CASE OF LIBERTY INDIA VS CIT, REPORTED IN 3 17 ITR 218, WHEREIN THE HONBLE SUPREME COURT ON THE ISSUE OF DUTY DRAWBACK AN D INCENTIVES, HELD THAT THEY DO NOT FALL WITHIN THE EXPRESSION PROFITS DERIVED FROM INDUSTRIAL UNDERTAKING U/S 80IB AND THEREFORE , THE DR PLEADED THAT THE REVENUE AUTHORITIES WERE CORRECT IN HO LDING THAT THE INTEREST RECEIVED ON FDRS, KEPT IN THE BANK WERE ASSESS ABLE UNDER THE HEAD INCOME FROM OTHER SOURCES AND SHALL NOT FORM PART O F INCOME ELIGIBLE FOR DEDUCTION U/S 80IA. 18. WE HAVE HEARD THE ARGUMENTS FROM BOTH THE SIDES AN D PERUSED THE FACTS, AS RECORDED IN THE ORDERS OF THE REVENUE AUT HORITIES AND CASE LAWS CITED BEFORE US. THE ISSUE FOR OUR DETERMINATION IS AS TO WHAT IS THE IMMEDIATE SOURCE OF INCOME AND FROM WHERE IT HAS BEEN DERIVED , ON WHICH THE ASSESSEE IS SEEKING TO CLAIM THE DEDUCTION. WE FIND THAT THE ASSESSEE HAD PLACED ITS FUNDS AS MARGIN MONEY FOR THE GU ARANTEE TO BE GIVEN BY THE ASSESSEE TO CCE FOR GRANTING THE CUSTOM S TATION STATUS TO RUN IT AS ICD. THIS PURPOSE, EVEN THOUGH, BUSINESS, SHO ULD HAVE DIRECT NEXUS WITH THE ELIGIBLE BUSINESS ACTIVITY. SINCE, THE DIR ECT AND IMMEDIATE SOURCE OF INCOME IS FIXED DEPOSIT AND NOT THE ELIGIBLE BUSINESS OF THE UNDERTAKING, THE INCOME CANNOT BE HELD TO BE DERIVED FROM THE BUSINESS OF THE ASSESSEE. THE ISSUE OF INCOME DERIVED FROM ELIGIBLE BUSINESS, THE ISSUE HAS BEEN LAID TO REST BY THE HO NBLE SUPREME COURT OF INDIA IN THE CASE OF LIBERTY INDIA (SUPRA) . THEREFORE M/S HASTI PETROCHEMICALS & SHIPPING LTD. ITA 6302/M/2010 6 RESPECTFULLY FOLLOWING THE DECISION, WE SUSTAIN THE OBSERVATI ONS OF THE REVENUE AUTHORITIES. 19. THE GROUND, THEREFORE IS REJECTED. 20. GROUNDS NO 3 & 4 ARE LINKED AND ARE COMMON, AGAINST THE DISALLOWANCE OF RS. 9,31,465 U/S 40(A)(IA). 21. THE REVENUE AUTHORITIES DISALLOWED THE AMOUNT OF RS. 9 ,31,465 U/S 40(A)(IA) ON ACCOUNT OF TDS DEFAULT. 22. THE FACTS ARE THAT THE ASSESSEE, IN ITS RETURN OF INCO ME ADDED BACK THE IMPUGNED AMOUNT OF RS. 9,31,465 AND THEREFORE, C OMPUTED THE DEDUCTION U/S 80IA. 23. THE REVENUE AUTHORITIES HELD THAT IT WAS A PLANNED MOVE TO AVAIL HIGHER DEDUCTION U/S 80IA AND, THEREFORE, THE DISALLOWANCE WAS MADE . 24. AGGRIEVE, THE ASSESSEE IS NOW BEFORE THE ITAT. 25. BEFORE US, THE AR SUBMITTED THAT, ONCE THE INCOME IS DETERMINED, THE DEDUCTION HAS TO BE ALLOWED WITH REFERE NCE TO THE PROVISIONS CONTAINED IN CHAPTER VIA IF THE CONDITIO NS SPECIFIED IN THE RELEVANT SECTION ARE SATISFIED, WITHOUT ANY EXCEPTION . HE FURTHER SUBMITTED THE RELEVANT PROVISIONS U/S 80IA(4) DOES NOT CARVE OUT ANY EXCEPTIONS TO THE ALLOWANCE OF DEDUCTION . 26. THE AR, REFERRED TO THE CASE OF SANGHVI JEWELLERY MFG . CO. (P) LTD. VS ITO, IN ITA NO. 352 & 577/MUM/2008, WHEREIN COORD INATE BENCH AT MUMBAI, (WHERE ONE OF US WAS A PARTY TO THE DECISION) HELD, SECTION 10A, READ WITH SECTIONS 43B, 40A(7) AND 37 (1), OF THE INCOME-TAX ACT,1961, FREE TRADE ZONE ASSESSMENT YE AR 2004- 05 WHETHER DEDUCTION UNDER SECTION 10A IS ALLOWABL E ON BASIS OF PROFIT OF BUSINESS OF UNDERTAKING AND, THEREFORE , IF ANY M/S HASTI PETROCHEMICALS & SHIPPING LTD. ITA 6302/M/2010 7 ADDITION HAS BEEN MADE TO PROFIT OF BUSINESS BY WAY OF DISALLOWANCE OF EXPENSES, AMOUNT ADDED WILL VERY MU CH FORM PART OF PROFITS OF BUSINESS AND, THEREFORE, IT HAS TO BE CONSIDERED WHILE WORKING OUT DEDUCTION UNDER SECTION 10A AS PE R METHOD PRESCRIBED IN THAT SECTION HELD, YES [IN FAVOUR O F ASSESSEE]. 27. THE AR ALSO CITED THE DECISION OF SB BENCH OF INDORE IN THE CASE OF MARAL OVERSEAS LIMITED VS ADD. CIT, REPORTED IN 136 ITD 177 (INDORE SB), WHEREIN, THE SPECIAL BENCH HELD, WHETHER ONCE AN INCOME FORMS PART OF BUSINESS OF I NCOME OF ELIGIBLE UNDERTAKING OF ASSESSEE, SAME CANNOT BE EX CLUDED FROM ELIGIBLE PROFITS FOR PURPOSE OF COMPUTING EXEMPTION UNDER SECTION 10B - HELD, YES - WHETHER AN INDUSTRIAL UNDERTAKING IS ELIGIBLE FOR DEDUCTION ON EXPORT INCENTIVE RECEIVED BY IT IN TERMS OF PROVISIONS OF SECTION 10B(1), READ WITH SECTION 10B (4) HELD, YES [IN FAVOUR OF ASSESSEE]. 28. THE AR, THEREFORE, PLEADED THAT THE REVENUE AUTHORIT IES HAD ERRED IN EXCLUDING RS. 9,31,465 FOR THE PURPOSES OF SECTION 80IA. 29. THE DR, STRONGLY SUPPORTED THE ORDERS OF THE REVEN UE AUTHORITIES AND PLEADED THAT THE ACTION OF THE ASSESSEE WAS PLANNED AND ONLY TO CLAIM A HIGHER DEDUCTION U/S 80IA. HE, THEREFORE, PLEADED TH AT THE ORDERS OF THE AUTHORITIES SHOULD BE SUSTAINED. 30. WE HAVE HEARD THE ARGUMENTS AND HAVE PERUSED THE CITED CASES. FROM THE PLAIN READING OF SECTION 80IA ONCE THE INCOME AT TAINS THE CHARACTER OF BUSINESS OF INFRASTRUCTURES FACILITY, IT BECOMES ELIGIBLE FOR THE DEDUCTION. WE FIND THAT THE CASES CITED BY THE AR S PEAK OF THIS PROPOSITION ITSELF. 31. THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF THE CO-O RDINATE BENCH AT MUMBAI AND ALSO THE DECISION OF SPECIAL BENCH, WE SET ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE AO TO ALLOW THE CLA IM AS MADE BY THE ASSESSEE. 32. THE GROUNDS NO. 3 & 4 ARE THEREFORE ALLOWED. M/S HASTI PETROCHEMICALS & SHIPPING LTD. ITA 6302/M/2010 8 33. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 21/11/2012. SD/- (RAJENDRA SINGH) ACCOUTANT MEMBER SD/- (VIVEK VARMA) JUDICIAL MEMBER MUMBAI, DATE: 21/11/2012 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A)-4, MUMBAI. 4) THE CIT -2, MUMBAI, 5) THE D.R. H BENCH, MUMBAI. 6) COPY TO GUARD FILE. BY ORDER / / TRUE COPY / / ASSTT. REGISTRAR I.T.A.T., MUMBAI *CHAVAN