GLOBAL ENERGY FOOD INDUSTRIES, MUMBAI V. ASST CIT 15(3), MUMBAI

ITA 6567/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 79243 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-06-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Next Hearing Date: 19-06-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 30-10-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: CAPT PRADEEP ARYA
• Assessee Lawyers: DEVENDRA MEHTA
• Keywords: Opportunity of being heard
• Section: 143(3); 80HHC; 10B; 154

Judgement Text

- -- - , IN THE INCOME TAX APPELLATE TRIBUNAL G B ENCH, MUMBAI . ! , '#$ % % % % , !&' ()*+ , &, -. & $ BEFORE SHRI D.MANMOHAN, VICE PRESIDENT AND SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER ./ I.T.A. NOS.6566 & 6567/MUM/2012 ( ! ! ! ! / / / / / ASSESSMENT YEAR :2009-10 M/S.GLOBAL ENERGY FOOD INDUSTRIES, C/O M/S. RAVI & DEV, CHARTERED ACCOUNTANTS, 601, A WING, AURUS CHAMBERS, BEHIND MAHINDRA TOWERS, S.S. AMRUTWAR MARG, WORLI, MUMBAI-400 013. ! ! ! ! / VS. THE ACIT-15(3), MATRU MANDIR, MUMBAI-400 007 .0 &, ./ 1 ./ PAN/GIR NO. : AAGFG -0732R ( 02 / APPELLANT ) .. ( 3402 / RESPONDENT ) 02 5 & / APPELLANT BY: SHRI DEVENDRA MEHTA 3402 6 5 & / RESPONDENT BY: CAPT. PRADEEP ARYA ! 6 7, / DATE OF HEARING :19.06.2014 8/ 6 7, / DATE OF PRONOUNCEMENT :25.06.2014 -&9 / O R D E R PER N.K. BILLAIYA, AM: THESE TWO APPEALS BY THE ASSESSEE ARE PREFERRED AGA INST TWO SEPARATE ORDERS OF THE LD. CIT(A)-26, MUMBAI DT.4.9 .2012 AND 5.9.2012 PERTAINING TO A.Y. 2009-10. ITA NO. 6566/M/2012 IS IN RESPECT OF THE M/S. GLOBAL ENERGY FOOD INDUSTRIES 2 ASSESSMENT ORDER U/S. 154 OF THE ACT AND ITA NO. 65 67/M/12 IS IN RESPECT OF THE ORDER PASSED U/S. 143(3) OF THE ACT. BOTH P ARTIES AGREED THAT ITA NO. 6567 MAY BE TAKEN UP FOR CONSIDERATION FIRST. 2. THE GRIEVANCES OF THE ASSESSEE CAN BE DIVIDED IN TO THREE PARTS. GROUND NO. 1 RELATES TO THE DISALLOWANCE OF INTERES T, GROUND NO. 2 RELATES TO THE EXCLUSION OF INTEREST RECEIVED ON MARGIN MON EY AND SALE PROCEEDS OF BARDANA WHILE ALLOWING EXEMPTION U/S. 10B OF THE I.T. ACT AND GROUND NO. 3 RELATES TO THE MODIFICATION IN ASSESSEES CLA IM FOR EXEMPTION U/S. 10B OF THE ACT. 3. THE ASSESSEE IS IN THE BUSINESS OF MANUFACTURING OF BISCUITS AND CONFECTIONARY ITEMS. RETURN FOR THE YEAR WAS FILED ON 28.9.2009. THE RETURN WAS SELECTED FOR SCRUTINY ASSESSMENT AND STA TUTORY NOTICES WERE ISSUED AND SERVED UPON THE ASSESSEE. 4. DURING THE COURSE OF THE SCRUTINY ASSESSMENT PRO CEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS ADV ANCED LOAN OF RS. 2.92 CRORES TO ITS SISTER CONCERN M/S. GLOBAL IMPORT EXP ORT. THE AO FURTHER NOTICED THAT THE ASSESSEE HAS DEBITED BANK INTEREST OF RS. 1.05 CRORES ON THE SECURED AND TERM LOAN OBTAINED FROM THE BANK. THE AO OBSERVED THAT ON THE ONE HAND, THE ASSESSEE IS CLAIMING INTEREST ON ITS BORROWINGS AND ON THE OTHER HAND, IT IS TRANSMITTING INTEREST FREE LOAN TO ITS SISTER CONCERN. THE ASSESSEE WAS ASKED TO SHOW CAUSE AS TO WHY INTE REST ATTRIBUTABLE TO SUCH INTEREST FREE LOANS SHOULD NOT BE DISALLOWED. IT WAS EXPLAINED THAT THE ADVANCE HAD BEEN GIVEN FOR THE PURPOSE OF ITS N EW BUSINESS. THE AO DID NOT ACCEPT THE SUBMISSION OF THE ASSESSEE. THE AO COMPUTED 12% INTEREST ON THE AMOUNT ADVANCED RS. 2.92 AND DISALL OWED INTEREST AMOUNTING TO RS. 35,14,800/-. M/S. GLOBAL ENERGY FOOD INDUSTRIES 3 4.1. THE AO FURTHER NOTICED THAT THE ASSESSEE HAS S HOWN BARDAN SALES AT RS. 15,48,050/-. THE ASSESSEE WAS ASKED TO SHOW-CA USE WHY THIS RECEIPT SHOULD NOT BE IGNORED FOR THE PURPOSE OF COMPUTING EXEMPTION U/S. 10B OF THE ACT. THE ASSESSEE EXPLAINED THAT BARDAN IS A PACKING MATERIAL IN WHICH THE RAW MATERIALS WERE RECEIVED AND HENCE THE PACKING MATERIAL HAS A DIRECT NEXUS WITH THE BUSINESS OF THE ASSESSE E. THIS EXPLANATION OF THE ASSESSEE DID NOT FIND FAVOUR FROM THE AO WHO WA S OF THE OPINION THAT THE BENEFIT OF SEC. 10B IS AVAILABLE ONLY IN RESPEC T OF PROFIT DERIVED FROM THE EXPORT BUSINESS AND ACCORDINGLY DID NOT CONSIDE R THE RECEIPTS FROM THE SALE OF BARDAN FOR THE COMPUTATION OF EXEMPTION U/S . 10B OF THE ACT. FOR SIMILAR REASONS, THE AO DECLINE TO CONSIDER THE INT EREST RECEIVED FROM BANK DEPOSIT FOR THE PURPOSE OF COMPUTATION OF EXEM PTION U/S. 10B. 4.2. ON FURTHER PERUSAL OF THE STATEMENT OF ACCOUNT S, THE AO NOTICED THAT THE ASSESSEE HAS CLAIMED EXEMPTION U/S. 10B @1 00% OF THE NET PROFIT. THE AO FOUND THAT IN THE ASSESSMENT YEAR 2 007-08, ASSESSEES CLAIM OF EXEMPTION WAS RESTRICTED TO 90% OF THE ELI GIBLE PROFIT. THE AO WENT ON TO RESTRICT THE EXEMPTION TO 90% OF THE PRO FIT OF THE BUSINESS. 5. AGGRIEVED BY THIS, THE ASSESSEE CARRIED THE MATT ER BEFORE THE LD. CIT(A) BUT WITHOUT ANY SUCCESS. 6. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE REIT ERATED THAT THE ASSESSEE HAS ADVANCED MONEY TO ITS SISTER CONCERN F OR ITS BUSINESS PURPOSE AND THE SAID ADVANCE IS OUT OF ITS OWN CAPITAL. IT IS THE SAY OF THE LD. COUNSEL THAT IN A.Y. 2007-08 THE TRIBUNAL IN ITA NO . 1702/M/2012 ON IDENTICAL STATE OF FACTS HAS DELETED A SIMILAR DISA LLOWANCE MADE BY THE AO. M/S. GLOBAL ENERGY FOOD INDUSTRIES 4 7. PER CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE RELIED UPON THE DECISION OF THE HONBLE KERALA HIGH COURT IN THE CA SE OF HARRISONS MALAYALAM LTD. 210 TAXMAN 115. 8. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE AUTH ORITIES BELOW AND THE RELEVANT MATERIAL PLACED BEFORE US. THE DETAIL S OF INTEREST FREE ADVANCE OF RS. 2.92 CRORES IS AS UNDER: S. NO. DATE AMOUNT (RS.) SOURCE 1. 9.9.2008 62,00,000 OUT OF EXPORT REALISATION 2. 11.9.2008 8,00,000 OUT OF EXPORT REALISATION 3. 17.9.2008 3,00,000 OUT OF EXPORT REALISATION 4. 8.10.2008 5,00,000 OUT OF EXPORT REALISATION 5. 10.10.2008 1,50,000 OUT OF MATURITY OF FDR 6. 14.10.2008 23,50,000 OUT OF MATURITY OF FDR 7. 16.10.2008 3,50,000 OUT OF PACKING CREDIT LIMITS 8. 16.10.2008 8,00,000 OUT OF PACKING CREDIT LIMITS 9. 27.10.2008 3,00,000 OUT OF PACKING CREDIT LIMITS 10. 12.11.2008 1,00,000 OUT OF PACKING CREDIT LIMITS 11. 18.11.2008 2,00,000 OUT OF PACKING CREDIT LIMITS 12. 20.11.2008 3,00,000 OUT OF MATURITY OF FDR 13. 27.11.2008 1.50,000 OUT OF PACKING CREDIT LIMITS 14. 2.12.2008 5,00,000 OUT OF PACKING CREDIT LIMITS 15. 8.12.2008 2,00,000 OUT OF MATURITY OF FDR 16. 10.12.2008 2,50,000 OUT OF PACKING CREDIT M/S. GLOBAL ENERGY FOOD INDUSTRIES 5 LIMITS 17. 15.12.2008 15,00,000 OUT OF PACKING CREDIT LIMITS 18. 19.12.2008 9,00,000 OUT OF MATURITY OF FDR 19. 8.1.2009 2,75,000 OUT OF PACKING CREDIT LIMITS 20. 9.1.2009 1,65,000 OUT OF PACKING CREDIT LIMITS 21. 6.2.2009 2,00,000 OUT OF PACKING CREDIT LIMITS 22. 11.2.2009 13,00,000 OUT OF PACKING CREDIT LIMITS 23. 17.2.2009 36,00,000 OUT OF PACKING CREDIT LIMITS 24. 24.2.2009 2,50,000 OUT OF PACKING CREDIT LIMITS 25. 25.2.2009 25,00,000 OUT OF PACKING CREDIT LIMITS 26. 4.3.2009 (-)11,00,000 REPAYMENT OF ADVANCE 27. 13.3.2009 50,00,000 OUT OF PARTNERS CAPITA L ACCOUNT 28. 23.3.2009 5,00,000 OUT OF PACKING CREDIT LIMITS 29. 28.3.2009 7,50,000 OUT OF PACKING CREDIT LIMITS THE AFOREMENTIONED DETAILS CLEARLY SHOW THAT MOST OF THE ADVANCES HAVE BEEN MADE OUT OF PACKING CREDIT LIMIT OF THE A SSESSEE WHICH SHOWS THAT THERE IS A DIRECT NEXUS BETWEEN THE AMOUNT BOR ROWED ON INTEREST AND AMOUNT ADVANCED INTEREST FREE. WE, ACCORDINGLY RES TORE THIS ISSUE TO THE FILE OF THE AO. THE AO IS DIRECTED TO RECOMPUTE TH E DISALLOWANCE RESTRICTING THE PROPORTIONATE DISALLOWANCE ONLY TO THE AMOUNT ADVANCED OUT OF PACKING CREDIT LIMIT AFTER GIVING A REASONAB LE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. GROUND NO. 1 IS PARTLY ALLO WED FOR STATISTICAL PURPOSE. M/S. GLOBAL ENERGY FOOD INDUSTRIES 6 9. GROUND NO. 2 RELATES TO THE EXCLUSION OF INCOME FROM THE COMPUTATION OF U/S. 10B OF THE ACT. 10. THE INCOME EXCLUDED BY THE AO ARE SALE PROCEEDS OF BARDANA IS RS. 15,48,051/- AND INTEREST RECEIVED ON MARGIN MON EY RS. 10,71,244/-. IN SO FAR AS INTEREST INCOME IS CONCERNED, WE FIND THAT THE TRIBUNAL IN ASSESSEES OWN CASE IN A.Y. 2008-09 IN ITA NO. 1779 /M/2012 HAS HELD AS UNDER: REGARDING INTEREST RECEIVED AT RS.2,26,111/-, THE NETTING OFF THE INTEREST HAS TO BE ALLOWED AS HELD BY THE HONBLE SUPREME COURT IN THE CASE OF ACG ASSOCIATED CAPSULES P. LTD. VS. CIT, REPORTED IN (2012) 343 IT R 89 . THE HONBLE SUPREME COURT HAS HELD THAT 90% OF NOT THE GROSS RENT OR GROSS INTEREST BUT ONLY THE NET INTER EST OR NET RENT, WHICH HAS BEEN INCLUDED IN THE PROFITS OF BUS INESS OF THE ASSESSEE AS COMPUTED UNDER THE HEAD PROFITS AND GA INS OF BUSINESS OR PROFESSION, IS TO BE DEDUCTED UNDER CL AUSE (1) OF EXPLANATION (BAA) TO SECTION 80HHC FOR DETERMINI NG THE PROFITS OF THE BUSINESS. THE RATIO OF THE HONBLE S UPREME COURT IS SQUARELY APPLICABLE ON THE FACTS OF THE PR ESENT CASE. THEREFORE, WE DIRECT THE AO THAT INTEREST INCOME HA S TO BE SET OFF AGAINST INTEREST EXPENDITURE. IF THE INTERE ST EXPENDITURE IS LESS OR THE INTEREST INCOME IS MORE THEN THE DIFFERENCE OF EXCESS INTEREST RECEIVED BY THE ASSES SEE IS TO BE REDUCED WHILE CALCULATING THE DEDUCTION UNDER SECTI ON 10B OF THE ACT. WE ORDER ACCORDINGLY. 11. IN SO FAR AS THE SALE PROCEEDS OF BARDANA IS CO NCERNED, THE TRIBUNAL HAS OBSERVED THAT THE SALE OF SCRAP GOES TO REDUCE THE COST. HOWEVER, IN THE YEAR BEFORE US, THERE IS NO SUCH DETAIL WHICH C OULD SHOW THAT THE SALE PROCEEDS OF BARDANA HAS REDUCED THE COST OF PRODUCT ION. WE ACCORDINGLY RESTORE THIS LIMITED ISSUE TO THE FILE OF THE AO. THE AO IS DIRECTED TO VERIFY WHETHER THE SALE PROCEEDS OF BARDANA HAS RED UCED THE COST OF PRODUCTION. THE ASSESSEE IS DIRECTED TO FILE NECES SARY DETAILS TO M/S. GLOBAL ENERGY FOOD INDUSTRIES 7 SUBSTANTIATE ITS CLAIM. GROUND NO. 2 IS PARTLY ALL OWED FOR STATISTICAL PURPOSE. 12. GROUND NO. 3 RELATES TO THE MODIFICATION OF CLA IM FOR EXEMPTION U/S. 10B. 13. WE FIND THAT A SIMILAR ISSUE WAS CONSIDERED BY THE TRIBUNAL IN ASSESSEES OWN CASE IN A.Y. 2008-09 WHEREIN THE TRI BUNAL AT PARA 6.4 HELD AS UNDER: AFTER CONSIDERING THE ORDER OF AO AND CIT(A), WE F OUND THAT THE ASSESSEE DESERVES TO SUCCEED ON THIS ISSUE ALSO. IT IS SEEN THAT THE 90% DEDUCTION WAS RESTRICTED ONLY FOR ONE YEAR I.E. FOR ASSESSMENT YEAR 2003-04, OTHERWISE DEDUCTION UNDER SECTION 10B IS ALLOWABLE AT 100%. IN EARLIER YEAR ALSO, THE DED UCTION WAS ALLOWED 100%. THEREFORE, WE DIRECT THE AO TO ALLOW 100% DEDUCTION AGAINST 90% DIRECTED BY THE CIT. WE ORDER ACCORDINGLY. RESPECTFULLY FOLLOWING THE FINDINGS OF THE TRIBUNA L, WE ORDER ACCORDINGLY. GROUND NO. 3 IS ALLOWED. 14. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED IN PART FOR STATISTICAL PURPOSE. ITA NO. 6566/M/2014-A.Y. 2009-10 15. THE ONLY GRIEVANCE OF THE ASSESSEE RELATES TO T HE MODIFICATION OF THE CLAIM FOR EXEMPTION U/S. 10B OF THE ACT. 16. THIS ISSUE HAS BEEN DECIDED BY US IN ITA NO. 65 67/M/12. ACCORDINGLY, GRIEVANCE RAISED VIDE ITA NO. 6566/M/2 012 BECOME OTIOSE. M/S. GLOBAL ENERGY FOOD INDUSTRIES 8 17. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IN ITA NO. 6567 IS PARTLY ALLOWED FOR STATISTICAL PURPOSE AND ITA NO. 6566/M/12 IS DISMISSED AS OTIOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 25 TH JUNE, 2014 . -&9 6 / ,& : ;-!< 25.6.2014 6 = SD/- SD/- (D.MANMOHAN ) (N.K. BILLAIYA) '#$ /VICE PRESIDENT &, -. / ACCOUNTANT MEMBER MUMBAI; ;-! DATED 25.6.2014 . ! . ./ RJ , SR. PS -&9 -&9 -&9 -&9 6 66 6 3 7 ( 3 7 ( 3 7 ( 3 7 ( >&(/7 >&(/7 >&(/7 >&(/7 / COPY OF THE ORDER FORWARDED TO : 1. 02 / THE APPELLANT 2. 3402 / THE RESPONDENT. 3. ? ( ) / THE CIT(A)- 4. ? / CIT 5. (@= 3 7 ! , , / DR, ITAT, MUMBAI 6. = A / GUARD FILE. -&9! -&9! -&9! -&9! / BY ORDER, 4(7 3 7 //TRUE COPY// ' '' ' / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI