THE ACIT RG 1(1), MUMBAI V. M/S. FORBES GOKAK LTD, MUMBAI

ITA 6580/MUM/2007

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 3842 (ITAT-MUMBAI)
• Duration Of Justice: 8 year(s) 9 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-08-2016
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: F
• Next Hearing Date: 31-03-2016
• Assessment Year: 2003-2004
• Appeal Filed On: 29-10-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Business income; Depreciation; Opportunity of being heard; Earning of tax free income; Bad and doubtful debts
• Section: 80HHC; 14A; 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL F, BENCH MUM BAI BEFORE SHRI JASON P. BOAZ, AM AND SHRI SANDEEP GOSA I, JM ITA NO.6721/MUM/2007 (ASSESSMENT YEAR: 2003-04) FORBES GOKAK LTD., FORBES BUILDING, CHARAJEET RAI MARG, FORT, MUMBAI 400 001. VS. THE JT. COMMISSIONER OF INCOME TAX, OSD, RANGE 1 (1), MUMBAI PAN: AA AC F 1765A APPELLANT .. RESPONDENT ITA NO.6580/MUM/2007 (ASSESSMENT YEAR: 2003-04) THE ASST. COMMISSIONER OF INCOME TAX, RANGE 1 (1), MUMBAI VS. FORBES GOKAK LTD., FORBES BUILDING, CHARAJEET RAI MARG, FORT, MUMBAI 400 001. PAN: AACC F 1765A APPELLANT .. RESPONDENT ASSESSEE BY SHRI GIRISH DAVE, AR REVENUE BY SHRI G. M. DOSS, CITDR DATE OF HEARING 31 - 03 - 2016 DATE OF PRONOUNCEMENT 10 - 0 8 - 2016 O R D E R PER BENCH : OUT OF THESE TWO CROSS APPEALS, ONE IN ITA NO.6721/ MUM/2007 IS FILED BY THE ASSESSEE AND THE OTHER IN ITA NO.6580/ MUM/2007 IS FILED BY THE REVENUE AGAINST THE ORDER OF THE LEARNED CIT(A) -I, MUMBAI DATED 23- 08-2007 PASSED IN APPEAL NO.CIT(A)-I/IT/126/06-07 F OR ASSESSMENT YEAR 2003-04 ON THE FOLLOWING RESPECTIVE GROUNDS:- ASSESSEES APPEAL IN ITA NO.6721/MUM/2007 (AY- 2003 -04) GROUND NO. I: DISALLOWANCE OF INTEREST ON BORROWING S OF RS.7,61,476/- 1. ON HE FACTS AND IN THE CIRCUMSTANCES F THE CAS E AND IN LAW, THE CIT (A) ERRED IN PARTLY CONFIRMING THE DISALLOWAN CE MADE BY THE ASSESSING OFFICER (AO) OF INTEREST OF RS.7,61,4 76/- ON PRORATA ITA NO.6721 & 6580/MUM/2007 2 BASIS ON THE GROUND THAT BORROWED FUNDS ARE UTILI ZED FOR MAKING INVESTMENT IN TAX-FREE SECURITIES. 2. HE FAILED TO APPRECIATE AND OUGHT TO HAVE HELD THAT: I) THE INTEREST WAS NOT A DIRECT EXPENSE FOR EARNIN G TAX FREE INCOME AND NO DISALLOWANCE CAN BE MADE ON PROPORTIO NATE BASIS BY ATTRIBUTING THE SAME TOWARDS TAX FREE INCO ME; II) THE EXPENSES WHICH COULD BE ATTRIBUTED UNDER SE CTION 14A OF THE ARE ONLY THOSE WHICH ARE INCURRED IN RELATI ON TO EARNING TAX-FREE INCOME AND NO DISALLOWANCE COULD B E MADE BASED ON PRESUMPTION ON PROPORTIONATE BASIS; III) THE INVESTMENTS WERE MADE OUT OF OWN FUNDS I.E . CAPITAL AND RESERVES AND NOT OUT OF BORROWED FUNDS AS SUCH NO DISALLOWANCE IS CALLED FOR; IV) WHERE NO EXPENDITURE HAS BEEN ACTUALLY INCURRED , NO ESTIMATION CAN BE MADE TO DISALLOW EXPENDITURE FOR EARNING EXEMPT INCOME; V) BORROWINGS WERE MADE FOR THE PURPOSE OF BUSINESS AND AS SUCH THE CONDITIONS ENVISAGED BY S. 36(1) (III) HAV E BEEN FULFILLED, ENTIRE INTEREST SHOULD HAVE BEEN ALLOWED AS DEDUCTION. 3. WITHOUT PREJUDICE TO THE ABOVE, IT IS SUBMITTED THA T SINCE DIVIDEND TAX IS PAYABLE U/S 115O OF THE ACT, IT IS INCORREC T TO HOLD THAT DIVIDEND IS TAX-FREE AND HENCE THE QUESTION OF APP LICATION OF SECTION 14A CANNOT ARISE. 4. WITHOUT PREJUDICE TO THE ABOVE, WE SUBMIT THAT PRO FITS ON SALE OF SHARES ARE IN ANY EVENT TAXABLE AND HENCE APPLICAT ION OF SECTION 14A TO CASES OF PURCHASE OF SHARES IS MISAPPLICATI ON OF LAW. 5. THE APPELLANT PRAYS THAT THE DISALLOWANCE OF RS.7, 61,476/- BEING ALLEGED INTEREST ATTRIBUTED FOR EARNING TAX-FREE INCOME BE DELETED. 6. WITHOUT PREJUDICE TO ABOVE, THE COST OF INTEREST B E ALLOWED TO BE CAPITALIZED BY ADDING TO THE COST OF INVESTMENTS A ND BE TAKEN INTO CONSIDERATION IN THE YEAR OF SALE OF SHARES ETC. W HILE COMPUTING THE CAPITAL GAIN. GROUND II: DISALLOWANCE OF NON-COMPETE FEES PAID TO EX-DIRECTORS OF RS.34,58,616/- 1. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE A ND IN LAW, THE CIT (A) ERRED IN CONFIRMING THE ACTION OF THE AO OF DI SALLOWING NON- COMPETE FEES OF RS.34,58,616/- PAID TO THE EX-DIRE CTOR OF THE APPELLANT. ITA NO.6721 & 6580/MUM/2007 3 2. THE APPELLANT PRAYS THAT THE SAID DISALLOWANCE OF RS.34,58,616/- BE DELETED OR APPROPRIATELY REDUCED. GROUND III: DISALLOWANCE OF PROVIDENT FUND AND EMPL OYEES STATE INSURANCE CONTRIBUTION OF RS.14,818/- 1. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE A ND IN LAW, THE CIT (A) ERRED IN CONFIRMING THE ACTION OF THE AO OF DI SALLOWING RS.14,818/- BEING PF AND ESIC CONTRIBUTION ON THE GROUND THAT THE PAYMENTS WERE MADE BEYOND DUE DATE SPECIFIED UNDER THE RELEVANT LAW. 2. THE APPELLANT PRAYS THAT THE DISALLOWANCE OF RS .14,818/- BE DELETED. GROUND IV: DIRECTION GIVEN TO AO FOR DEDUCTION U/S 80HHC 1. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE A ND IN LAW, THE CIT (A) ERRED IN GIVING DIRECTION TO THE AO FOR DEDUCT ION U/S 80HHC. GROUND V: SETTING OFF LOSSES WHILE COMPUTING DEDUCT ION U/S 80HHC . 1. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE A ND IN LAW, THE CIT (A) ERRED IN CONFIRMING THE ACTION OF THE AO OF SE TTING OFF BROUGHT FORWARD LOSES OF EARLIER YEARS FROM BUSINESS PROFI TS FOR THE PURPOSE OF ALLOWING DEDUCTION U/S 80HHC OF THE ACT. 2. THE APPELLANT PRAYS THAT THE DEDUCTION U/S 80HH C BE ALLOWED FROM THE BUSINESS PROFITS BEFORE SETTING OFF BROUG HT FORWARD BUSINESS LOSS. GROUND VI: DEDUCTION OF MISCELLANEOUS INCOME AND OT HER ITEMS FROM THE PROFIT WHILE COMPUTING THE DEDUCTION U/S 80HHC. 1. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AN D IN LAW, THE CIT (A) ERRED IN CONFIRMING THE ACTION O THE AO OF DEDUCTIN G THE AMOUNT OF RS.8,39,51,299/- BEING THE AMOUNT OF MISCELLANEOUS INCOME FROM THE BUSINESS PROFITS FOR THE PURPOSE OF CALCULATION OF DEDUCTION OF UNDER SECTION 80HHC OF THE ACT. 2. HE FAILED TO APPRECIATE AND OUGHT TO HAVE HELD T HAT: A. MISCELLANEOUS INCOME AND OTHER ITEMS IS BUSINESS INCOME ARISING OUT OF THE BUSINESS OPERATIONS OF THE COMPA NY; AND B. THE MISCELLANEOUS INCOME HAS ARISEN DURING THE C OURSE OF BUSINESS AND THEY BY THEIR VERY NATURE ARE BUSINESS INCOME. ITA NO.6721 & 6580/MUM/2007 4 ALSO, THEY ARE TAXED AS BUSINESS INCOME ONLY. HENCE , THERE IS NO REASON WHY A SEPARATE TREATMENT (OF NOT CONSIDER ING THEM AS PART OF BUSINESS PROFITS) BE ACCORDED TO THEM WH ILE WORKING OUT OF PROPORTIONATE PROFIT ELIGIBLE FOR DEDUCTION U/S 80HHC. 3. THE APPELLANT PRAYS THAT IT BE HELD THAT 90% OF AMOUNT OF RS.8,39,51,299/- NOT TO BE DEDUCTED FROM THE BUSIN ESS PROFIT WHILE COMPUTING DEDUCTION UNDER SECTION 80HHC OF THE ACT. 4. WITHOUT PREJUDICE TO ABOVE, 90% OF NET INCOME BE REDUCED FROM BUSINESS PROFITS FOR CALCULATING DEDUCTION U/S 80 HHC OF THE ACT. GROUND VII: NOT ALLOWING TO SET-OFF THE INCENTIVES AGAINST THE PROFITS 1. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AN D IN LAW, THE CIT (A) ERRED IN CONFIRMING THE ACTION OF THE AO OF NOT ALL OWING THE SET-OFF OF INCENTIVES AGAINST THE BUSINESS INCOME FOR THE PURP OSE OF SECTION 80HHC OF THE ACT. 2. WITHOUT PREJUDICE TO ABOVE, THE INCENTIVE BE TRE ATED AS BUSINESS INCOME U/S 28(IV) OF THE ACT. GROUND VIII: DEDUCTION OF INCOME FROM SERVICES WHIL E COMPUTING PROFITS U/S 80HHC OF THE ACT. 1. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AN D IN LAW, THE CIT (A) ERRED IN CONFIRMING THE ACTION OF THE AO OF REDUCIN G 90% OF THE INCOME FROM SERVICES INSTEAD OF TREATING THE SAME A S BUSINESS INCOME. 2. WITHOUT PREJUDICE TO ABOVE, IF AT ALL THE ACTION OF THE CIT (A) IS CONFIRMED THEN IN THAT CASE, 90% OF THE NET SERVICE INCOME BE REDUCED FROM BUSINESS PROFITS FOR THE PURPOSE OF DE DUCTION U/S 80HHC OF THE ACT. GROUND IX: COMPUTATION OF BOOK PROFITS U/S. 15JB OF THE ACT. 1. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AN D IN LAW, THE CIT (A) ERRED IN CONFIRMING THE ACTION OF THE AO OF COMPUTI NG BOOK PROFIT U/S. 115JB OF THE ACT BY REDUCING EXPENSES OF RS.7,61,47 6/- ON THE ALLEGED GROUND THAT THE SAME WERE INCURRED FOR EARN ING THE SAME THE TAX FREE INCOME. 2. THE APPELLANT PRAYS THAT THE AO BE DIRECTED TO A CCEPT THE BOOK PROFIT AS COMPUTED BY THE APPELLANT. ITA NO.6721 & 6580/MUM/2007 5 GROUND X: INTEREST U/S. 234B, 234C AND 234D OF THE ACT. 1. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AND I N LAW, THE CIT (A) ERRED IN CONFIRMING THE ACTION OF THE AO OF LEVYING INTEREST U/S 234B, 234C AND 234D OF THE ACT. GROUND XI: LEVY OF INTEREST U/S 220(2) OF THE ACT. 1. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AN D IN LAW, THE CIT (A) ERRED IN CONFIRMING THE ACTION OF THE AO OF LEVYING INTEREST U/S 220(2) OF THE ACT. GROUND XII: THE APPELLANT CRAVES LEAVE TO ADD TO/AMEND AND/OR A LTER ALL OR ANY OF THE FOREGOING GROUNDS OF APPEAL. REVENUES APPEAL IN ITA NO.6580/MUM/2007 (AY-2003- 04) 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT (A) ERRED IN DIRECTING THE AO TO RESTRICT THE DISALLOWA NCE TO RS.7,61,476/- AS ATTRIBUTABLE TO INVESTMENT IN INVESTMENTS YIELDING DIVIDEND, FOR COMPUTING BUSINESS INCOME AND SHALL GRANT CREDIT OF THIS INTE REST FOR COMPUTING DIVIDEND INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT (A) ERRED IN DELETING THE DISALLOWANCE OF RS.7,92,843/- BEING 2% OF GROSS DIVIDEND ON ESTIMATE BASIS OUT OF GENERAL AND ADMIN ISTRATIVE EXPENDITURE. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE OF RS.9,54,432/- OUT OF INTEREST ON THE GROUND THAT INTEREST BEARING FUNDS WHICH HAVE BEEN DIVERTED FOR NON BUSINESS PURPOSES AS ADVANCES TO SUBSIDIARIES. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT (A) ERRED IN DIRECTING THE AO TO RECOMPUTED THE BOO K PROFITS WITHOUT MAKING ADJUSTMENT IN THE RESPECTIVE PROVISIONS, INCLUDING PROVISIONS FOR DOUBTFUL DEBTS AND ADVANCES AND PROVISION FOR DIMINUTION IN THE VALUE OF INVESTMENTS. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN DIRECTING THE AO TO REDUCE THE BOOK PROFIT S BY THE QUANTUM OF NOTIONALLY COMPUTED DEDUCTION U/S. 80 HHC. 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT (A) ERRED IN HOLDING THAT INTEREST U/S. 234D CANNOT BE CHARGED FOR THE ASSESSMENT YEAR 2003-04. ITA NO.6721 & 6580/MUM/2007 6 THE APPELLANT PRAYS THAT THE ORDER OF CIT (A) ON TH E ABOVE GROUNDS BE SET ASIDE AND THAT OF THE A. O. BE RESTORED. THE APPELLANT CR AVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING OF YARN, ENGINEERI NG GOODS, SHIPPING AND OTHER BUSINESSES FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2003- 04ON 28-11-2003 DECLARING TAXABLE INCOME OF RS.57,7 5,410/- AFTER CLAIMING SET OFF OF BROUGHT FORWARD UNABSORBED DEPR ECIATION. THE INCOME U/S 115JB OF THE IT ACT WAS DECLARED AT RS.7,54,01, 024/-. THE CASE WAS SELECTED FOR SCRUTINY AND AFTER ISSUING CERTAIN STA TUTORY NOTICES SEEKING REPLY FROM THE ASSESSEE COMPANY AND RECEIVING THE R ESPECTIVE REPLIES, THE AO PASSED THE ASSESSMENT ORDER MAKING CERTAIN D ISALLOWANCES AND CONSEQUENT ADDITIONS TO THE TOTAL INCOME OF THE ASS ESSEE COMPANY. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEA L BEFORE THE LEARNED CIT (A). THE LEARNED CIT (A) AFTER CONSIDERING THE FACTS & CIRCUMSTANCES OF THE CASE PARTLY ALLOWED THE APPEAL OF THE ASSESS EE BY UPHOLDING CERTAIN DISALLOWANCES/ADDITIONS MADE BY THE AO. BEING AGGRI EVED BY THE ORDER OF THE LEARNED CIT (A), THE ASSESSEE IS NOW IN APPEAL BEFORE US. 3. FIRSTLY, WE TAKE UP THE ASSESSEES APPEAL IN ITA NO.6721/MUM/2007 [AY 2003-04]. 4. GROUND NO. I OF THE ASSESSEES APPEAL RELATES TO DISALLOWANCE O F INTEREST ON BORROWINGS AMOUNTING TO RS.7,61,476/-. ON PERUSAL OF THE RECORDS, IT IS FOUND THAT THIS ISSUE HAS ALREADY BE EN DECIDED BY THE AO AND THE LEARNED CIT (A) BY FOLLOWING THEIR RESPECTI VE ORDERS IN THE ITA NO.6721 & 6580/MUM/2007 7 ASSESSEES OWN CASE FOR THE PREVIOUS ASSESSMENT YEA R 2002-03. AT THE VERY OUTSET, THE LEARNED AR OF THE ASSESSEE SUBMITT ED BEFORE US THAT THE SAID ISSUE HAS BEEN DECIDED AGAINST THE ASSESSEE AN D IN FAVOUR OF THE REVENUE BY THE TRIBUNAL IN ASSESSEES OWN CASE IN I TA NO.6720/MUM/2007 FOR ASSESSMENT YEAR 2002-03 VIDE O RDER DATED 12 TH JUNE, 2013 PASSED BY ITAT MUMBAI F BENCH BY UPHOL DING THE ORDERS OF THE AUTHORITIES BELOW AND THEREBY RESTRICTING THE D ISALLOWANCE. THE LEARNED DR WHILE SUPPORTING THE ORDERS OF THE AUTHO RITIES BELOW CONCEDED TO THE SUBMISSIONS MADE BY THE LEARNED AR. HOWEVER, IN RESPECT OF GROUND I (4), DURING THE YEAR UNDER CONSIDERATION, AS PER THE ARGUMENTS OF THE LEARNED AR EXEMPTION U/S 10 (33) OF THE ACT WAS NOT AVAILABLE IN RESPECT OF INC OME EARNED FROM DIVIDEND FOR ACCOUNTING YEAR 2003-04 ONLY AND LATER ON, FROM 2004-05, THE SAID EXEMPTION WAS AVAILABLE. BUT, FOR THIS PARTICU LAR YEAR UNDER CONSIDERATION EXEMPTION U/S 10(33) OF THE ACT WAS N OT AVAILABLE. SINCE, THE ENTIRE INCOME WAS TAXABLE, THEREFORE NO QUESTIO N OF DISALLOWANCE ACCRUED. THEREFORE, KEEPING IN VIEW THE SAID LEGAL PROPOSITION WE AGREE WITH THE CONTENTION OF THE LEARNED AR AND DELETE TH E ENTIRE ADDITION MADE BY THE AO OF 7,61,476/-. RESULTANTLY, GROUND NO. I OF THE ASSESEES APPEAL STANDS ALLOWED. 5. GROUND NO. II OF THE ASESSEES APPEAL RELATES TO CONFIRMATION OF DISALLOWANCE OF NON-COMPETE FEES PAID TO EX-DIRECTO RS BY THE LEARNED CIT (A) AMOUNTING TO RS.34,58,616/- MADE BY THE AO. ITA NO.6721 & 6580/MUM/2007 8 6. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIALS ON RECORD AND CAREFULLY GONE THROUGH THE ORDERS OF THE REVENUE AUTHORITIES. ON PERUSAL OF THE RECORDS, IT IS FOUND THAT THIS IS SUE HAS BEEN DECIDED AGAINST THE ASSESSEE BY THE CO-ORDINATE F BENCH O F ITAT MUMBAI VIDE ORDER DATED 12 TH JUNE, 2013 FOR ASSESSMENT YEAR 2002-03, THE RELEVA NT PORTION OF WHICH READS AS UNDER:- 9. GROUND NO.2 IS ABOUT DISALLOWANCE OF NON-COMPET E FEES PAID TO EX-DIRECTORS AMOUNTING TO RS.6,41,600/-. BEFORE US, AR FAIRLY CONCEDED THAT THE ISSUE HAD BEEN DECIDED AGAINST T HE ASSESSEE BY THE TRIBUNAL VIDE ITS ORDER DATED 25-09-2006, WHIL E DECIDING THE APPEAL FOR AY 2000-01. RESPECTFULLY FOLLOWING THE SAID ORDER OF THE MUMBAI BENCH OF THE TRIBUNAL WE DECIDE GROUND NO.2 AGAINST THE ASSESSEE. WHILE AT THE TIME OF HEARING OF THE PRESENT APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 2003-04, BOTH THE SIDES CONCEDED TO THE AFOREMENTIONED FACT, WE RESPECTFULLY FOLLOWING THE ABOVE MENTIONED ORDER OF THE CO-ORDINATE BENCH AND WITH A VIEW OF MAINTEN ANCE OF JUDICIAL CONSISTENCY, UPHOLD THE ORDERS OF THE AUTHORITIES B ELOW. AS A RESULT, THIS GROUND OF ASSESSEES APPEAL STANDS DISMISSED. 7. GROUNDS NO.III & IV AT THE TIME OF HEARING, THE LEARNED AR OF THE ASSESSEE SUBMITTED THAT HE IS NOT PRESSING THESE GR OUNDS. THE LEARNED DR ALSO DID NOT OBJECT TO THE SUBMISSION OF THE LEA RNED AR, ACCORDINGLY, THE LEARNED AR HAS BEEN ALLOWED TO WITHDRAW THESE G ROUNDS. AS SUCH, GROUNDS NO.III & IV OF THE ASSESSEES APPEAL ARE DI SMISSED AS NOT PRESSED/WITHDRAWN. ITA NO.6721 & 6580/MUM/2007 9 8. GROUND NO.V OF THE ASSESSEES APPEAL RELATES TO SETTING OFF OF LOSSES WHILE COMPUTING DEDUCTION U/S 80HHC OF THE A CT. THE AO REJECTED THE ASSESSEES CLAIM BY OBSERVING THAT THE ASSESSEE WHILE FILING RETURN OF INCOME HAD CLAIMED DEDUCTION U/S 80HHC BEFORE TAKIN G INTO ACCOUNT THE UNABSORBED BROUGHT FORWARD LOSS AND DEPRECIATION AN D THE SAME CLAIM HAD ALSO BEEN CLAIMED AGAINST THE INCOME DETERMINED U/S 115JB OF THE ACT AND THAT THE ASSESSEES CLAIM WAS NOT TENABLE A S THE DEDUCTION U/S 80HHC WAS AVAILABLE ON PROFITS OF BUSINESS AS COMPU TED UNDER THE HEAD PROFITS AND GAINS AS PER BUSINESS AND PROFESSION. WHILE COMPUTING THE PROFITS FOR THE RELEVANT YEAR, THE UNABSORBED DEPRE CIATION WHICH WAS CONSIDERED AS CURRENT YEARS DEPRECIATION AS PER THE ACT HAD TO BE SET OFF AND THE BROUGHT FORWARD LOSS ALSO HAD TO BE SET OFF FOR DETERMINING THE TRUE PROFITS OF THE ASSESSEE IN THE CURRENT YEAR AN D THAT EVEN IF THE ASSESSEES CONTENTION HAD TO BE ACCEPTED THEN IT WO ULD HAVE RESULTED IN A CASE OF EXCESS ALLOWANCE TO THE ASSESSEE. THE LEAR NED CIT (A) REJECTED THE CLAIM OF THE ASSESSEE RELYING ON THE DECISION O F THE HONBLE HIGH COURT OF KARNATAKA REPORTED IN 351 ITR 434 IN THE C ASE OF J. K. INDUSTRIES LTD. VS ACIT (2013) 351 ITR 434 AS WELL AS THE DECI SION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS SHRIKE CONSTRUC TION EQUIPMENTS LTD. REPORTED IN [2007] 291 ITR 380 (SC) BY HOLDING THAT AS PER THE AFORESAID CASE LAWS, IT IS NOW SETTLED THAT FOR THE PURPOSE O F DEDUCTION U/S 80 HHC PROFITS WILL HAVE TO BE COMPUTED AFTER GIVING FULL EFFECT TO OTHER PROVISIONS OF THE ACT, INCLUDING THE PROVISIONS RELATING TO CA RRY FORWARD AND SET OFF. ITA NO.6721 & 6580/MUM/2007 10 9. THE LEARNED AR DURING THE TIME OF ARGUMENT HAS N OT POINTED OUT OR PLACED ON RECORD ANY MATERIAL TO CONTROVERT THE DEC ISION OF THE LEARNED CIT (A). ON THE OTHER HAND, THE LEARNED DR SUPPORT ED THE ORDERS OF THE LEARNED CIT (A). IN VIEW OF THE ABOVE, WE FIND NO R EASON TO INTERFERE WITH THE FINDINGS OF THE LEARNED CIT (A) AND UPHOLD THE SAME. ACCORDINGLY, GROUND NO. V OF THE ASSESSEES APPEAL STANDS DISMIS SED. 10. GROUND NO.VI OF THE ASSESSEES APPEAL RELATES TO THE ISSUE OF DEDUCTION OF MISCELLANEOUS INCOME AND OTHER ITEMS F ROM THE PROFITS WHILE COMPUTING THE DEDUCTION U/S 80HHC OF THE ACT. 11. WE HAVE HEARD THE RIVAL SUBMISSION, CONSIDERED THE ORDERS OF THE AUTHORITIES BELOW AND PERUSED THE MATERIALS PLACED ON RECORD INCLUDING THE PAPER BOOK FILED BY THE ASSESSEE. THE LEARNED A R DREW OUR ATTENTION TO PAGE 84 TO 88 OF THE PAPER BOOK WHERE BREAK-UP O F THE MISCELLANEOUS INCOME AND OTHER ITEMS IS AVAILABLE. WE HAVE NOTICE D THAT THE AO HAS NOT HAS NOT EXAMINED THE ISSUE IN DETAIL BEFORE MAKING THE DISALLOWANCE. THE LEARNED CIT (A) ALSO REJECTED THE CLAIM OF THE ASSE SSEE BY CONFIRMING THE ORDER OF THE AO HOLDING THAT THERE WAS NO DIRECT NE XUS BETWEEN THE NATURE OF INCOME CLUBBED UNDER THE HEADING MISCELLANEOUS I NCOME AND THE EXPORT ACTIVITY OF THE APPELLANT WITHOUT CONSIDERIN G THE DETAILED BREAK-UP OF THE AFORESAID INCOME AS HAVE BEEN PLACED ON RECO RD BY THE ASSESSEE. THEREFORE, WE RESTORE THIS GROUND BACK TO THE FILE OF THE AO IN ORDER TO EXAMINE THE DETAILS OF THE DOCUMENTS FILED BY THE A SSESSEE AND THEN TO DECIDE THE SAME REGARDING APPLICABILITY OF THE CLAI M OF DEDUCTION AS RAISED ITA NO.6721 & 6580/MUM/2007 11 BY THE ASSESSEE U/S 80HHC OF THE ACT AFTER AFFORDIN G ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. CONSEQ UENTLY, THIS GROUND OF APPEAL IS ALLOWED FOR STATISTICALLY PURPOSE. 12. GROUND NO.VII OF THE APPEAL RELATES TO NOT ALLOWING SET OFF OF INCENTIVES AGAINST PROFITS. THE ASSESSEE CLAIMED SE T OFF OF MISCELLANEOUS INCOME FOR AN AMOUNT OF RS.8,39,51,299/-. HOWEVER, THE AO TREATED THE ABOVE AMOUNT AS SUNDRY CREDITORS AND HENCE ARE NOT ELIGIBLE FOR DEDUCTION U/S 80 HHC AND HAS TO BE REDUCED TO 90%. FURTHER, THE AO ALSO HELD THAT THIS AMOUNT INCLUDES THE SALE OF DEP B LICENCE OF RS.2,68,47,494/- AND DUTY DRAW BACK OF RS.1,32,91,2 96/- AND AS SUCH THESE HAVE NO DIRECT NEXUS WITH THE EXPORT ACTIVITY OF THE ASSESSEE COMPANY AND IS NOT ELIGIBLE FOR DEDUCTION. WHILE TH E ASSESSEE CARRIED THE MATTER IN APPEAL, THE LEARNED CIT (A) HAS ALSO HELD THAT THE TURNOVER OF THE APPELLANT IS MORE THAN RS.10 CRORES AND HENCE, THE ASSESSEE IS NOT ELIGIBLE FOR DEDUCTION AS CLAIMED BY THE ASSESSEE I N VIEW OF THE AMENDED PROVISIONS OF THE ACT AND ACCORDINGLY, THE LEARNED CIT (A) REJECTED THE CLAIM OF THE ASSESSEE. HENCE, THE ASSESSEE IS IN AP PEAL BEFORE THE TRIBUNAL. 13. AT THE TIME OF HEARING, THE LEARNED AR FOR THE ASSESSEE DREW OUR OUT ATTENTION TO PAGE 94 OF THE PAPER BOOK WHEREIN THE DETAILS OF WORKING OF DEDUCTION U/S 80 HHC OF THE ACT HAVE BEEN GIVEN. FURTHER, THE LEARNED AR BY RELYING ON THE DECISIONS IN THE CASE OF (I) A VANI EXPORTS VS. CIT, RAJKOT [2012] 348 ITR 391 (GUJ. HC), (II) VIJAYA SI LK HOUSE (BANGALORE) ITA NO.6721 & 6580/MUM/2007 12 LTD. VS. UOI [2013] 349 ITR 566 (BOM. HC) AND (III ) CIT VS AVANI EXPORTS [2015] 58 TAXMANN.COM 100 (SC) SUBMITTED TH AT AMENDMENT TO SECTION 80HHC BY WAY OF ADDING THIRD AND FOURTH PRO VISOS IS ULTRA VIRES ARTICLE 14 OF THE CONSTITUTION. ON CAREFUL PERUSAL OF THE AFORESAID DECISIONS IT IS NOTICED THAT THE HONBLE APEX COURT IN THE CASE OF CIT VS AVANI EXPORTS HAS HOWEVER, TO MAKE THE POSITION CRY STAL CLEAR, SUBSTITUTED THE DIRECTION OF THE HONBLE HIGH COURT WITH THE FOLLOWING DIRECTION: HAVING SEEN THE TWIN CONDITIONS AND SINCE 80HHC BE NEFIT IS NOT AVAILABLE AFTER 1.4.05, WE ARE SATISFIED THAT CASES OF EXPORTERS HAVING A TURN OVER BELOW AND THOSE ABOVE 10 CR. SHO ULD BE TREATED SIMILARLY. THIS ORDER IS IN SUBSTITUTION OF THE JUD GMENT IN APPEAL. THE LEARNED DR COULD NOT CONTROVERT THE AFORESAID D ECISION OF THE HONBLE APEX COURT BY PLACING ON RECORD ANY RELEVANT MATERI AL. WE HAVE EVEN NOTICED THAT THE ASSESSEES CLAIM OF DEDUCTION U/S 80HHC RELATES TO ASSESSMENT YEAR 2003-04 I.E. PRIOR TO THE DATE OF A MENDMENT OF THE PROVISIONS WITH EFFECT FROM 1 ST APRIL, 2005. IN VIEW OF THE ABOVE, WE RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF CIT VS AVANI EXPORTS CITED SUPRA, HOLD THAT THE ORD ER OF THE LEARNED CIT (A) IS NOT SUSTAINABLE AND ACCORDINGLY WE REVERSE T HE SAME. RESULTANTLY, THIS GROUND OF APPEAL OF THE ASSESSEE STANDS ALLOWE D. 14. GROUND NO. VIII OF THE ASSESSEES APPEAL RELATES TO DEDUCTION OF INCOME FROM SERVICE WHILE COMPUTING PROFITS U/S 80H HC OF THE ACT. AFTER HEARING THE PARTIES AND PERUSAL OF THE RECORDS AS W ELL AS THE ORDERS PASSED BY THE LOWER AUTHORITIES WE HAVE NOTICED THA T THE LEARNED CIT (A) ITA NO.6721 & 6580/MUM/2007 13 HAS DEALT WITH THE ISSUE AT PARA 16, 16.1 AND 16.2 AT PAGES 6 AND 7 OF HIS ORDER. THE SAME IS REPRODUCED HEREIN BELOW:- 16. THE GROUND NO.15 IS AGAINST REDUCTION OF INCOM E RECEIVED FROM SERVICES WHILE COMPUTING PROFITS UNDER SECTIO N 80HHC OF THE INCOME-TAX ACT. 16.1 ACCORDING TO THE APPELLANT, SERVICE INCOME OF RS.23,03,85,764/- HAS BEEN EARNED DURING THE FINANC IAL YEAR UNDER CONSIDERATION. THE APPELLANT HAS TREATED THE ENTIRE SERVICE INCOME AS BUSINESS INCOME AND HAS ACCORDINGLY CALCULATED T HE DEDUCTION UNDER SECTION 80HHC. IN CONTRAST, THE AO HAS REDUCE D 90% OF THE SERVICE INCOME WHILE COMPUTING BUSINESS PROFITS FOR THE PURPOSE OF DEDUCTION UNDER SECTION 80HHC. ACCORDING TO THE AO EXPLANATION (BAA) REQUIRES REDUCTION TO THE EXTENT OF 90% OF RE CEIPTS WHICH DO NOT HAVE ELEMENT OF TURNOVER BUT ARE INCLUDED IN TH E PROFIT & LOSS ACCOUNT. IN CONTRAST, THE LD. COUNSEL OF THE APPELL ANT HAS ARGUED THAT THEY ARE AGENTS OF VARIOUS SHIPPING LINES. THE Y ARE ALSO IN THE BUSINESS OF CARGO BOOKING ON BEHALF OF THE IMPORTER S AND EXPORTERS. THEY ARE ALSO CLEARING AND FORWARDING AG ENTS, AND ARE ENGAGED IN WAREHOUSING OF THE GOODS, CONTAINER BOOK ING, INLAND CONTAINER SERVICES, FEEDER SERVICES, CARGO HANDLING AND CREW RECRUITMENT ETC. IT IS CLAIMED THAT ALL THE ACTIVIT IES ARE ONE OF THE MAIN ACTIVITIES OF THE BUSINESS. IT IS FURTHER CLAI MED THAT THESE ARE CATEGORIZED AS SERVICE CHARGES ONLY FOR THE SAKE OF PRESENTATION OF ACCOUNTS. THEREFORE, IT IS CONTENDED THAT EXPLANATI ON (BAA) IS NOT APPLICABLE TO THESE RECEIPTS. 16.2 I HAVE PERUSED THE FACTS OF THE CASE AND I FIN D THAT THE VARIOUS ACTIVITIES NARRATED BY THE APPELLANT AS FAL LING UNDER INCOME FROM SERVICES, ARE NOT DIRECTLY RELATED TO ITS OWN EXPORT ACTIVITIES. FOR THE PURPOSE OF DEDUCTION UNDER SECTION 80HHC WH AT IS RELEVANT IS APPELLANTS OWN EXPORT AND NOT INCOME A RISING FROM THE ACTIVITIES, WHICH ASSIST EXPORTS OF OTHERS. IN THE INSTANT CASE, THE INCOMES UNDER CONSIDERATION ARE ASSISTING OTHERS BU SINESS HOUSES IN THEIR EXPORTS BUT ARE NOT DIRECTLY ATTRIBUTABLE TO THE EXPORTS OF THE APPELLANT. IN SUCH A SITUATION THE VIEW TAKEN BY TH E AO APPEARS CORRECT AND 90% OF THESE INCOMES HAVE TO BE REDUCED FOR CALCULATING DEDUCTION UNDER SECTION 80HHC. ACCORDIN GLY, THIS GROUND OF APPEAL IS ALSO REJECTED. THE ABOVE ISSUE WAS SUMMARILY REJECTED BY THE AO ON THE GROUND THAT THE ASSESSEE HAD NOT FILED ANY BREAK-UP OF THE INCO ME FROM SERVICES. THE LEARNED AR HAS DRAWN OUR ATTENTION TO PAGE 126 OF T HE PAPER BOOK ITA NO.6721 & 6580/MUM/2007 14 WHEREIN CLAIM OF DEDUCTION U/S 80HHC OF THE ACT IN THE STI HAS BEEN PROVIDED. THE LEARNED AR ALSO DREW OUR ATTENTION TO PAGES 91 TO 94 AND PAGE 96 OF THE PAPER BOOK WHEREIN WORKING OF DEDUCT ION U/S 80HHC HAS BEEN GIVEN AND AT PAGE 96 THE BREAK-UP/DETAILS OF S ERVICE INCOME HAVE BEEN PROVIDED AND SUBMITTED THAT SERVICE INCOME IS NOT INCLUDED IN THE TOTAL TURNOVER U/S 10CCAC REPORT WHILE COMPUTING DE DUCTION U/S 80HHC OF THE ACT. ON THIS BASIS THE LEARNED AR SUBMITTED THAT 90% OF THE NET SERVICE INCOME BE REDUCED FROM THE BUSINESS PROFITS FOR THE PURPOSE OF DEDUCTION U/S 80 HHC OF THE ACT. THE LEARNED DR ON THE OTHER HAND SUPPORTED THE ORD ERS OF THE AUTHORITIES BELOW. IN VIEW OF THE ABOVE, WE FIND THAT THE ORDER OF TH E LEARNED CIT (A) ON THIS GROUND IS NOT SUSTAINABLE SINCE THE DETAILE D BREAK UP HAS NOT BEEN EXAMINED BY THE AUTHORITIES BELOW. WE, THEREFO RE, SET ASIDE THE ORDER OF LD. CIT(A) AND RESTORE BACK THE ISSUE TO T HE FILE OF THE AO FOR DECIDING THE SAME AFRESH IN ACCORDANCE WITH LAW AFT ER EXAMINING THE DETAILS OF SERVICE INCOME PROVIDED BY THE ASSESSEE AFTER GRANTING THE ASSESSEE ADEQUATE OPPORTUNITY OF BEING HEARD IN ORD ER TO SUBSTANTIATE ITS CLAIM. RESULTANTLY, THIS GROUND OF APPEAL OF THE AS SESSEE STANDS PARTLY ALLOWED FOR STATISTICAL PURPOSE. 15. GROUND NO. IX RELATES TO COMPUTATION OF BOOK PROFITS U/S 115JB / DISALLOWANCE U/S 14AA OF THE ACT OF RS.7,61,476/-. THIS ISSUE HAS ALREADY BEEN DECIDED IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2002-03 IN ITA NO.6720/MUM/2002 BY ITAT MUMBAI F BENCH VIDE ORDER THAT 12 TH ITA NO.6721 & 6580/MUM/2007 15 JUNE, 2013 WHEREBY THE MATTER HAS BEEN RESTORED BAC K TO THE FILE OF THE AO FOR DECIDING AFRESH. THE RELEVANT PORTION OF THE ABOVE ORDER IS REPRODUCED HEREIN BELOW FOR THE SAKE OF REFERENCE:- 11. NEXT GROUND OF APPEAL FILED BY THE AO PERTAINS TO COMPUTATION OF BOOK PROFITS U/S. 115JB OF THE ACT. DURING THE ASSESSMENT PROCEEDINGS AO HELD THAT EXPENSES AMOUNT ING TO RS.7,61,476/- WERE INCURRED FOR EARNING TAX FREE IN COME. HE FURTHER HELD THAT WHILE COMPUTING THE BOOK PROFIT U/S. 115J B OF THE ACT SAME SHOULD BE REDUCED. FAA CONFIRMED THE ACTION OF THE AO OF REDUCING THE SAID AMOUNT FOR WORKING THE COMPUTATIO N OF BOOK PROFITS AS PER THE PROVISIONS OF SECTION 115JB OF T HE ACT. BEFORE THE FAA, AR OF THE ASSESSEE HAD AGREED IN PRINCIPLE THA T IF RELIEF ON THE QUANTUM OF INTEREST DISALLOWANCE WAS GIVEN, THE ASSESSEE SHOULD BE GIVEN CORRESPONDING RELIEF. 11.2 BEFORE US, AUTHORIZED REPRESENTATIVE (AR) SUBM ITTED THAT FAA SHOULD NOT HAVE CONFIRMED THE ORDER OF THE AO, IN PART. DR SUPPORTED THE ORDERS OF THE AO AND THE FAA. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE U S. WHILE DECIDING THE ISSUE OF DISALLOWANCE OF INTEREST ON T HE BORROWINGS FOR BOTH THE AYS WE HAVE REMITTED BACK THE MATTER TO TH E FILE OF THE AO IN PARAGRAPHS NOS. 3 TO 3.2 AND 8 OF OUR ORDER. COM PUTATION OF INCOME AS PER THE PROVISIONS OF THE SECTION 115JB O F THE ACT WOULD DEPEND ON THE DECISION TAKEN BY THE AO. THEREFORE, GROUND NO.4 OF THE APPEAL FILED BY THE ASSESSEE IS TREATED AS D ISPOSED OFF FOR STATISTICAL PURPOSES. 16. WE RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL AND WITH A VIEW OF MAINTAIN JUDICIAL CONSISTENCY; REMIT THE ISSUE IN THE YEAR UNDER CONSIDERATION BAC K TO THE FILE OF THE AO WITH THE SAME LINE OF DIRECTION TO DECIDE THE SAME AFRESH. THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL P URPOSES. 17. GROUND NOS. X AND XI RELATING TO INTEREST U/S 234B, 234C AND 234D AS WELL AS INTEREST U/S 220(2) OF THE ACT ARE CONSEQUENTIAL AND ARE DECIDED AS SUCH. ITA NO.6721 & 6580/MUM/2007 16 18. GROUND NO.XII OF THE ASSESSEES APPEAL IS GENERAL IN NATURE AND HENCE, REQUIRES NO SPECIFIC ADJUDICATION. 19. IN THE OVERALL RESULT, THE APPEAL OF THE ASSESSEE I S PARTLY ALLOWED FOR STATISTICAL PURPOSE . 20. NOW, WE WILL TAKE UP THE REVENUES APPEAL IN IT A NO.6580/MUM/2007 (AY 2003-04) FOR ADJUDICATION. 21. GROUND NO. 1 OF THE REVENUES APPEAL : WHILE ADJUDICATING GROUND NO. 1 OF THE ASSESSEES APPEAL IN ITA NO.672 1/MUM/2007 FOR THE YEAR UNDER CONSIDERATION WE HAVE DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE VIDE PARA 4 ABOVE. WITH A VIEW TO MAINTAIN PRINCIPLE OF JUDICIAL CONSISTENCY, BY FOLLOWING THE SAME, WE HEREBY DISMI SS THIS GROUND OF APPEAL OF THE REVENUE. 22. GROUND NO. 2 RELATING TO DELETION OF DISALLOWANCE OF RS.7,92,84 3/- BEING 2% OF GROSS DIVIDEND ON ESTIMATE BASIS OUT OF GENERAL AND ADMINISTRATIVE EXPENSES HAS ALREADY BEEN DECIDED AG AINST THE REVENUE BY THE COORDINATE BENCH OF THE TRIBUNAL WHILE ADJUD ICATING THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2002-03 IN ITA NO.6720 /MUM/2007 VIDE ORDER DATED 12 TH JUNE 2013 VIDE PARA 4.1.1. TO 4.1.2. THE RELEVANT PORTION OF THE ABOVE ORDER IS REPRODUCED HEREIN UNDER FOR R EFERENCE:- 4.1.1 SECOND LIMB OF THE ISSUE OF DISALLOWANCE IS ABOUT DISALLOWANCE OF ADMINISTRATIVE EXPENSES OF RS.31.83 LAKHS, BEING 2% OF GROSS DIVIDEND INCOME ON ACCOUNT OF GENERAL A ND ADMINISTRATIVE EXPENSES ATTRIBUTABLE TO EARN EXEMPT INCOME ITA NO.6721 & 6580/MUM/2007 17 ASSESSEE HAD CHALLENGED THE ADDITION MADE BY THE AO BEFORE FAA. HE FOUND THAT TRIBUNAL HAD DECIDED THE ISSUE I N FAVOUR OF THE ASSESSEE WHILE DECIDING THE APPEAL FOR THE AY 2000- 01 (ITA/5896/M/2004). FOLLOWING THE ORDER OF THE ITAT HE DELETED THE ADDITION MADE BY THE AO. 4.2.2 BEFORE US, DR AGREED THAT MATTER WAS DECIDED AGAINST THE DEPARTMENT. AR RELIED UPON THE ORDER OF THE TRIBUNA L. RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL FOR AY 2000-01I WE CONFIRM THE ORDER OF THE FAA. GROUND NO.2 FILED BY THE AO IS DECIDED AGAINST HIM . 23. THERE BEING NO DEVIATION IN THE YEAR UNDER CONS IDERATION, WE IN ORDER TO MAINTAIN THE PRINCIPLE OF JUDICIAL CONSIST ENCY, RESPECTFULLY FOLLOWING THE ABOVE DECISION CITED SUPRA OF OUR CO- ORDINATE BENCH, DO HEREBY DISMISS THIS GROUND OF APPEAL OF THE REVENUE . 24. GROUND NO.3 OF THE APPEAL RELATING TO DELETION OF DISALLOWANCE OF RS.9,54,432/- OUT OF INTEREST ON THE GROUND THAT IN TEREST BEARING FUNDS WHICH HAVE BEEN DIVERTED FOR NON-BUSINESS PURPOSES AS ADVANCES TO SUBSIDIARIES HAS ALREADY BEEN DECIDED BY ITAT MUMBA I F BENCH IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2002-03 IN ITA NO.6920/MUM/2009 VIDE ORDER DATED 12 TH JUNE, 2013 IN PARA 5 TO 5.3. THE RELEVANT PORTION IS REPRODUCED HEREIN UNDER FOR REFERENCE:- 5. NEXT GROUND OF APPEAL FILED BY THE AO PERTAINS TO DISALLOWANCE OF INTEREST ON LOANS GIVEN TO SUBSIDIA RIES AS PER THE PROVISIONS OF SECTION 36 OF THE ACT. DURING THE ASS ESSMENT PROCEEDINGS AO FOUND THAT THE ASSESSEE HAD ADVANCED LOAN OF RS.4.31 CRORES TO ITS SUBSIDIARIES. HE DIRECTED THE ASSESSEE TO FURNISH EXPLANATION WITH REGARD TO THE SAID TRANSAC TION. AFTER CONSIDERING THE REPLY FILED BY THE ASSESSEE AO DISA LLOWED AN AMOUNT OF RS.13.19 LAKHS OUT OF THE INTEREST PAID B Y THE ASSESSEE. DISALLOWANCE WAS WORKED OUT ON PRO RATA BASIS IN TH E RATIO OF BORROWED FUNDS TO TOTAL FUNDS. ITA NO.6721 & 6580/MUM/2007 18 5.1 ASSESSEE PREFERRED AN APPEAL BEFORE THE FIRST A PPELLATE AUTHORITY (FAA). AFTER CONSIDERING THE ASSESSMENT O RDER AND THE SUBMISSIONS OF THE ASSESSEE FAA HELD THAT MATTER OF THE ASSESSEE WAS DIRECTLY COVERED BY THE DECISION OF HONBLE SUP REME COURT DELIVERED IN THE CASE OF S A BUILDERS THAT ALL THE TRANSACTIONS WITH SUBSIDIARIES WERE IN THE CURRENT ACCOUNT, THAT COMM ERCIAL EXPEDIENCY WAS EVIDENT IN THE CASE UNDER CONSIDERAT ION, THAT DISALLOWANCE OF INTEREST ON ACCOUNT OF DIVERSION OF INTEREST BEARING FUNDS TO A SUBSIDIARY COMPANY WAS NOT JUSTIFIED. HE DELETED THE ADDITION MADE BY THE AO. 5.2 BEFORE US, DR SUPPORTED THE ORDER OF THE AO. AR SUBMITTED THAT LOANS ADVANCED TO THE SUBSIDIARY COMPANIES WAS IN THE CURRENT ACCOUNT, THAT THE ASSESSEE HAD SUFFICIENT S URPLUS, RESERVES AND SHARE CAPITAL TO ADVANCE LOANS TO THE SUBSIDIAR Y COMPANY. HE REPLIED UPON THE CASE OF S. A. BUILDERS (SUPRA) AND RELIANCE UTILITIES (SUPRA). 5.3 WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIAL PLACED BEFORE US. WE FIND THAT THE FAA HAS GIVEN CA TEGORICAL FINDINGS OF FACT ABOUT THE TRANSACTIONS CARRIED OUT BY THE ASSESSEE COMPANY WITH ITS SUBSIDIARY COMPANY. AS PER THE FAA , THE TRANSACTIONS IN THE YEAR UNDER CONSIDERATION WITH T HE SUBSIDIARY COMPANY WERE IN THE CURRENT ACCOUNT AND THERE WAS C OMMERCIAL EXPEDIENCY IN THE SAID TRANSACTIONS. IN OUR OPINION , THESE TWO FACTORS ARE SUFFICIENT TO ALLOW THE INTEREST EXPEND ITURE CLAIMED BY THE ASSESSEE. RESPECTFULLY FOLLOWING THE JUDGMENTS IN THE CASE OF S. A. BUILDER AND RELIANCE UTILITIES (SUPRA) DELIVE RED BY THE HONBLE APEX COURT AND THE JURISDICTIONAL HIGH COURT WE UPH OLD THE ORDER OF THE FAA. GROUND NO.3 IS DECIDED AGAINST THE AO. 25. FACTS AND CIRCUMSTANCES BEING SIMILAR AND THE I SSUE INVOLVED BEING IDENTICAL FOR THE PRESENT YEAR UNDER CONSIDER ATION, WE RESPECTFULLY FOLLOWING THE ORDER OF THE CO-ORDINATE BENCH OF THI S TRIBUNAL VIZ. ITAT MUMBAI F BENCH REFERRED TO ABOVE, DISMISS THIS GR OUND OF APPEAL OF THE REVENUE. 26. GROUND NO.4 RELATES TO RE-COMPUTATION OF BOOK P ROFITS WITHOUT MAKING ADJUSTMENT IN RESPECTIVE PROVISIONS. THE AO HAD ADJUSTED THE ITA NO.6721 & 6580/MUM/2007 19 PROVISIONS ON THE GROUND THAT THESE WERE MERE PROVI SIONS AND THAT THE ASSESSEE HAD BEEN WRITING BACK THESE PROVISIONS IN VARIOUS YEARS WHICH IMPLIES THAT THESE WERE UNASCERTAINABLE PROVISIONS AND THEREFORE REQUIRED TO BE ADJUSTED FOR COMPUTATION OF BOOK PROFITS. THE ASSESSEE ARGUED BEFORE THE AO RELYING UPON THE DECISION OF THE SPEC IAL BENCH OF ITAT CALCUTTA IN THE CASE OF USHA MARTIN INDUSTRIES, 105 TTJ 543 AND THE DECISION IN THE CASE OF SCL CONNECT SYSTEM REPORTED IN 292 ITR 294 THAT SECTION 115JB OF THE ACT ENVISAGES ADJUSTMENT FOR P ROVISIONS FOR LIABILITY WHEREAS IN THE CASE OF THE ASSESSEE THE PROVISIONS WERE NOT FOR LIABILITY BUT FOR THE ASSETS AND IN SUCH A SITUATION ADJUSTME NT WAS NOT CALLED FOR. THE LEARNED CIT (A) CONSIDERING THE FACTS OF THE CA SE AND THE SUBMISSIONS OF THE ASSESSEE DIRECTED THE AO TO RECO MPUTED THE BOOK PROFITS WITHOUT MAKING ADJUSTMENT IN THE RESPECTIVE PROVISIONS WHICH ARE ON ASSETS OF THE ASSESSEE INCLUDING PROVISIONS FOR DOUBTFUL AND ADVANCES AND PROVISIONS FOR DIMINUTION IN THE VALUE OF INVES TMENTS. IN VIEW OF THE AMENDMENT OF THE PROVISIONS OF SECTION 115JB OF THE ACT BEING RETROSPECTIVE, WE FIND NO REASON TO SUSTAIN THE FIN DINGS OF THE LEARNED CIT (A). HENCE, WE UPHOLD THE ORDER OF AO AND WHILE SET TING ASIDE THE ORDER OF CIT THIS GROUND OF APPEAL OF THE REVENUE IS ALLO WED. 27. GROUND NO.5 OF THE APPEAL OF THE REVENUE RELATING TO REDUCTION OF BOOK PROFITS BY THE QUANTUM OF NOTIONALLY COMPUTED DEDUCTION U/S 80HHC HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE AND AGAI NST THE REVENUE BY ITAT MUMBAI F BENCH WHILE ADJUDICATING THE ASSESS EES APPEAL IN ITA NO.6720/MUM/2007 FOR ASSESSMENT YEAR 2002-03 VIDE P ARA 7 AT PAGE 9 ITA NO.6721 & 6580/MUM/2007 20 OF THE ORDER DATED 12 TH JUNE, 2013. THE RELEVANT PORTION OF THE ABOVE ORDER IS REPRODUCED HEREIN BELOW FOR REFERENCE:- 7. THE LAST GROUND OF THE APPEAL FILED BY THE AO I S ABOUT THE DIRECTION ISSUED BY THE FAA TO REDUCE THE BOOK PROF IT BY THE QUANTUM OF NOTIONALLY COMPUTED DEDUCTION U/S 80HHC OF THE ACT. DURING THE ASSESSMENT PROCEEDINGS, AO FOUND THAT TH E ASSESSEE CLAIMED DEDUCTION U/S. 80HHC AT RS.NIL, WHEREAS AS PER THE INCOME COMPUTED U/S 115JB THE SAME WAS ARRIVED AT R S.78.85 LAKHS. AO CALLED FOR THE EXPLANATION FROM THE ASSES SEE AS TO WHY DEDUCTION SHOULD NOT BE COMPUTED IN LINE WITH DEPAR TMENTS STAND IN ASSESSMENT YEAR 2001-02. AFTER CONSIDERING THE R EPLY, AO HELD THAT SINCE NO DEDUCTION COULD BE ALLOWED IN COMPUTA TION BECAUSE OF THE LOSS IN THE BUSINESS AS CLAIMED BY THE ASSES SEE, THAT CONTENTION OF THE ASSESSEE WAS NOT ACCEPTABLE, THAT THE ASSESSEE HAD NOT SUBMITTED ANY COMPUTATION FOR DEDUCTION U/S 80HHC. FINALLY, HE HELD THAT NO DEDUCTION U/S 80HHC WAS TO BE ALLOWED TO THE WORKING U/S 115JB OF THE ACT. 7.1 THE ASSESSEE PREFERRED AN APPEAL BEFORE THE FAA . AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE HE HELD THAT THE ISSUE WAS COVERED BY THE DECISION OF THE SPECIAL BENCH O F THE MUMBAI TRIBUNAL IN THE CASE OF SYNCOME FORMULATIONS (292 I TR (AT) 144 (SB). 7.2 BEFORE US, DR RELIED UPON THE ORDER OF THE AO. AR SUBMITTED THAT ISSUE WAS FULLY COVERED IN FAVOUR OF THE ASSES SEE. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE FIND THAT THE SPECI AL BENCH OF MUMBAI TRIBUNAL, IN THE CASE OF SYNCOME FORMULATION S (SUPRA) HAS HELD THAT NOTIONAL COMPUTATION OF DEDUCTION U/S 80HHC ON THE BOOK PROFIT WOULD HAVE TO BE MADE AND REDUCED FROM THE BOOK PROFIT FOR COMPUTING TAX PAYABLE UNDER SECTION 115J B OF THE ACT. RESPECTFULLY FOLLOWING THE ORDER OF THE SPECIAL BEN CH OF THE MUMBAI TRIBUNAL (SUPRA), WE UPHOLD THE ORDER OF THE FAA. GROUND NO.5 IS DECIDED AGAINST THE AO. 28. RESPECTFULLY FOLLOWING THE ABOVE DECISION OF TH E CO-ORDINATE BENCH IN THE ASSESSEES CASE FOR ASSESSMENT YEAR 2002-03, WE DISMISS THIS GROUND OF APPEAL OF THE REVENUE FOR THE YEAR UNDER CONSIDERATION. ITA NO.6721 & 6580/MUM/2007 21 29. GROUND NO.6 OF THE REVENUES APPEAL RELATING TO INTEREST U/S 2 34D OF THE ACT. THE LD. CIT WHILE HOLDING THAT THE AMEN DMENT IS NOT RETROSPECTIVE IN NATURE, THEREFORE, IT WAS HELD THA T INTEREST U/S 234D CANNOT BE CHARGED. WE HAVE PERUSED THE JUDGMENT CIT VS. IOCL (2012) 25 TAXMAN 284, AND AFTER HEARING BOTH THE PARTIES, WE RESPECTFULLY FOLLOWING THE ORDERS OF HONBLE HIGH COURT IN THE C ASE CIT VS. IOCL (SUPRA) WHERE IT WAS HELD THAT AMENDMENT TO SECTION 234D IS FROM 01.06.2003 AND IS APPLICABLE EVEN TO PERIOD PRIOR T O ASSESSMENT YEAR 2004-05, THEREFORE WE ORDER ACCORDINGLY AND AO IS D IRECTED TO RECOMPUTE THE INTEREST IN VIEW OF OUR DECISION. ACCORDINGLY T HIS GROUND OF APPEAL OF REVENUE IS ALLOWED. 30. IN THE RESULT, ALL THE APPEALS FILED BY THE ASS ESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE AND THE REVENUE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 10/08/2016. SD/- SD/- (JASON P. BOAZ) (SANDEEP GOSAI) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI , DATED 10.08.2016 L LL LAKSHMIKANTA DEKA/SR.PS AKSHMIKANTA DEKA/SR.PS AKSHMIKANTA DEKA/SR.PS AKSHMIKANTA DEKA/SR.PS COPY OF THE ORDER FORWARDED TO : BY ORDER, ASSISTANT REGISTRAR ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT (A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//