DCIT 15(1), MUMBAI V. BALAJI EXPORT COMPANY, MUMBAI

ITA 6691/MUM/2014

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 9893 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 10 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-09-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 05-11-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUMAN KUMAR
• Keywords: Business income
• Section: 143(3); 80HHC; 80IB

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL BENCH B MUMBAI BEFORE SHRI MAHAVIR SINGH , JM AND SHRI RAJESH KUMAR, AM , , ITA NO. 7547 / MUM/ 20 1 4 ( / ASSESSMENT YEAR: 2 0 10 - 11 ) M/S BALAJI EXPORT CO., OFFICE NO.307, SHARAF MANSION, 92, PRINCESS STREET, OLD HANUMAN LANE, MUMBAI - 400002 / VS. ASSTT. COMMISSIONER OF INCOME TAX - 15(1), MUMBAI. ( / APPELLANT) : ( / RESPONDENT ) ./ PAN : AAFFB4205M ( / APPELLANT) : ( / RESPONDENT ) ITA NO. 6691 / MUM/ 201 4 ( / ASSESSMENT YEAR: 2 010 - 11 ) DY.COMMISSIONER OF INCOME TAX - 15(1), ROOM NO.104, MATRU MANDIR, 1 ST FLOOR, TARDE O ROAD , MUMBAI - 400007 / VS. M/S BALAJI EXPORT CO., OFFICE NO.307, SHARAF MANSION, 92, PRINCESS STREET, OLD HANUMAN LANE, MUMBAI - 400002 ( / APPELLANT) : ( / RESPONDENT ) / ASSESSEE BY : SHRI VIMAL PUNMIYA / REVENUE BY : SHRI SUMAN KUMAR / DATE OF HEARING : 2 3 .8. 2017 / DATE OF PRONOUNCEMENT : 6 . 9 . 201 7 2 ITA NO. 6691/MUM/2014 AND 7547 /MUM/20 1 4 / O R D E R PER RAJESH KUMAR, A. M: THE CAPTIONED ARE CROSS - APPEAL S BY THE ASSESSEE AND REVEN UE PERTAINING TO ASSESSMENT YEAR 2010 - 11. THE APPEALS ARE DIRECTED AGAINST THE ORDER OF LD. CIT(A) - 26, MUMBAI , DATED 28.08.2014 WHICH IN TURN HAS ARISE N FROM AN ORDER PASSED BY THE ASSESSING OFFICER DATED 2 8 .3.2013 UNDER SECTION 143(3) OF THE INCOME TAX ACT , 1961(IN SHORT THE ACT). ITA NO.6691/MUM/2014 2. GROUNDS OF APPEAL TAKEN BY THE REVENUE IN THIS APPEAL ARE AS UNDER : ON THE FAC T S AND IN THE CIRCUMSTANCES OF THE CA S E, THE LD.CIT(A) HAS ER R ED IN DIRECTING THE AO TO REDUCE HE NET INTEREST INCOME WHI LE DETERMINING THE PROFITS DERIVED FROM EXPORT AND TAX THE SAME AS INCOME FROM OTHER SOURCES , BUT IGNORING THE FACTS THAT IN THE AY - 2007 - 08, THE AO HAS TREATED THE ENTIRE INTEREST INCOME ON FDR AS A INCOME FROM OTHER SOURCES AND SAME HAS BEEN UPHE LD BY YOURSELF. ITA NO. 7547 /MUM/2014 3. GROUNDS OF APPEAL TAKEN BY THE ASSESSEE IN THIS APPEAL ARE AS UNDER: 1.0 ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD.CIT(A) ERRED IN UPHOLDING THE ORDER OF THE AO IN INTERPRETING THAT THE INTEREST INCO ME ON FDRS IS TO BE EXCLUDED FOR THE PUR POSE OF COMPUTING THE EXEMPTION U/S 10A(1A) OF THE ACT; 1 . 1 ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD.CIT(A) ERRED IN MAKING THE DISALLOWANCE OF EXEMPTION U/S 10A(1A) OF RS.1,05,04,361/ - IN RESPECT OF INTERE ST ON BANK DEPOSITS FOR OBTAINING 3 ITA NO. 6691/MUM/2014 AND 7547 /MUM/20 1 4 THE BANK GUARANTEES, L C AND CREDIT FACILITIES HAVING NEXUS TO THE BUSINESS . FROM THE ABOVE GROUNDS IN THE APPEAL OF REVENUE AS WELL AS ASSESSEE THE ISSUE IS WHETHER THE ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S 80IA OF TH E ACT ON INTEREST INCOME EARNED ON THE DEPOSITS PLACED WITH THE BANK/SECURITIES/MARGIN MONEY. 4 . BRIEF FACTS RELATING TO THE ABOVE ISSUE ARE THAT THE ASSESSEE RECEIVED INTEREST ON BANK DEPOSITS/FDRS AMOUNTING TO RS.1,05,04,361/ - AND THE AO DURING THE CO UR S E OF ASSESSMENT PROCEEDINGS DISALLOWED THE CLAIM OF DEDUCTION AS CLAIMED BY THE ASSESSEE U/S 10A OF THE ACT BY TREATING THIS INTEREST INCOME AS INCOME FROM OTHER SOURCES . AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE THE LD.CIT(A) WHO RESTRICTED THE DIS ALLOWANCE OF CLAIM OF DEDUCTION U/S 10A ON THIS INTEREST INCOME ONLY QUA THE NET INTEREST, WHICH HE WORKED OUT TO RS.30,17,944/ - AS AGAINST THE TOTAL DISALLOWANCE BY THE AO OF RS.1,05,04,361/ - . WHILE DISPOSING THE APPEAL OF THE ASSESSEE THE LD.CIT(A) HAS H ELD AS UNDER : 6.1 I HAVE CAREFULLY CONSIDERED FACTS OF THE CASE, DOCUMENTS PRODUCED BEFORE ME AND SUBMISSIONS FILED BY LD. AR. THE CONTENTION OF LD. AR THAT THE INTEREST ON BAN K DEPOSITS KEPT AS SECURITY FOR OBTAINING THE GOLD FROM THE GOVERNMENT AGENC IES IS DERIVED FROM EXPORTS CANNOT BE ACCEPTED FOR THE REASON THAT SUCH INTEREST INCOME IS NOT HAVING A FIRST DEGREE NEXUS TO THE EXPORTS. 4 ITA NO. 6691/MUM/2014 AND 7547 /MUM/20 1 4 'THE HON'BLE APEX COURT IN THE CASE OF LIBERTY INDIA VIS. CIT REPORTED IN 317 ITR 218 HAS HELD THAT 'IT IS EVIDENT THAT S. BOL8 PROVIDES FOR ALLOWING FOR DEDUCTION IN RESPECT OF PROFITS AND GAINS DERIVED FROM THE ELIGIBLE BUSINESS. THE WORDS 'DERIVED FROM' ARE NARROWER IN CONNOTATION AS COMPARED TO THE WORDS 'ATTRIBUTABLE TO'. IN THE WORDS, BY USING THE EXPRESSION 'DER IVED FROM', PARLIAMENT INTENDED TO COVER SOURCES NOT BEYOND FIRST DEGREE. ON ANALYSIS OF SS. 80IA , AND 80IB IT BECOMES CLEAR THAT ANY INDUSTRIAL UNDERTAKING, WHICH~EC0F!LES ELIGIBLE ON SATISFYING SUB - SO (2), WOULD BE ENTITLED TO DEDUCTION UNDER SUB S. (1) ONLY TO THE EXTENT OF PROFITS DERIVED FROM SUCH INDUSTRIAL UNDERTAKING AFTER SPECIFIED DATE(S). HENCE, APART FROM ELIGIBILITY, SUB S. (1) PURPORTS TO RESTRICT THE QUANTUM OF DEDUCTION TO A SPECIFIED PERCENTAGE OF PROFITS. THIS IS IMPORTANCE OF THE WORDS 'DERIVED FROM INDUSTRIAL UNDERTAKING' AS AGAINST 'PROFITS ATTRIBUTABLE TO INDUSTRIAL UNDERTAKING. ' THE JUDICIAL DECISIONS RELIED BY LD. AR IN THE CASES OF CIT VS. PUNIT COMMERCIAL LT D [116 TAXMANN 191 (BORN)], JP MORGAN SERVICES INDIA PVT LTD VS. DCIT [ 33, SO T 327(MUM)] AND CIT VS. MEGHALAYA STEELS LTD [356 ITR 235 (GAU - HC)] ARE NO MOR E RELEVANT IN VIEW OF THE DECISION OF HON'BLE APEX COURT IN CASE OF LIBERTY INDI A (SUPRA) AND ALSO IN THE CASE OF PANDIAN CHEMICALS LTD V / S. CIT [262 ITR 278 (SC) . ACCORDIN GLY, I REJECT THE ARGUMENTS OF LD. AR TO ALLOW THE ENTIRE INTEREST RECEIVE D ON THE DEPOSITS KEPT WITH BANKS AS DERIVED FROM EXPORTS. THE AD HAS RIGHTLY ASSESSED' THE' INTEREST INCOME 'OF THE APPELLANT UNDER HEAD 'INCOME FROM OTHE R SOURCES. 6.4 THE NEXT AR GUMENT OF LD. AR IS WHETHER THE GROSS INTEREST OR NET INTEREST IS TO BE REDUCED WHILE COMPUTING THE EXEMPTION U/S 10A(LA) OF LT. ACT. THE LD AR CONTENDED THAT ONLY NET INTEREST, I.E INTEREST INCOME AFTER REDUCING INTEREST PAID, COULD UTMOST BE EXCLUDED WHI LE DETERMINING THE BUSINESS INCOME DERIVED FROM EXPORTS. THE HON'BLE APEX COURT IN THE CASE OF ACG ASSOCIATED CAPSULES (P) LTD VS. CIT REPORTED IN 247 CTR 372, DECIDED THAT ONLY THE NET INTEREST AND NOT THE GROSS INTEREST IS REQUIRED TO BE DEDUCTED WHILE D ETERMINING THE PROFITS OF THE EXPORT BUSINESS FOR THE PURPOSE OF SECTION 80HHC. IN THE CASE OF VISHAL TOOLS INDUSTRIES VS. CIT [81 C~H 97], HON'B LE PUNJAB & HARYANA HIGH COURT DECIDED THAT THE NETTING OF INTEREST FOR 5 ITA NO. 6691/MUM/2014 AND 7547 /MUM/20 1 4 THE PURPOSE OF CALCULATION OF DEDUCTION U/S.80HHC WAS REQUIRED TO BE DONE. IN THE CASE OF VOLTAS INTERNATIONAL LTD VS. ACIT [2 ITR 410 (MUM - ITAT)] HON'BLE MUM ITAT DECIDED THAT ONLY THE NET INTEREST INCOME IS TO BE EXCLUDED WHILE COM PUTING THE DEDUCTION U/S.80IB OF THE ACT. IN THE CASE OF SUZLO N ENERGY LTD VS, DCIT (507 SOT 53), HON'BLE AHMEDABAD BENCH OF ITAT HAS DECIDED THAT ONLY THE NET INTEREST IS TO BE EXCLUDED FROM THE PROFITS OF BUSINESS WHILE COMPUTING THE DEDUCTION U/S.801B OF THE ACT. 6.5 IN VIEW OF SUPREME COURT DECISION IN THE CASE OF ACG ASSOCIATED CAPSULES (P) LTD (SUPRA), IT IS SETTLED LAW THAT .WHILE COMPUTING THE PROFITS DERIVED FR OM EXPORTS FOR PURPOSE OF SEC 80HHC, ONLY THE NET INTEREST AND NOT GROSS INTEREST IS TO BE EXCLUDED FROM PROFITS OF THE ELIGIBLE BUSINESS. THE WOR DINGS PROFIT DERIVED FROM EXPORTS PRESCRIBED U/S 80HHC ARE SAME AS IN SECTION 10(IA) OF IT ACT. 6 . 6 ON PERUSAL OF SCHEDULE - 9 OF APPELLANT'S AUDITED BALANCE SHEET, IT IS OBSERVE: THAT APPELLANT HAD REDUCED THE INTEREST INCOME OF RS.1,05,04,361/ - FROM FI NANCE COST OF RS.1,3.2,18,545/ - AND DISCLOSED THE NET INTEREST PAID OF RS.27,14,184/- HOWEVER, AS SUBMITTED IF BANK CHARGES AND L.C. CHARGES ARE EXCLUDED FROM FINANCE COST, THEN NET INTEREST INCOME WORKS TO RS.30,17,944/ - . I THEREFORE DIRECT THE AO TO REDU CE THE NET INTEREST INCOME [INTEREST PAID - INTEREST RECEIVED] WHILE DETERMINING THE PROFITS DERIVED FROM EXPORTS WHILE COMPUTING THE EXEMPTION U/S.10A( I A) OF 1.1 ACT AND SUCH NET INTEREST I - SHALL BE TAXABLE UNDER THE HEAD 'INCOME' FROM OTHE R SOURCES . HO WEVER, THE AO SHALL VERIFY THE NET INTEREST INCOME RECEIVED/EARNED BEFORE GIVING EFFECT TO THIS ORDER. ACCORDINGLY, GROUND NO.4 TO 4.2 ARE PARTLY ALLOWED. AGGRIEVED AGAINST THE ORDER OF THE LD.CIT(A) BOTH, THE ASSESSEE AS WELL AS REVENUE CAME IN APPEA L BEFORE THE TRIBUNAL. 5 . WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. THE ASSESSEE CLAIMED BEFORE US THAT IT HAS BEEN RECEIVED INTEREST ON BANK FDRS KEPT AS SECURITY TO OBTAIN LOAN FROM 6 ITA NO. 6691/MUM/2014 AND 7547 /MUM/20 1 4 GOVERNMENT AGENCIES . THESE BANK FDRS HAVE DIRECT NEXUS TO THE ASSESSEES JEWELLERY BUSINESS (EXPORT) BECAUSE THE R E ARE KEPT AS SECURITY TO OBTAIN GOLD FRO M GOVERNMENT AGENCIES AND AS SUCH DEPOSITS HAD BEEN KEPT FOR OBTAINING THE GOLD FROM M MTC/RBI. IT WAS CLAIMED BY THE A SSESSEE THAT AS PER EXIM SCHEME THE SUPPLIER BEFORE IMPORTING OF GOLD IS REQUIRED TO PROVIDE BANK GUARANTEE/LC FOR WHICH THE BANK FDRS ARE KEPT AS SECURITY. ALTERNATIVELY, THE ASSESSEE ALSO CLAIMED THAT ONLY NET INTEREST OUGHT TO HAVE EXCLUDED WHILE DETER MINING THE CLAIM OF DEDUCTION U/S 10A OF THE ACT ON THE PROFIT DERIVED FROM EXPORTS. IT WAS CLAIMED BY T HE ASSESSEE BEFORE US THAT IT HAS RECOVERED THE INTEREST ON BANK DEPOSIT OF RS.1,05,04,361/ - AND HAS ALSO PAID INTEREST OF RS.74,86,417/ - RESULTING INT O NET INTEREST INCOME OF RS.30,17,944/ - . THE ASSESSEE HAS ALSO FILED A COMPARATIVE CHART OF INTEREST INCOME VIZ - A - VIZ THE INTEREST EXPENSES. AFTER HEARING BOTH THE SIDES AND GOING THROUGH THE FACTS, WE ARE OF THE VIEW THAT THE ALTERNATIVE PLEA OF THE ASSE SSEE IS QUITE REASONABLE THAT ONLY NET INTEREST SHOULD BE DISALLOWED IN THE CLAIM OF DEDUCTION U/S 10A OF THE ACT FOR THE REASONS THAT THE ASSESSEE HAS ACTUALLY EARNED NET INTEREST ON WHICH DEDUCTION IS CLAIMED BY THE ASSESSEE BECAUSE IT HAS ALREADY P AID INTEREST EXPENSES. ACCORDINGLY, WE FIND NO INFIRMITY IN THE ORDER OF LD.CIT(A) AND HENCE THE SAME IS AFFIRMED. BOTH THE APPEALS ARE DISMISSED. 7 ITA NO. 6691/MUM/2014 AND 7547 /MUM/20 1 4 6 . IN THE RESULT, THE APPEAL S FILED BY RIVAL PARTIES ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 6TH SEPT , 2017. S D SD ( / MAHAVIR SINGH ) ( / RAJESH KUMAR) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED : 6TH SEPT .2017 SRL,SR.PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD F ILE / BY ORDER, T RUE COPY / (DY./ASSTT. REGISTRAR) , / ITAT, M UMBAI