Perfect Knitters Limited, Secunderabad V. DCIT Circle - 16(3), Hyderabad

ITA 732/HYD/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 59096 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 7 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-01-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 21-07-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 14-05-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: V SRINIVAS
• Assessee Lawyers: M V ANIL KUMAR
• Keywords: Business income
• Section: 143(3); 80HHC; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH, HYDERABAD BEFORE SHRI CHANDRA POOJARI, A.M. & SMT. ASHA VIJAYARAGHAVAN, J.M. ITA NO.732/HYD/2010 ASSESSMENT YEAR 2003-04 M/S PERFECT KNITTERS LIMITED HYDERABAD (PAN AABCP 4066H) VS THE DCIT, C IRCLE 16(3), HYDERABAD APPELLANT RESPONDENT APPELLANT BY : SHRI M.V. ANIL KUMAR RESPONDENT BY : SHRI V. SRINIVAS DATE OF HEARING : 22.11.2011 DATE OF PRONOUNCEMENT : 6.1.2012 ORDER PER ASHA VIJAYARAGHAVAN, JM: THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED A GAINST THE ORDER PASSED BY THE CIT(A)-V, HYDERABAD DATED 2.3.2010 AN D IT PERTAINS TO THE ASSESSMENT YEAR 2003-04 DIRECTING THE AO TO EXCLUDE ONLY THE NET INTEREST FROM THE BUSINESS PROFITS IN COMPUTING THE RELIEF U /S 80HHC. THE FACTS OF THE CASE ARE: 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE C OMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF GARMENTS, FILED ITS RE TURN OF INCOME FOR THE ASSESSMENT YEAR 2003-04 ON 27.11.2003 ADMITTING TOT AL INCOME OF RS.1,66,99,796/-. ORIGINALLY, THE ASSESSMENT U/S 1 43(4) R.W.S. 147 OF THE ACT WAS COMPLETED ON 30.9.2005 DETERMINING THE TAXA BLE INCOME AT RS.1,99,94,516. 3. SUBSEQUENTLY, THE ASSESSING OFFICER NOTICED THA T WHILE CALCULATING DEDUCTION U/S 80HHC, 90% OF TOTAL INTEREST RECEIPT OF RS.14,98,283/- WAS ITA NO.732/H/2010 M/S PERFECT KNITTERS LTD., HYDERABAD 2 NOT EXCLUDED FROM ELIGIBLE PROFITS OF THE BUSINESS IN ACCORDANCE WITH CLAUSE (BAA) OF SUB SECTION 4C OF SECTION 80HHC OF THE ACT . THEREFORE, THE ASSESSING OFFICER ISSUED NOTICED U/S 148 OF THE ACT ON 2.4.2007. VIDE ITS LETTER DATED 8.5.2007, THE ASSESSEE REQUESTED TO TR EAT THE INCOME ASSESSED U/S 143(3) AS INCOME FOR THE ASSESSMENT YEAR 2003-0 4 AND REQUESTED FOR THE REASONS FOR REOPENING THE ASSESSMENT. THE SAME WAS COMMUNICATED TO THE ASSESSEE BY THE ASSESSING OFFICER. 4. AS THERE WAS NO RESPONSE FROM THE ASSESSEE, THE ASSESSING OFFICER ISSUED A SHOW CAUSE LETTER ASKING THE ASSESSEE TO EXPLAIN WHY 90% OF INTEREST RECEIPT OF RS.14,98,283/- SHOULD NOT BE EXCLUDED FR OM THE PROFIT OF THE BUSINESS FOR CALCULATING DEDUCTION U/S 80HHC OF THE ACT. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE COMPANY, THE ASSESS ING OFFICER EXCLUDED 90% OF TOTAL INTEREST RECEIPT OF RS.14,98,283/- FRO M ELIGIBLE PROFITS OF THE BUSINESS IN ACCORDANCE WITH CLAUSE (BAA) OF SUB SEC TION 4C OF SECTION 80HHC OF THE ACT GIVING THE FOLLOWING REASONS: 5. I HAVE GONE THROUGH THE ABOVE SUBMISSIONS AND THE CASE LAW RELIED UPON BY THE ASSESSEE. AS PER CLAUSE (BAA) OF SUB S ECTION OF 5 SECTION 80HHC, 90% OF ANY RECEIPTS BY WAY OF INTEREST HAS T O BE REDUCED FROM THE PROFITS OF THE BUSINESS FOR CALCULATING DEDUCTI ON U/S80HHC. THE ASSESSEES ARGUMENT THAT THE INTEREST PAID ALSO HAS TO BE TAKEN INTO CONSIDERATION IS NOT ACCEPTABLE AS THE WORDING OF T HE SECTION CLEARLY SPEAKS ABOUT RECEIPTS BY WAY OF INTEREST. 6. IN THE CASE OF RAVINDRANATHAN NAIR ON WHICH ASS ESSEE HAS PLACED RELIANCE, THE APEX COURT HAD HELD THAT PROCESSING C HARGES BEING INDEPENDENT INCOME LIKE RENT, COMMISSION ETC. 90% T HEREOF HAD TO BE REDUCED FROM THE GROSS TOTAL INCOME TO ARRIVE AT TH E BUSINESS PROFITS FOR COMPUTATION OF DEDUCTION U/S 80HHC. BUT, IN THE CA SE OF THE ASSESSEE, THE ISSUE IS REGARDING THE INTEREST RECEIPT, 90% O F WHICH HAS TO BE EXCLUDED FROM THE ELIGIBLE PROFITS OF THE BUSINESS FOR CALCULATION OF ITA NO.732/H/2010 M/S PERFECT KNITTERS LTD., HYDERABAD 3 DEDUCTION U/S 80HHC. HENCE, THE DECISION RELIED UP ON BY THE ASSESSEE IS DISTINGUISHABLE. 5. THE CIT(A) HAS DISMISSED THE APPEAL HOLDING AS FOLLOWS: THE SECOND GROUND OF APPEAL RELATES TO ISSUE OF EXC LUDING 90% OF TOTAL INTEREST RECEIPT OF RS.14,98,283/- FROM ELIGIBLE PROFITS OF THE BUSINESS IN ACCORDANCE WITH CLAUSE (BAA) OF SUB SECTION 4C OF SECTION 80HH C OF THE ACT. DURING THE COURSE NOF APPEAL PROCEEDINGS, THE AR FOR THE ASSES SEE STATED THAT WHILE CALCULATING THE DEDUCTION U/S 80HHC, 90% OF THE NET INTEREST RECEIPT HAD TO BE EXCLUDED FROM THE ELIGIBLE PROFITS OF THE BUSINESS WHEREAS THE ASSESSING OFFICER HAD EXCLUDED 90% OF THE GROSS INTEREST RECE IPT, RESULTING IN THE ADDITION MADE. THE LEARNED AR ALSO REFERRED TO THE ORDER OF THE HONBLE HIGH COURT OF DELHI IN THE CASE OF CIT VS. PAWAN KUMAR JAIN (2008 ) 298 ITR 443 (DEL.). IN THIS ORDER THE HONBLE HIGH COURT CATEGORICALLY HEL D AS BELOW: TRIBUNAL HAVING RECORDED THE FINDING THAT THE FIXE D DEPOSITS PLEDGED BY THE ASSESSEE WITH THE BANK FOR OBTAINING LOAN WERE PART OF THE BUSINESS ASSETS AND THE INTEREST EARNED THEREON HAD A DIRECT NEXUS WITH THE INTEREST PAID BY HIM ON THE LOAN TAKEN FROM THE BAN K, INTEREST EARNED FROM THESE FIXED DEPOSITS CAN BE ADJUSTED AGAINST T HE INTEREST PAID BY THE ASSESSEE TO THE BANK FOR THE PURPOSE OF COMPUTA TION OF DEDUCTION U/S 80HHC R/W CLAUSE (BAA) OF EXPLANATION THERETO. FROM THE ABOVE IT IS CLEAR THAT FOR APPLYING THE NE TTING PRINCIPLE A CLEAR CUT NEXUS HAS TO BE ESTABLISHED BETWEEN THE FDRS AND LO AN TAKEN. IT IS ONLY AN ACCOUNT OF SUCH A NEXUS RECORDED BY THE ASSESSING O FFICER AND CONFIRMED BY THE SUPERIOR AUTHORITIES THAT THE HONBLE HC CAME T O THE CONCLUSION AS ABOVE. ON THE OTHER HAND, IN THE PRESENT CASE, THERE IS NO SUCH NEXUS. THE ASSESSING OFFICER HAS NOT CONFIRMED THE NEXUS AND NEITHER ANY EVIDENCE BEEN GIVEN BY THE ASSESSEE TO CONFIRM THE NEXUS BETWEEN BORROWED FUNDS AND FDRS. ITA NO.732/H/2010 M/S PERFECT KNITTERS LTD., HYDERABAD 4 THEREFORE, THE FACTS BEING DIFFERENT IN THE PRESENT CASE, THE AFOREMENTIONED JUDGEMENT OF THE HONBLE DELHI HIGH COURT DOES NOT APPLY IN THE PRESENT CASE. BASED ON THE ABOVE FACTS AND CIRCUMSTANCES, I AGREE WITH THE ADDITION MADE BY THE ASSESSING OFFICER AND FIND NO REASON TO INTE REST WITH THE SAME. 6. AGGRIEVED THE ASSESSEE IS ON APPEAL. WE HAVE CA REFULLY CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE RECORDS. HONBLE H IGH COURT OF MADRAS IN THE CASE OF CHINNAPANDI (SUPRA) CONSIDERED THE ISSU E IN GREAT DETAIL AND OBSERVED IN THIS REGARD AS UNDER: ON A PLAIN READING OF THE PROVISION IT IS CLEAR TH AT WHAT THE PROVISION STIPULATES IS THAT PROFITS OF THE BUSINESS FOR THE PURPOSE OF SEC 80HHC OF THE ACT MEAN THE PROFITS OF THE BUSINESS AS COMPUTE D UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION WHILE C OMPUTING SUCH PROFITS UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PRO FESSION IF ANY RECEIPT BY WAY OF BROKERAGE COMMISSION INTEREST RENT CHARGE S OR ANY OTHER RECEIPT OF A SIMILAR NATURE IS INCLUDED IN SUCH PRO FITS THE SAME HAS TO BE REDUCED BY 90 PERCENT. FROM THE PROFITS COMPUTED AS AFORESAID. THE DEDUCTIONS TO BE MADE ARE FROM THE AMOUNT OF PROFIT S SO COMPUTED AND NOT FROM THE AMOUNT COMPUTED UNDER ANY OTHER HEAD OF INCOME OF THAT ASSESSEE. NO REFERENCE OF NET INTEREST IS MENTIONE D IN THE SAID CLAUSE. WHAT WE HAVE TO SEE IS ONLY THE NATURE OF RECEIPT A S CONTEMPLATED UNDER THE CLAUSE. NO DEDUCTION IS PERMISSIBLE. ONCE THE RECEIPT OF THE INTEREST IS KNOWN 90 PERCENT OF THE SAME IS TO BE REDUCED FROM THE PROFITS WITHOUT DEDUCTING ANY AMOUNT THE COURT IN T HE CASE OF K.S. SUBBIAH PILLAI AND CO (INDIA) P. LTD V CIT (2003) 2 60 ITR 304, HELD AS FOLLOWS (PAGE 305). THE CLAUSE DOES NOT REFER TO NET INTEREST IT REFERS INTER ALIA TO THE INTEREST INCLUDED IN THE PROFITS AND GAINS OF THE B USINESS OR PROFESSION. ITA NO.732/H/2010 M/S PERFECT KNITTERS LTD., HYDERABAD 5 CLAUSE (BAA) UNDER EXPLANATION TO SEC 80HHC DEFINES PROFITS OF THE BUSINESS AS COMPUTED UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION, THE DEDUCTIONS TO BE MADE A RE FROM THE AMOUNT OF PROFIT SO COMPUTED AND NOT FROM THE AMOUN T COMPUTED UNDER ANY OTHER HEAD OF INCOME OF THAT ASSESSEE. TH E REFERENCE TO SUCH PROFITS IN SUB CLAUSE (1) OF CLAUSE (BAA) CAN ONLY BE TO THE PROFITS OF THE BUSINESS COMPUTED UNDER THE HEAD PRO FITS AND GAINS OF BUSINESS OR PROFESSION, ADDITION OF PREFIX THE TO PROFITS IN CLAUSE (BAA) WHILE REFERRING TO THE PROFITS AND GAI NS OF BUSINESS OR PROFESSION MAKES IT CLEAR THAT IT IS ONLY THE AMO UNTS ALREADY INCLUDED IN THAT COMPUTATION WHICH ARE NOW TO BE RE DUCED TO THE EXTENT OF 90 PERCENT IF THOSE ITEMS ARE INCLUDED IN SUB CLAUSE (1) OF THAT DEFINITION. 7. THE PUNJAB AND HARYANA HIGH COURT JUDGMENT REPO RTED IN (2004) 268 ITR 220, AT PAGE NOS.222 AND 223, RANI P ALIWALI V CIT HELD AS FOLLOWS: THIS ISSUE RELATES TO THE INCLUSION OF INTEREST AS PART OF THE ASSESSEES BUSINESS INCOME FOR WORKING OUT THE DEDU CTION CLAIMED UNDER SEC 80HHC OF THE ACT. THE TOTAL INTE REST RECEIVED BY THE ASSESSEE DURING THE RELEVANT ASSESSMENT YEAR WAS RS. 6,33,454 AND THE TOTAL INTEREST PAID BY THE ASSESSE E WAS RS 412,982. THE ASSESSING OFFICER WAS OF THE VIEW THA T 90 PERCENT OF THE GROSS AMOUNT OF INTEREST OF RS 633,454 WAS LIAB LE TO BE DEDUCTED FROM THE PROFITS OF THE BUSINESS FOR THE P URPOSE OF DEDUCTION. HE THEREFORE REDUCED THE QUANTUM OF DEDU CTION U/S 80HHC OF THE ACT ACCORDINGLY, THE CIT(A) HOWEVER TO OK A DIFFERENT VIEW IN APPEAL AND ALLOWED 90 PERCENT. OF THE AMOUN T OF INTEREST TO BE DEDUCTED AFTER DEDUCTING A SUM OF RS 412,982/ - WHICH HAD BEEN PAID BY THE ASSESSEE AS INTEREST DURING THE AS ST. YEAR. THE TRIBUNAL AGAIN AFFIRMED THE VIEW OF THE ASSESSING O FFICER HOLDING ITA NO.732/H/2010 M/S PERFECT KNITTERS LTD., HYDERABAD 6 THAT 90 PERCENT OF THE INTEREST THAT WAS DEDUCTIBLE FOR THE CLAIM U/S 80HHC OF THE ACT WAS FROM THE GROSS INTEREST RE CEIVED BY THE ASSESSEE AND THAT THE AMOUNT OF INTEREST PAID BY TH E ASSESSEE COULD NOT BE DEDUCTED THERE FROM. A PLAIN READING O F CLAUSE (BAA) OF EXPLANATION TO SEC 80HHC OF THE ACT MAKES THIS A SPECT QUITE CLEAR AND WE ARE OF THE VIEW THAT THE TRIBUNAL WAS RIGHT IN DISALLOWING THE CLAIM OF THE ASSESSEE IN THIS REGAR D. 8. THE ABOVE TWO JUDGMENTS SUPPORT THE CASE OF THE REVENUE. THE APPELLANT IN THE PRESENT CASE RECEIVED INTEREST OF RS 265,019 AND HENCE THE RECEIPT OF INTEREST IS ALONE RELEVANT AND THE SAME IS TO BE TAKEN INTO CONSIDERATION FOR THE PURPOSES OF DEDUCTION FOR THE CLAIM U/S 80HHC OF THE ACT. NO EXPENDITURE OR ANY OTHER DEDUCTION IS PERM ISSIBLE FROM THE RECEIPT OF INTEREST INCOME. SEC 80HHC STIPULATES A DEDUCTIO N IN RESPECT OF EXPORT PROFITS INSTEAD OF ENJOINING THE ASSESSING OFFICER TO COMPUTE SUCH EXPORT PROFITS, INSTEAD OF ENJOINING THE ASSESSING OFFICER TO COMPUTE SUCH EXPORT PROFITS FROM OUT OF THE CONSOLIDATED AMOUNT OF THE ASSESSEE WHICH MAY INVOLVE INCOME BY WAY OF INTEREST RENT COMMISSION E TC. THE LEGISLATURE HAS PROVIDED A SIMPLE PROCEDURE UNDER WHICH 90 PERCENT OF THE RECEIPTS SUCH AS INTEREST RENT COMMISSION BROKERAGE ETC SHALL BE EXC LUDED AS PROFITS NOT ATTRIBUTABLE TO EXPORTS. THE INTENTION IS THEREFORE CLEAR THAT THERE SHOULD BE NO ATTEMPT TO DEDUCT ANY EXPENDITURE FROM THE RECEI PTS HOWEVER RELATED SUCH EXPENDITURE MAY BE TO THE RECEIPTS. IT IS IN T HIS VIEW OF THE MATTER THAT THE EXPRESSION RECEIPT BY WAY OF HAS BEEN USED IN T HE SECTION AND NOT INCOME OF THAT NATURE. 9. IN VIEW OF THE ABOVE WE ARE OF THE VIEW THAT 90 PERCENT OF THE INTEREST THAT IS DEDUCTIBLE FOR THE CLAIM U/S 80HHC OF THE A CT IS FROM THE GROSS INTEREST RECEIVED BY THE ASSESSEE AND THAT THE AMOU NT OF INTEREST PAID BY THE ASSESSEE SHOULD NOT BE DEDUCTED THERE FROM. HENCE W E ANSWER THE ABOVE QUESTION IN FAVOUR OF THE REVENUE AND AGAINST THE A SSESSEE AND ALLOW THE TAX CASE FILED BY THE REVENUE. ITA NO.732/H/2010 M/S PERFECT KNITTERS LTD., HYDERABAD 7 10. WE ALSO FIND THAT THE BOMBAY HIGH COURT IN THE CASE OF CIT V ASIAN STAR CO LTD (326 ITR 56) HAS CONCURRED WITH THE DE CISION OF THE MADRAS HIGH COURT IN THE CASE OF CHINNAPANDI SUPRA AND HAS DISAPPROVED THE DECISION OF THE SPECIAL BENCH IN THE CASE OF LALSON S ENTERPRISES (89 ITD 25 DEL SB). 11. THE COUNSEL APPEARING ON BEHALF OF THE ASSESSE E HEREIN STRONGLY RELIED UPON THE DECISION OF LALSONS ENTERPRISES (SUPRA). H OWEVER THE ITAT VISHAKAPATNAM BENCH IN THE CASE OF M/S FORTUNE EXPO RTS P LTD ITA NO. 185/VIZAG/2002 DATED 29.9.2006 HAS DECIDED THIS ISS UE AGAINST THE ASSESSEE FOLLOWING THE HIGH COURT ORDERS IN PREFERE NCE TO THE ORDER OF THE SPECIAL BENCH. RESPECTFULLY FOLLOWING THE AFORESAID DECISIONS 12. WE ARE CONSTRAINED TO FOLLOW THE DECISION IN C HINNAPANDI CASE (SUPRA) TO HOLD THAT THE EXPRESSION RECEIPTS IN CLAUSE (BAA ) UNDER THE EXPLANATION TO SEC 80HHC OF THE ACT DOES NOT REFER TO NET INTEREST AND IT ONLY REFERS TO THE GROSS RECEIPT. WE THEREFORE CONFIRM THE ORDER OF THE CIT(A) AND DISMISS THE ASSESSEES APPEAL. 13. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS D ISMISSED. ORDER PRONOUNCED IN THE OPEN COURT 6. 1.20 12 SD/- SD/- (CHANDRA POOJARI) ( (ASHA VIJAYA RAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 6 TH JANUARY, 2012 COPY FORWARDED TO: 1. C/O M. ANANDAM & CO., CAS, 7A, SURYA TOWERS, SD ROA D, SECUNDERABAD. 2. THE DCIT, CIRCLE 16(3), HYDERABAD 3. THE CIT(A)- V, HYDERABAD 4. THE CIT, HYDERABAD 5. THE DR, ITAT, HYDERABAD NP/