M/s. SONAL IMPEX LTD., MUMBAI V. ITO - 8(3)(2), MUMBAI

ITA 7405/MUM/2007

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9060 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-12-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 1996-1997
• Appeal Filed On: 12-12-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V KRISHNMOORTHY
• Assessee Lawyers: K R LAKSHMI NARAYANAN
• Keywords: Business income; Onus to prove

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES E, MUMBAI BEFORE SHRI I. P. BANSAL, J.M. AND SHRI SANJAY AROR A, A.M. ITA NO. : 7405/MUM/2007 ASSESSMENT YEAR: 1996-97 SONAL IMPEX LTD. 2 ND LAXMI INDUSTRIAL ESTATE, LINK ROAD, ANDHERI (W), MUMBAI-400 053 [ PAN NO: AAACS 6293 E ] VS. ITO, 8(3)(2), MUMBAI (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI K. R. LAKSHMINARAYANAN RESPONDENT BY : SHRI V. KRISHNMOORTHY DATE OF HEARING : 05.12.2012 DATE OF PRONOUNCEMENT : 21.12.2012 ORDER PER SANJAY ARORA, A.M.: THIS IS AN APPEAL BY THE ASSESSEE DIRECTED AGAINST THE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS)-XXIX, MUMBAI (CIT(A) FOR SHORT) DATED 27.09.2007, DISMISSING THE ASSESSEES APPEAL CONTESTING ITS ASS ESSMENT FOR THE ASSESSMENT YEAR (A.Y.) 1996-97 U/S.143(3) R.W.S. 254 OF THE INCOME TAX ACT , 1961 (THE ACT HEREINAFTER) VIDE ORDER DATED 31.10.2006. 2.1 THE SOLE ISSUE ARISING IN THIS APPEAL IS THE EX CLUSION OF THE INTEREST INCOME RECEIVED BY THE ASSESSEE DURING THE YEAR, I.E., RS. 6,00,302/-, IN WORKING OUT THE DEDUCTION EXIGIBLE THERETO U/S.80HHC OF THE ACT. THE ASSESSEE CLAIMS SET OFF OF THE SAME AGAINST THE INTEREST PAID (RS.36.88 LAKHS), SO THAT THE ENTIRE RECEIPT WOULD STAND TO, FIRSTLY, FORM PART OF THE PROFITS OF THE BUSINESS ELIGIBLE FOR DEDUC TION IN RESPECT OF EXPORT PROFITS AND, SONAL IMPEX LTD. V. ITO, MUMBAI ITA NO.7405/MUM/2004 (AY 1996-97) 2 SECONDLY, THERE WOULD BE NO OCCASION TO EXCLUDE NIN ETY PER CENT OF SUCH INTEREST IN TERMS OF EXPLANATION (BAA) TO SECTION 80HHC, IN COMPUTING THE DEDUCTION UNDER THE SAID SECTION. THE SAID SET OFF IS CLAIMED ON THE GROUND OF THE IMPUGNED INTEREST INCOME BEING INEXTRICABLY LINKED WITH THE EARNING OF THE INTERES T INCOME AND, AS SUCH, QUALIFIED FOR BEING NETTED FOLLOWING THE PRINCIPLE LAID DOWN IN T HE CASE OF LALSON ENTERPRISES VS. DY. CIT (2004) 89 ITD 25 (DEL.)(SB), WHICH THE LD. AR WOULD SUBMIT BEFORE US HAS SINCE BEEN APPROVED IN PRINCIPLE BY THE HON'BLE APEX COUR T. THE REVENUE, ON THE OTHER HAND, DISPUTES THE SAME ON THE BASIS THAT THE SAME IS ASS ESSABLE AS INCOME FROM OTHER SOURCES, SO THAT THERE IS NO QUESTION OF ALLOWANCE OF EXPORT DEDUCTION AGAINST THE SAID INTEREST INCOME. 2.2 THE ISSUE ARISING FOR CONSIDERATION BEARS PRINCIPALLY TWO LIMBS, QUA BOTH OF WHICH WE OBSERVE A NUMBER OF DECISIONS BY THE HONBLE HIG H COURTS ACROSS THE COUNTRY, IF NOT BY THE HONBLE APEX COURT AS WELL, SO THAT THE SAME CA N ONLY BE CONSIDERED AS MATTERS OF TRITE LAW, SO THAT THE MATTER BOILS DOWN TO THE APPLICATI ON THEREOF IN THE FACTS OF THE CASE. THE FIRST WOULD BE QUA THE ASSESSABILITY OF INTEREST INCOME UNDER THE HEA D PROFITS AND GAINS OF BUSINESS OR PROFESSION OR INCOME FROM OTHER SOURC ES. CLEARLY, TO THE EXTENT THE INTEREST INCOME UNDER REFERENCE; ITS ACCOUNTING TREATMENT BY THE ASSESSEE APART, IS ASSESSABLE U/S. 56, THERE IS NO QUESTION OF IT BEING SUBJECT TO ANY DEDUCTION U/S. 80HHC, WHICH IS ONLY IN RESPECT OF THE PROFITS OF THE BUSINESS. THIS, THUS, WOULD CONSTITUTE THE FIRST STEP. WITH REGARD TO THIS, THE DECISION IN THE CASE OF CIT V. GOVINDA CHOUDHARY & SONS (1993) 203 ITR 881 (SC), SINCE AFFIRMED BY THE SAID COURT IN THE CASE OF CIT V. B.N. AGGARWALA & CO . (2003) 259 ITR 754 (SC), IS RELEVANT. THE QUESTIO N OF THE HEAD OF INCOME UNDER WHICH THE INTEREST INCOME WAS LIABLE T O BE ASSESSED, I.E., AS `BUSINESS INCOME OR `INCOME FROM OTHER SOURCES, AROSE FOR C ONSIDERATION. THE APEX COURT CLARIFIED THAT THERE WAS NO RULE THAT THE INTEREST HAD TO BE ASSESSED ONLY UNDER THE RESIDUARY HEAD INCOME FROM OTHER SOURCES, AND WHICH WOULD BE SO ONLY WHERE IT COULD NOT BE BROUGHT WITHIN ONE OF THE SEVERAL SPECIFIC HEADS OF CHARGE. THAT IS, THE QUESTION OF ITS ASSESSABILITY UNDER ONE OR THE OTHER HEADS OF INCOME IS TO BE DET ERMINED ON THE BASIS OF THE SPECIFIC SONAL IMPEX LTD. V. ITO, MUMBAI ITA NO.7405/MUM/2004 (AY 1996-97) 3 FACTS ATTENDING EACH CASE, AND NO OMNIBUS OR STANDA RD RULE COULD BE SAID TO OPERATE. IT WAS FURTHER HELD THAT THE INTEREST PAYABLE TO THE R ESPONDENT PARTOOK THE SAME CHARACTER AS THE RECEIPT FOR PAYMENT OF WHICH IT WAS OTHERWISE E NTITLED UNDER THE CONTRACT, AND WHICH PAYMENT HAD BEEN DELAYED AS A RESULT OF THE DISPUTE BETWEEN THE PARTIES. THE INTEREST AWARDED, IT WAS HELD, COULD NOT BE SEPARATED FROM T HE OTHER AMOUNTS GRANTED TO THE RESPONDENT UNDER THE AWARD, AND TREATED AS `INCOME FROM OTHER SOURCES. CLEARLY, THERE IS NO BAR IN LAW IN RESPECT OF ASSESSABILITY OF INTERE ST AS BUSINESS INCOME, WHICH ISSUE IS ESSENTIALLY ONE OF FACT, AND WOULD REQUIRE TO BE DE CIDED WITH REGARD THERETO. 2.3 THE SECOND STEP WOULD BE IN RESPECT OF INTE REST ASSESSABLE AS BUSINESS INCOME U/S. 28. IT IS QUA THIS ASPECT THAT THE ASSESSEE CITES THE DECISION B Y THE TRIBUNAL IN THE CASE OF LALSON ENTERPRISES (SUPRA). THE TRIBUNAL IN THE SAID CASE, WHICH IS C LAIMED TO HAVE SINCE THE APPROVAL BY THE APEX COURT, HAS EXPLAINED THAT THE INTEREST RECEIPT WHICH HAS A DIRECT BEARING OR NEXUS WITH THE COST/S INCURRED, AS BY WA Y OF INTEREST SUFFERED ON THE BORROWINGS, INVESTMENT OF WHICH YIELDS THE IMPUGNED INTEREST, WOULD QUALIFY FOR BEING NETTED THERE-FROM, IN WHICH CASE THERE WOULD BE NO QUESTION OF ITS EXCLUSION UNDER EXPLANATION (BAA) TO SECTION 80HHC. THUS, ADMITTEDLY, IT IS ONLY SUC H INTEREST THAT, GOES AS IT DOES TO REDUCE THE COST OF BORROWINGS TO THE ASSESSEE, COULD ONLY BE SO EXCLUDED. TOWARD THIS, THE HONBLE COURT IN SOUTH INDIA SHIPPING CORPORATION LTD.V. CIT , 240 ITR 24 (MAD.), FOLLOWING TUTICORIN ALKALIS CHEMICALS AND FERTILIZERS LTD. VS . CIT (1997) 227 ITR 172 (SC), HELD THAT THE INTEREST PAID ON TH E OVERDRAFT FACILITY FOR THE PURPOSE OF BUSINESS COULD NOT BE SET OFF AGAINST THE INTEREST ON FIXED DEPOSITS. IN THE SUBSEQUENT DECISIONS TOO, I.E., CIT VS. BOKARO STEEL LTD. (1999) 236 ITR 315 (SC) AND CIT VS. KARNAL COOPERATIVE SUGAR MILL LTD. (2000) 243 ITR 2 (SC), OVERDRAFT FACILITY WAS AVA ILED ON THE SECURITY OF SHORT TERM BANK DEPOSITS, AND WHICH FUN DS WERE USED FOR BUSINESS PURPOSES. IT WAS HOWEVER HELD THAT INTEREST WOULD NOT BE ASSESSA BLE AS BUSINESS INCOME BUT ONLY AS INCOME FROM OTHER SOURCES, WHILE THE ASSESSEE WO ULD GET FULL DEDUCTION U/S. 36(1)(III) ON THE INTEREST ON THE OVERDRAFT ACCOUNT. THE BANK DEPOSITS ONLY REPRESENTED PARKING OF FUNDS, DEEMED SURPLUS FOR THE TIME BEING, ON A SHOR T TERM BASIS. THAT THESE CONSTITUTED SONAL IMPEX LTD. V. ITO, MUMBAI ITA NO.7405/MUM/2004 (AY 1996-97) 4 THE SECURITY FOR AVAILING OF OVERDRAFT FACILITY FRO M THE BANK, AVAILED AND UTILISED FOR BUSINESS PURPOSES, WAS CONSIDERED BY THE HONBLE CO URT TO BE A DIFFERENT MATTER ALTOGETHER. IT WAS ON THIS BASIS THAT THE INTEREST ON OVERDRAFT WAS DISALLOWED FOR BEING SET OFF AGAINST THE BANK INTEREST INCOME, HAVING NOT BE EN INCURRED FOR EARNING THE SAME. THE BANK DEPOSIT/S FORMED THE SECURITY FOR AVAILMENT OF THE BORROWING FROM THE BANK, BUT THAT BY ITSELF WOULD NOT FORM PART OF THE BUSINESS OR TR ADE. IT MAY BE CLARIFIED HERE THAT EVEN IF THE INVESTMENT WAS OF BUSINESS FUNDS, THE ONLY IMPA CT IT WOULD HAVE IS OF SAME BEING ASSESSABLE AS BUSINESS INCOME. IN THE SPECIFIC CONTEXT OF S. 80HHC, WE FIND THAT THE HONBLE COURTS IN THE FOLLOWING CASES HAVE HELD THAT EVEN WHERE THE BANK DEPOSIT STANDS MADE AS A PRE- CONDITION FOR THE GRANT OF OR SANCTIONING THE CREDI T FACILITIES, THE SAME WOULD YET NOT QUALIFY FOR NETTING AND, ACCORDINGLY, STAND TO BE E XCLUDED TO THE EXTENT OF 90% THEREOF IN COMPUTING THE PROFITS OF THE BUSINESS UNDER EXPLANATION (BAA) TO SECTION 80HHC: - CIT V. COSMOS INTERNATIONAL , (2009) 318 ITR 314 (DEL.), FOLLOWING CIT V. SHRI RAM HONDA POWER EQUIPMENT , 289 ITR 475 (DEL.) - DOLLAR APPARELS V. ITO , 294 ITR 484 (MAD.) - URBAN STANISLAUS V. CIT , 263 ITR 10 (KER.), FOLLOWING CIT V. JOSE THOMAS , 253 ITR 553 (KER.) THE PREMISE OF THE AFORE-CITED JUDGMENTS BY THE HONBLE COURTS IS THAT EVEN WHERE ASSESSABLE AS BUSINESS INCOME, IT YET CANNOT BE REG ARDED AS INCOME EARNED OUT OF INTEREST BEARING CAPITAL, SO AS TO QUALIFY FOR NETTING. THE SAME PREMISES INFORMED THE DECISION BY IN THE CASE OF CIT VS. JOSE THOMAS (SUPRA), WHICH WAS ALSO IN THE CONTEXT OF THE BANK DEPOSITS HELD AS COLLATERAL SECURITY FOR BANK BORRO WING; IT REVERSING THE DECISION BY THE TRIBUNAL IN THE MATTER, HOLDING THAT IF AGRICULTURA L LAND STOOD OFFERED AS A COLLATERAL SECURITY, GOING BY THE TRIBUNALS LOGIC, THE AGRICU LTURAL INCOME THERE-FROM WOULD BE ASSESSABLE AS BUSINESS INCOME! WE FIND NO CONTRADIC TION OR CONFLICT BETWEEN THESE JUDGMENTS AND THAT RENDERED BY THE SPECIAL BENCH OF THE TRIBUNAL (SUPRA), WHEREIN THE MATTER WAS REMANDED BACK TO THE FILE OF THE ASSESSI NG AUTHORITY AFTER LAYING DOWN THE SONAL IMPEX LTD. V. ITO, MUMBAI ITA NO.7405/MUM/2004 (AY 1996-97) 5 GOVERNING PRINCIPLE/S. THE DECISIONS BY THE HONBLE COURTS MUST THEREFORE BE REGARDED AS AN INSTANCE OF APPLICATION OF THOSE PRINCIPLES, WHI CH ARE, IN SUBSTANCE, THE SAME THAT ALLOW SET OFF OF EXPENDITURE, INCLUDING ON INTEREST, U/S. 57 AGAINST INCOME EARNED. EVEN IF ONE WERE TO INFER SOME CONFLICT BETWEEN THE TWO SET OF DECISIONS, THOSE BY THE HIGHER COURTS OF LAW WOULD PREVAIL OVER THAT BY THE TRIBUNAL. BE THA T AS IT MAY, ALL THESE DECISIONS CAN BE REGARDED AS IN CONFORMITY AND TOWARD APPLYING THE G UIDING PRINCIPLE LAID DOWN BY THE HONBLE APEX COURT IN THE CASE OF CIT V. GOPINATHAN , 248 ITR 449 (SC). 2.3 COMING TO THE FACTS OF THE CASE, PARTICULA RS OF THE INTEREST INCOME UNDER REFERENCE IS AS UNDER: 1.ON MARGIN MONEY RS. 175035 2. ON SBI BONDS RS. 147500 3. ON OTHERS RS. 165699 4. ON OVERDUE SALES BILL RS. 106716 5. ON INCOME TAX REFUND RS. 5352 TOTAL RECEIVED RS. 600302 NET OF INTEREST PAID RS. 3087260 THE SAME STAND GATHERED BY US FROM THE DETAILS OF T HE INTEREST RECEIVED AS FILED BY THE ASSESSEE WITH THE DEPARTMENT ON 08.11.2006, I.E., A FTER FINALIZING OF THE ASSESSMENT BY THE AO, SO THAT, THERE HAS BEEN ADMITTEDLY NO CONSIDERA TION OF THE MATTER AT HIS END. THIS IS EXTREMELY SURPRISING AS THE DETAILS WOULD ONLY BE R EADILY AVAILABLE WITH THE ASSESSEE; RATHER, EMANATING ONLY OUT OF ITS REGULAR BOOKS OF ACCOUNT. THIS IS PARTICULARLY SO AS THE MATTER STOOD REMITTED BY THE TRIBUNAL ON AN EARLIER OCCASION TO CONSIDER THE ASPECT OF NETTING. 2.4 THOUGH, THEREFORE, DISINCLINED TO IN PRINCIP LE FOR RESTORATION OF THE MATTER; THE ASSESSMENT YEAR INVOLVED BEING 1996-97, AND THIS BE ING THE SECOND TIME THE MATTER HAS COME UP BEFORE THE TRIBUNAL, WITH THE LAW IN THE MA TTER AS WELL AS THE GUIDING PRINCIPLES FOR THE APPLICATION THEREOF, AND ONLY IN THE CONTEX T OF THE RELEVANT PROVISION, AND MORE PARTICULARLY UNDER SIMILAR FACTUAL CONDITIONS, HAVI NG BEEN WELL LAID OUT, WE ARE SONAL IMPEX LTD. V. ITO, MUMBAI ITA NO.7405/MUM/2004 (AY 1996-97) 6 CONSTRAINED TO DO SO IN VIEW OF THE NON-CONSIDERATI ON OF THE FACTS, ONLY ON THE EDIFICE OF WHICH ANY PRINCIPLE OR LAW COULD BE APPLIED. THIS I S ALSO SO AS WE IN THE SECOND ROUND ARE BOUND BY THE TRIBUNALS ORDER IN THE FIRST ROUND, F INDING THAT ITS DIRECTION IN THE FIRST INSTANCE HAS BEEN NOT COMPLIED WITH. WE CONSIDER BO TH THE ASSESSEE AS WELL AS THE REVENUE RESPONSIBLE FOR THE SAME INASMUCH AS THE OR DERS BY THE AUTHORITIES BELOW NOWHERE MENTION ANY WANT OF COOPERATION OR RECALCIT RANCE IN THE MATTER BY THE ASSESSEE. IN FACT, THIS IS ALSO THE REASON THAT WE HAVE TAKEN PAINS TO DISCUSS THE LAW IN THE MATTER, WHICH WOULD FORM THE BACK GROUND FOR THE ADJUDICATI ON IN THE PRESENT CASE. THE DECISION BY THE APEX COURT APPROVING LALSON ENTERPRISES VS. DY. CIT (SUPRA), I.E., AS GIVEN TO UNDERSTAND TO US BY THE LD. AR, WOULD ALSO HAVE A B EARING IN THE MATTER. 3. UNDER THE CIRCUMSTANCES, AND IN VIEW OF T HE FOREGOING, WE REMIT THE MATTER BACK TO THE FILE OF THE AO FOR A FRESH AND PROPER ADJUDICAT ION OF THE MATTER, I.E., PER A SPEAKING ORDER, IN ACCORDANCE WITH LAW AND AFTER ALLOWING A REASONABLE OPPORTUNITY OF PRESENTING ITS CASE TO THE ASSESSEE. THE FOREGOING ANALYSIS OF THE OBTAINING LEGAL POSITION, WHICH STANDS CULLED OUT ONLY FROM THE VARIOUS DECISIONS B Y THE HIGHER COURTS OF LAW, WOULD, TO THE EXTENT IT IS NOT IN CONFLICT WITH A LATER DECIS ION BY THE APEX COURT, OR SOME OTHER SUPERVENING DECISION, AS BY THE HONBLE JURISDICTIO NAL HIGH COURT, SERVE AS THE BASIS FOR HIS ADJUDICATION. THE ONUS TO PROVE THE FACTS BY LEADIN G RELEVANT MATERIALS WOULD ONLY BE ON THE ASSESSEE. WE DECIDE ACCORDINGLY. 4. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THIS 21 ST DAY OF DECEMBER, 2012 SD/- - SD/- (I.P. BANSAL) (SANJAY ARORA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 21.12.2012 SONAL IMPEX LTD. V. ITO, MUMBAI ITA NO.7405/MUM/2004 (AY 1996-97) 7 COPY FORWARDED TO: 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE C.I.T. 4. CIT (A) 5. THE DR, E BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI ROSHANI