G.K. FOUNDERS P.LTD, MUMBAI V. ASST CIT 14(1)(2), MUMBAI

ITA 7464/MUM/2016

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 5706 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 4 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-05-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 19-12-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: CHOUDHARY ARUNKUMAR SINGH
• Keywords: Business income
• Section: 143(3); 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH G, MUMBAI BEFORE SHRI RAJESH KUMAR, ACCOUNTANT MEMBER AND SHRI RAM LAL NEGI, JUDICIAL MEMBER ITA NO.7464/M/2016 ASSESSMENT YEAR: 2012-13 M/S. G.K. FOUNDERS P. LTD., B-201, JYOTI PLAZA, ABOVE OM SAI TATA MOTORS, S.V. ROAD, KANDIVALI (WEST), MUMBAI 400 067 PAN: AAACG4385R VS. ASST. COMMISSIONER- 14(1)2, MUMBAI (APPELLANT) (R ESPONDENT) PRESENT FOR: ASSESSEE BY : SHRI VIMAL PUNMIYA, A.R. REVENUE BY : SHRI CHOUDHARY ARUNKUMAR SINGH, D.R . DATE OF HEARING : 30.04.2019 DATE OF PRONOUNCEMENT : 14.05.2019 O R D E R PER RAJESH KUMAR, ACCOUNTANT MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSES SEE AGAINST THE ORDER DATED 14.09.2016 OF THE COMMISSIO NER OF INCOME TAX (APPEALS) [HEREINAFTER REFERRED TO AS TH E CIT(A)] RELEVANT TO ASSESSMENT YEAR 2012-13. 2. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER: 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL S) ERRED IN CONSIDERING THE INTEREST INCOME RECEIVED ON LC, FD AND BANK GUARANT EE, BANK INTEREST, INTEREST ON VAT REFUND AND INTEREST ON HDFC ASSET MANAGEMENT AS INCOME FROM OTHER SOURCES AND NOT AS BUSINESS INCOME AND THEREBY DENY ING DEDUCTION U/S 80.1B OF INCOME TAX ACT. 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ALSO ERRED IN IGNORING THE COMMISSIONER OF INCOME TAX (APPEAL) ORDER FOR ASSES SMENT YEAR 2010-11 WHICH ITA NO.7464/M/2016 M/S. G.K. FOUNDERS P. LTD. 2 WAS ON SIMILAR GROUNDS AND THE APPEAL WAS ALLOWED I N FAVOUR OF THE ASSESSEE COMPANY. 3. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CHARGING INTEREST U/SEC.234B AND 234C OF THE I.T ACT, 1961 A ND HAVING REGARD TO THE FACT AND THE CIRCUMSTANCES OF THE CASE AND IN LAW THE APPELL ANT DENIES ITS LIABILITY FOR PAYMENT OF ANY INTEREST UNDER THE VARIOUS PROVISION S OF THE ACT. 3. THE ISSUE IN THE 1 ST GROUND OF APPEAL IS AGAINST THE ORDER OF LD. CIT(A) UPHOLDING ORDER OF AO BY TREATING THE IN TEREST INCOME ON LC, FD AND BANK GUARANTEE, INTEREST ON VAT, REFUN D AND INTEREST ON HDFC ASSET MANAGEMENT AS INCOME FROM OT HER SOURCES AS AGAINST THE ASSESSEES TREATMENT OF THE SAME AS BUSINESS INCOME THEREBY DENYING DEDUCTION UNDER SEC TION 80IB OF THE ACT. 4. THE FACTS IN BRIEF ARE THAT THE ASSESSEE FILED T HE RETURN OF INCOME ON 29.09.2012 DECLARING INCOME AT RS.81,85,9 50/- AFTER CLAIMING DEDUCTION UNDER SECTION 80IB OF THE ACT EQ UAL TO RS.35,08,263/- WHICH WAS PROCESSED UNDER SECTION 14 3(1) OF THE ACT. THEREAFTER THE CASE OF THE ASSESSEE WAS SELECT ED UNDER SCRUTINY AND STATUTORY NOTICES WERE DULY ISSUED AND SERVED UPON THE ASSESSEE. DURING THE COURSE OF ASSESSMENT PROC EEDINGS, THE AO FOUND THAT ASSESSEE HAS CREDITED UNDER THE HEAD OTHER INCOME IN THE P&L ACCOUNT A SUM OF RS.44,15,532/- COMPRISING BANK INTEREST OF RS.33,663/-, INTEREST ON VAT REFUND OF RS.30,967/- INTEREST ON LC, FD AND BANK GUARANTEE O F RS.42,47,259/-, INTEREST ON HDFC WITH ASSET MANAGEM ENT OF RS.1,03,643/-. ACCORDING TO THE AO, THE SAID INTER EST WAS WRONGLY TREATED AS INCOME FROM BUSINESS AS THE SAME FALLS UNDER THE HEAD INCOME FROM OTHER SOURCES AND ACCO RDINGLY A SHOW CAUSE NOTICE WAS ISSUED TO THE ASSESSEE WHICH WAS REPLIED BY THE ASSESSEE VIDE LETTER DATED 03.02.2015. THE AO REJECTED ITA NO.7464/M/2016 M/S. G.K. FOUNDERS P. LTD. 3 THE CONTENTIONS OF THE ASSESSEE AND TREATED THE SAM E AS INCOME FROM OTHER SOURCES ON THE GROUND THAT SAME IS NOT E MANATING FROM BUSINESS ACTIVITY OF THE ASSESSEE BY RELYING O N THE DECISION IN THE CASE OF MURLI INVESTMENT CO. VS. CIT 167 ITR 368 (RAJ), GODAVARI SUGAR MILLS LTD. VS. CIT 191 ITR 359 (BOM) AND SOUTH INDIA SHIPPING CORPORATION LTD. VS. CIT (1999) 240 ITR 24 (MADRAS). THE AO FURTHER RELIED ON THE CASE OF KIN FRA EXPORT PROMOTION INDUSTRIAL PORTS LTD. VS. DCIT (2013) 59 SOT 57 (URO KOCHIN) WHEREIN IT HAS BEEN HELD THAT IF INTEREST I NCOME IS NOT DERIVED FROM ELIGIBLE UNDERTAKING IT IS NOT ELIGIBL E FOR DEDUCTION. ACCORDING TO THE AO, THERE IS NO DIRECT NEXUS BETWE EN THE INTEREST INCOME WITH THE BUSINESS ACTIVITY AND SAME COULD NOT BE CONSIDERED AS PROFIT AND GAIN FROM ELIGIBLE UNDERTA KING AND HENCE DEDUCTION WAS DENIED BY FRAMING ASSESSMENT UN DER SECTION 143(3) DATED 13.02.2015. 5. IN THE APPELLATE PROCEEDINGS, THE APPEAL OF THE ASSESSEE ON THIS GROUND WAS DISMISSED BY THE LD. CIT(A) BY OBSE RVING AND HOLDING AS UNDER: 5.3 I HAVE CONSIDERED THE FACTS OF THE CASE AND TH E APPELLANT'S SUBMISSIONS. THE APPELLANT COMPANY IS ENGAGED IN THE BUSINESS OF MAN UFACTURING OF ALUMINUM INGOTS AND HAD CLAIMED DEDUCTION U/S 80IB. THE PERTINENT I SSUE TO BE DECIDED IS NOT WHETHER PER SE THE INTEREST INCOME CONSTITUTED BUSI NESS INCOME OR INCOME FROM OTHER SOURCES BUT WHETHER DEDUCTION U/S 80IB CAN BE CLAIMED IN RESPECT OF SUCH INTEREST INCOME. DEDUCTION U/S 80IB IS ALLOWABLE IN RESPECT OF THE PROFITS AND GAINS DERIVED FROM THE MANUFACTURING ACTIVITIES OF THE IN DUSTRIAL UNDERTAKING. THE OPERATIONAL WORD USED IN THE SECTION IS 'DERIVED FR OM AND NOT ATTRIBUTABLE TO. THE HONBLE SUPREME COURT IN CAMBAY ELECTRIC INDUST RIAL CO. LTD. V. CIT 113 ITR 84 (SC) HAD CLEARLY STATED THAT THE EXPRESSION 'DERIVE D FROM' HAD A NARROWER CONNOTATION THAN THE EXPRESSION 'ATTRIBUTABLE TO'. THIS WAS REITERATED IN PANDIAN CHEMICALS LTD. V. CIT, 262 ITR 278(SC) WHEREIN IT H ELD THAT 'IT IS CLEAR, THEREFORE, THAT THE WORD 'DERIVED FROM' IN SECTION 80HH OF THE INCO ME-TAX ACT, 1961, MUST BE UNDERSTOOD AS SOMETHING WHICH HAS DIRECT OR IMMEDIATE NEXUS WITH THE APPELLANT INDUSTRIAL UNDERTAKING'. THE HON'BLE APEX COURT ACCORDINGLY AFFIRMED THE ORD ER OF THE HON'BLE MADRAS HIGH COURT HOLDING THAT THE INTE REST ON DEPOSITS WITH TAMIL NADU ELECTRICITY BOARD CANNOT BE TREATED AS INCOME DERIVED BY THE INDUSTRIAL UNDERTAKING FOR THE PURPOSE OF SECTION 80HH. IT IS, THEREFORE, SETTLED LAW NOW THAT ITA NO.7464/M/2016 M/S. G.K. FOUNDERS P. LTD. 4 INCIDENTAL BUSINESS RECEIPTS WHICH HAVE NO NEXUS WI TH THE MANUFACTURING ACTIVITY OF THE INDUSTRIAL UNDERTAKING WILL NOT BE ELIGIBLE FOR DEDUCTION U/S SECTION 80IB, THE INTEREST INCOME EARNED HAD NO DIRECT OR IMMEDIATE N EXUS WITH THE MANUFACTURING ACTIVITY OF THE APPELLANT. IT IS, AT BEST AN INCIDE NTAL BUSINESS RECEIPT AND WILL NOT BE ELIGIBLE FOR THE PURPOSE OF CLAIMING DEDUCTION U/S 801B. THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IS UPHELD. THE APPELLANT'S GR OUND OF APPEAL IS DISMISSED. 6. THE LD. A.R. VEHEMENTLY SUBMITTED BEFORE US THAT THE FIXED DEPOSITS WERE REQUIRED FOR OBTAINING LETTER OF CRED IT AND OTHER CREDIT FACILITIES, HENCE THE INTEREST INCOME IS DIR ECTLY RELATED TO THE BUSINESS AND HAS TO BE TREATED AS BUSINESS INCO ME. THE ASSESSEE HAS TO MAINTAIN MARGIN AS MANDATED BY THE BANK AS IS CLEAR FROM THE SANCTION LETTER OF THE STATE BANK OF INDIA FILED IN THE PAPER BOOK. THE ASSESSEES SUBMITTED THAT THE C REDIT FACILITIES WERE AVAILED FROM STATE BANK OF INDIA IN THE FORM OF CASH CREDIT, BUYERS CREDIT, LC, BANK GUARANTEES ETC . FOR WHICH COMPANY HAS GIVE FIXED DEPOSITS AS SECURITIES. TH E LD. A.R. THEREFORE SUBMITTED THAT THE FACTS OF THE ASSESSEE S CASE ARE COMPLETELY DIFFERENT FROM THE DECISIONS RELIED UPON BY THE AO AND LD. CIT(A). IN DEFENCE OF HIS ARGUMENT, THE LD . A.R. RELIED ON A SERIES OF DECISIONS. 1. CIT VS. JAYPEE DSC VENTURES LTD. (ITA NO.357/201 0 DATED 16.12.2010 (DELHI-HC) 2. CIT VS. INDO SWISS JEWELS LTD. (2005) 284 ITR 38 9 (BOM.) 3. LOK HOLDINGS (2008) 308 ITR 256 (BOM.) 4. CIT VS. KOSHIKA TELECOM (2006) 287 ITR 479 (DELH I) THE LD. A.R. SUBMITTED THAT EVEN IN THE ASSESSEES OWN CASE SIMILAR ISSUE WAS ALLOWED BY LD. CIT(A) IN THE ASSESSMENT YEAR 2010-11 BY ALLOWING THE APPEAL IN FAVOUR OF TH E ASSESSEE A COPY OF WHICH IS PLACED ON PAGE NO.108 TO 110 OF TH E PAPER BOOK. THE LD. A.R., THEREFORE, PRAYED BEFORE THE B ENCH THAT SINCE THE ISSUE HAS ALREADY BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE LD. CIT(A) IN A.Y. 2010-11, THE SAM E MAY KINDLY ITA NO.7464/M/2016 M/S. G.K. FOUNDERS P. LTD. 5 BE ALLOWED IN THE CURRENT YEAR ALSO AS THE INCOME E ARNED HAS THE NEXUS WITH THE MANUFACTURING OF ALUMINUM INGOTS AS THESE FIXED DEPOSITS WERE REQUIRED AS SECURITY IN ORDER TO AVA IL THE CREDIT FACILITIES FROM STATE BANK OF INDIA FOR THE PURPOSE OF MANUFACTURING ACTIVITY OF THE ASSESSEE. 7. THE LD. D.R., ON THE OTHER HAND, RELIED HEAVILY ON THE ORDERS OF LOWER AUTHORITIES BY SUBMITTING THAT THE INTEREST INCOME HAS RIGHTLY BEEN TREATED AS INCOME FROM OTHE R SOURCES BY THE AO AND RIGHTLY CONFIRMED BY THE LD. CIT(A) AS T HERE IS NO DIRECT NEXUS BETWEEN THE BUSINESS OF THE ASSESSEE A ND THE INTEREST INCOME FOR THE PURPOSE OF ALLOWING DEDUCTI ON UNDER SECTION 80IB OF THE ACT. THE LD DR ARGUED THAT THE WORD USED IS INCOME DERIVED FROM THE MANUFACTURING ACTIVITY WHER EAS IN THE PRESENT CASE THE INTEREST INCOME HAS NO SUCH DIRECT NEXUS AND THEREFORE THE ORDER OF LD. CIT(A) DESERVED TO BE UP HELD ON THIS ISSUE. 8. AFTER HEARING BOTH THE PARTIES AND PERUSING THE MATERIAL ON RECORD, WE OBSERVE THAT THE ASSESSEE BEING IN THE B USINESS OF MANUFACTURING OF ALUMINUM INGOTS HAS AVAILED VARIOU S CREDIT FACILITIES IN THE FORM OF CASH CREDIT, BUYER CREDIT , LC, BANK GUARANTEE ETC. FROM STATE BANK OF INDIA FOR WHICH I T HAS TO KEEP THE NECESSARY DEPOSITS AS SECURITIES AS PER THE BA NK MANDATE AND THE ASSESSEE HAS EARNED INTEREST INCOME AS HAS BEEN STATED HEREINABOVE. WE FURTHER FIND THAT THE LD. CIT(A) I N A.Y. 2010-11 HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY FOLLOWING THE DECISION OF CIT VS. KOSHIKA TELECOM LTD. 287 ITR 47 9 (DELHI) WHEREIN IT HAS BEEN HELD THAT INTEREST FLOWING FROM DEPOSITS MADE BY THE ASSESSEE WHICH ARE IN EXTRICABLY LINKED TO THE ITA NO.7464/M/2016 M/S. G.K. FOUNDERS P. LTD. 6 BUSINESS OF THE ASSESSEE CAN NOT BE TREATED AS INCO ME FROM OTHER SOURCES. IN THE CASE OF CIT VS. JAYPEE DSC V ENTURES LTD. (SUPRA) IT HAS BEEN HELD BY THE HONBLE DELHI HIGH COURT THAT WHERE THE MONEY IS DEPOSITED INTO BANK NOT AS SURPL US MONEY BUT OUT OF BUSINESS EXIGENCIES AND NECESSITIES, THE N THE INTEREST ACQUIRES THE CHARACTER OF BUSINESS RECEIPTS. IN THE CASE OF CIT VS. INDO SWISS JEWELS LTD. (SUPRA) THE INTEREST EAR NED ON SHORT TERM DEPOSITS KEPT APART FOR THE PURPOSE OF BUSINES S HAS TO BE TREATED AS INCOME EARNED FROM BUSINESS AND CAN NOT BE TREATED AS INCOME FROM OTHER SOURCES. SIMILARLY, IN THE CA SE OF CIT VS. KOSHIKA TELECOM (SUPRA) WHICH HAS BEEN RELIED UPON BY THE PREDECESSOR CIT(A) TO DECIDE THE APPEAL IN FAVOUR O F THE ASSESSEE IN A.Y. 2010-11 HAS THE SAME RATIO. ACCORDINGLY, W E RESPECTFULLY FOLLOWING THE DECISIONS AS DISCUSSED HEREINABOVE D IRECT THE AO TO TREAT THE INTEREST AND THE VARIOUS DEPOSITS AS S TATED HEREINABOVE AS INCOME FROM BUSINESS AND NOT FROM IN COME FROM OTHER SOURCES. ACCORDINGLY, THE ASSESSEE IS ENTITL ED TO DEDUCTION UNDER SECTION 80IB. THE AO IS DIRECTED ACCORDINGLY . 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON 14.05.2019. SD/- SD/- ( RAM LAL NEGI) (RAJESH KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 14.05.2019. * KISHORE, SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI ITA NO.7464/M/2016 M/S. G.K. FOUNDERS P. LTD. 7 THE DR CONCERNED BENCH //TRUE COPY// [ BY ORDER DY/ASS TT. REGISTRAR, ITAT, MUMBAI.