M/S. DAMAN POLYTHREAD LTD, MUMBAI V. THE ACIT CIR 6(2), MUMBAI

ITA 7668/MUM/2007

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 7809 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 1 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-02-2010
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: K
• Next Hearing Date: 23-12-2009
• Assessment Year: 2005-2006
• Appeal Filed On: 28-12-2007
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: ANILKUMAR MISHRA
• Assessee Lawyers: D BHASKARA RAO
• Section: 80IB; 80HH; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'K' BENCH, MUMBAI BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO. 7668/MUM/2007 (ASSESSMENT YEAR: 2005-06) M/S. DAMAN POLYTHREAD LTD. ACIT, CIRCLE 6(2) 5 MIRZA STREET AAYAKAR BHAVAN, M.K. ROAD MUMBAI 400003 VS. MUMBAI 400020 PAN - AABCD 0702 E APPELLANT RESPONDENT APPELLANT BY: SHRI D. BHASKARA RAO RESPONDENT BY: SHRI ANIL KUMAR MISHRA O R D E R PER B. RAMAKOTAIAH, A.M. THIS APPEAL BY THE BY THE ASSESSEE IS AGAINST THE O RDER OF THE CIT VI MUMBAI UNDER SECTION 263 DATED 30.10.2007. 2. THE ASSESSEE HAS RAISED 5 GROUNDS WHICH ARE ALTERNA TE CONTENTIONS ALSO. GROUND NOS. 1 TO 4 PERTAINS TO RECEIPT OF INT EREST INCOME ON FIXED DEPOSITS AND REIMBURSEMENT OF INTEREST AS SUBSIDY B Y TEXTILE UP GRADATION FUND SCHEME, CLAIMED AS DEDUCTION UNDER SECTION 80I B AND NOT ALLOWED BY THE A.O. AND CIT. ON THE ISSUE OF NETTING THE CIT D IRECTED TO EXAMINE WHETHER THE INVESTMENT IN FDS CAME FROM OWN FUNDS O R BORROWED FUNDS AND ALLOW NETTING ONLY WHEN THE SAME COME FROM BORROWED FUNDS. THE DETAILS GROUNDS ARE AS UNDER: - 1 (A) THE C.I.T. WAS NOT CORRECT IN HOLDING THAT T HE APPELLANT WAS NOT ENTITLED TO DEDUCTION U/S 80IB OF THE I.T. ACT IN R ESPECT OF INTEREST OF RS.2,83,651/- RECEIVED FROM THE BANK ON SHORT TE RM DEPOSITS MADE WITH IT FOR OBTAINING LETTER OF CREDIT FOR IMP ORT OF SPARE PARTS AND RAW MATERIALS REQUIRED BY THE APPELLANT FOR ITS INDUSTRIAL UNDERTAKING. (B) THE C.I.T. FAILED TO NOTICE THAT THE APPELLANT HAD NO OTHER BUSINESS EXCEPT ITS INDUSTRIAL UNDERTAKING IN DAMAN. 2 (A) WITHOUT PREJUDICE TO THE GROUNDS MENTIONED AT 1 (A) AND (B) ABOVE THE APPELLANT CONTENDS THAT THE C.I.T. WAS NOT JUST IFIED IN HOLDING ITA NO. 7668/MUM/2007 M/S. DAMAN POLYTHREAD LTD. 2 THAT NETTING OF INTEREST IS ALLOWABLE ONLY WHEN NEX US IS ESTABLISHED BETWEEN INTEREST RECEIVED AND INTEREST PAID BY THE APPELLANT. (B) THE C.I.T. OUGHT TO HAVE NOTICED THAT THE APPE LLANT HAD ONLY ONE BUSINESS OF RUNNING THE UNDERTAKING IN DAMAN AND TH AT SMALL DEPOSITS WERE MADE WITH THE BANK AND LOANS WERE TAK EN FROM THE BANK FOR RUNNING THIS INDUSTRIAL UNDER TAKING. 3 (A) THE C.I.T. WAS NOT JUSTIFIED IN HOLDING THAT THE SUM OF RS.1,33,797 RECEIVED AS REIMBURSEMENT OF INTEREST UNDER THE TEX TILE UP GRADATION FUND SCHEME OF THE GOVT OF INDIA WAS NOT ENTITLED FOR DEDUCTION U/S 80IB OF THE I.T. ACT. (B) THE C.I.T SHOULD HAVE NOTICED THAT THIS REIMBU RSEMENT OF INTEREST RECEIVED BY THE APPELLANT IS IN THE NATURE OF PROFI T U/S 41(1) OF THE I.T. ACT AND IS THEREFORE ENTITLED TO DEDUCTION U/S 80IB OF THE I.T. ACT. 4 (A) WITHOUT PREJUDICE TO THE GROUNDS MENTIONED AT 3(A) ABOVE THE APPELLANT CONTENDS THAT THE C.I.T. WAS NOT JUSTIFIE D IN HOLDING THAT NETTING OF INTEREST IS ALLOWABLE ONLY WHEN NEXUS IS ESTABLISHED BETWEEN INTEREST RECEIVED AND INTEREST PAID BY THE APPELLANT. 3. THE LEARNED COUNSEL SUBMITTED THAT THE ISSUE WAS HE LD AGAINST THE ASSESSEE BY THE ORDER OF THE ITAT IN A.Y. 2004-05 B UT THE RELIANCE WAS PLACED ON THE DECISION OF THE HON'BLE BOMBAY HIGH C OURT IN THE CASE OF CIT VS. JAGDISH PRASAD M. JOSHI VS. 318 ITR 420 (BOM) F OR CLAIMING THE DEDUCTION. THE LEARNED D.R. RELIED ON THE ORDER OF THE CIT UNDER SECTION 263 AND ORDER OF THE ITAT. 4. THE ISSUE CONTENDED IN THE ABOVE GROUNDS ARE COVERE D AGAINST THE ASSESSEE BY THE ORDER OF THE ITAT IN ITA NO. 2439/A HD./2007 FOR A.Y. 2004- 05 DATED 31.12.2007. THE HON'BLE ITAT HELD AS UNDER : - 4. AGGRIEVED, THE REVENUE CAME IN APPEAL BEFORE US . AFTER HEARING BOTH THE SIDES IT IS NOTICED THAT THE CLAIM OF THE ASSESSEE IS THAT THEY HAVE RECEIVED INTEREST IN FIXED DEPOSITS MADE TOWAR DS MARGIN MONEY THAT THE BANK IN CONNECTION WITH OPENING LETTER OF CREDIT FOR IMPORTING SPARE PART FOR THEIR MACHINERY AND RAW MATERIAL REC EIVED INTEREST TO THE TUNE OF RS.2,46,329/- AND ALSO RECEIVED SUBSIDY FRO M TEXTILE UPGRADATION FUND IN THE FORM OF PART OF INTEREST PAID ON LOANS TAKEN FOR PURCHASE OF MACHINERY TO THE TUNE OF RS.21,12,671/-. ACCORDING TO THE ASSESSEE THE TOTAL INTEREST RECEIVED IS AMOUNTING TO RS.23,59,00 0/-. IT WAS CLAIMED BEFORE US THAT THE INTEREST AND DELAYED PAYMENT OF INTEREST ARE INCIDENTAL AND RATHER INTEGRAL PAT OF BUSINESS AND ACCORDINGLY THE SAME IS TO BE DEDUCTED U/S 80IB OF THE ACT. THE ASSESSEE ALSO SUBMITTED THAT DURING THE YEAR AS AND WHEN COMPANY HAS SURPLUS FUN DS ARISING OUT OF ITS BUSINESS OPERATION IT DEPLOYED THE SAME TO RECO VER PART OF INTEREST COSTS INCURRED IN THE FORM OF PAYMENTS OF INTEREST AND THIS INTEREST ITA NO. 7668/MUM/2007 M/S. DAMAN POLYTHREAD LTD. 3 RECEIVED DOES NOT CONSTITUTE SEPARATE SOURCE OF INC OME AS SUCH. FROM THE ABOVE FACTS IT IS CLEAR THAT ASSESSEE HAS RECEIVED INTEREST FROM FIXED DEPOSITS MADE, MARGIN MONEY WITH THE BANK IN CONNEC TION WITH OPENING OF LETTER OF CREDIT FOR IMPORTING SPARE PARTS AS WE LL AS RAW MATERIALS AND RECEIVED SUBSIDY FROM TUFF, THE SCHEME FORMULATED B Y THE GOVERNMENT ORGANIZATIONS TO ENCOURAGE INDUSTRIES IN BACKWARD A REAS AND TUFF ALLOWED SUBSIDY IN THE FORM OF REIMBURSING 5% OF IN TEREST OF LOANS. THE LD COUNSEL OF THE ASSESSEE REFERRED TO THE DECISIONS O F HON'BLE MUMBAI HIGH COURT AS REPORTED IN THE CASE OF CIT V. AHMEDA BAD ELEC CO. LTD. 203 ITR 521 AND IN THE CASE OF CIT V. INDO SWISS JE WELS LTD. AND ANOTHER, 284 ITR 389 AND ALSO THE DECISION OF THE D ELHI BENCH OF ITAT IN THE CASE OF RAJASTHAN PETRO SYNTHETICS LTD. V. DY. CIT REPORTED IN 60 ITD 682. FROM THE ORDER OF CIT WE HAVE SEEN THAT HE HAS RELIED ON THE DECISION OF HON'BLE MADRAS HIGH COURT OF NSC SHOES REPORTED IN 248 ITR 749. WE HAVE GONE THROUGH THE CASE LAW OF HON'BLE M ADRAS HIGH COURT AND FOUND THAT CIT HAS MISPLACED HIS DECISION, WHER EAS THE HON'BLE MADRAS HIGH COURT HAS VERY CATEGORICALLY HELD THAT THE ASSESSEE IS NOT ELIGIBLE FOR DEDUCTION U/S 80HH ON INTEREST FROM FD RS, IN THE CASE OF NSC SHOES, SUPRA. BEFORE US THE CASE LAW OF HON'BLE SUPREME COURT EXACTLY ON IDENTICAL FACTS IN THE CASE OF PANDIAN C HEMICALS LTD. VS. CIT, 262 ITR 278, CIT V. STERLING FOODS, 237 ITR 579 ARE VERY CLEAR AND PRINCIPLE LAID DOWN THERE IS THAT ASSESSEE IS ENTIT LED TO EXEMPTION ON INCOME WHICH IS DERIVED FROM INDUSTRIAL UNDERTAKING AND NOT ATTRIBUTABLE BUSINESS. WE FEEL THAT ASSESSING OFFICER HAS RIGHTL Y DISALLOWED THE DEDUCTION BY HOLDING THAT INTEREST INCOME IS ATTRIB UTABLE TO AND NOT DERIVED FROM THE INDUSTRIAL UNDERTAKING AND ACCORDI NGLY HE HAS RIGHTLY HELD THE SAME IS TAXABLE. RESPECTFULLY FOLLOWING TH E CASE LAW OF HON'BLE APEX COURT IN THE CASE OF PANDIAN CHEMICALS, THE OR DER OF THE ASSESSING OFFICER IS RESTORED AND REVERSE THAT OF THE CIT(A). 5. SINCE THE FACTS ARE SIMILAR, WE UPHOLD THE ORDER OF THE CIT ON THIS ISSUE. THE LEARNED COUNSELS RELIANCE ON THE JURISD ICTIONAL HIGH COURT DECISION (SUPRA) IS MISPLACED. THE DECISION WAS REN DERED ON THE FACTS OF THAT CASE AND THE HON'BLE BOMBAY HIGH COURT UPHELD THE F INDINGS OF THE ITAT THAT INTEREST INCOME EARNED THEREON HAD NEXUS WITH THE BUSINESS. IN THIS CASE THE ITAT FINDINGS IN THE EARLIER YEAR ARE CLEA R AND THE FACTS ARE SAME IN THIS YEAR AS WELL. IN VIEW OF THIS, WE ARE OF THE V IEW THAT THE CIT IS CORRECT IN HOLDING THAT THE ASSESSEE WAS NOT ELIGIBLE FOR DED UCTION UNDER SECTION 80IB. THIS VIEW ALSO GETS SUPPORT BY THE DECISION OF HON' BLE SUPREME COURT IN THE CASE OF LIBERTY INDIA 317 ITR 218 (SC) WHEREIN THE PRINCIPLES DERIVED FROM THE BUSINESS WAS CONSIDERED WITH REFERENCE TO DEPB SCHEME. ACCORDINGLY THE GROUNDS ARE REJECTED. THIS BEING APPEAL AGAINST THE ORDER OF THE CIT UNDER SECTION 263, THE DIRECTION OF THE CIT FOR EXA MINING THE NEXUS FOR ITA NO. 7668/MUM/2007 M/S. DAMAN POLYTHREAD LTD. 4 EARNING INTEREST IS NOT MODIFIED. A.O. IS TO EXAMIN E AND DECIDE ON FACTS AS DIRECTED BY THE CIT. 6. GROUND NO. 5 IS AS UNDER: 5. (A) THE C.I.T. WAS NOT JUSTIFIED IN HOLDING TH AT THE AMOUNT OF RS.2,54,679 RECEIVED BY THE APPELLANT ON THE SALE O F DFRC LICENCES RECEIVED BY THE APPELLANT AGAINST THE EXPO RTS MADE BY IT, WAS NOT ENTITLED TO DEDUCTION U/S. 80IB OF THE I.T. ACT. (B) THE C.I.T. SHOULD HAVE HELD THAT AS THE ONLY B USINESS OF THE APPELLANT WAS RUNNING OF INDUSTRIAL UNDERTAKING IN DAMAN, THE SUM OF RS.2,54,679 WAS A PART OF THE BUSINESS PROFI TS OF THE APPELLANT AND ENTITLED TO DEDUCTION U/S 80IB OF THE I.T. ACT. 7. ON THIS ISSUE, THE ORDER OF THE CIT IS TO BE UPHELD AS THE PRINCIPLES ARE CRYSTALLISED BY THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF LIBERTY INDIA 317 ITR 218 WHEREIN THE PRINCIPLES DERIVED F ROM THE BUSINESS WAS CONSIDERED WITH REFERENCE TO DEPB SCHEME AND HELD T HAT THE AMOUNTS WERE NOT ELIGIBLE FOR DEDUCTION. RESPECTFULLY FOLLOWING THE SAME IT IS HELD THAT THE ASSESSEE IS NOT ENTITLED FOR DEDUCTION UNDER SECTIO N 80IB ON THE SALE OF DFRC LICENCES. THE ORDER OF THE CIT IS UPHELD. ACCORDING LY THE GROUND IS REJECTED. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 16 TH FEBRUARY 2010. SD/ SD/- (P. MADHAVI DEVI) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 16 TH FEBRUARY 2010 COPY TO: THE APPELLANT 1. THE RESPONDENT 2. THE CIT(A) CONCERNED, MUMBAI 3. THE CIT VI, MUMBAI CITY 4. THE DR, K BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.