EROS MULTIMEDIA P. LTD, MUMBAI V. DCIT 8(1), MUMBAI

ITA 809/MUM/2010

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 79180 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 4 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-06-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 10-06-2014
• Assessment Year: 2004-2005
• Appeal Filed On: 02-02-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: ADGIRI
• Assessee Lawyers: S ATISH CHANDAK
• Keywords: Business income; Bad and doubtful debts
• Section: 43B; 80HHC; 28; 90

Judgement Text

, , , , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES E, MUMBAI .., ! , ' , # BEFORE SHRI I.P.BANSAL, JM AND SHRI RAJENDRA, AM ITA NO.809/MUM/2010 : ASST.YEAR 2004-05 M/S.EROS MULTIMEDIA PVT. LTD., 201, KAILASH PLAZA, OPP.LAXMI INDUSTRIAL ESTATE, LINK ROAD, ANDHERI (W), MUMBAI 400 053. PAN: AAACR 2148H THE DCIT 8(1), AAYKAR BHAVAN, 2 ND FLOOR, MK ROAD, MUMBAI 400 020 ( $% / // / APPELLANT) ' ' ' ' / VS. ( ()$%/ RESPONDENT) ITA NO.919/MUM/2010 : ASST.YEAR 2004-05 THE DCIT, CC.47, ROOM NO.658, 6 TH FLOOR, AAYKAR BHAVAN, MK ROAD, MUMBAI 400 020 M/S.EROS MULTIMEDIA PVT. LTD., 201, KAILASH PLAZA, OPP.LAXMI INDUSTRIAL ESTATE, LINK ROAD, ANDHERI (W), MUMBAI 400 053. PAN: AAACR 2148H ( $% / // / APPELLANT) ' ' ' ' / VS. ( ()$%/ RESPONDENT) REVENUE BY : SHRI B.YADGIRI ASSESSEE BY : SHRI SATISH CHANDAK ' * +,' / / / / DATE OF HEARING : 10.06.2014 -./ * +,' / DATE OF PRONOUNCEMENT : 18.06.2014 0 0 0 0 / / / / O R D E R PER I.P.BANSAL (JM) : THESE ARE CROSS APPEALS AND ARE DIRECTED AGAINST O RDER PASSED BY LD. CIT(A) 15, MUMBAI DATED 30/11/2009 FOR ASSESSMENT Y EAR 2004-05. THE ASSESSEE HAS FILED REVISED AND ADDITION GROUND OF APPEAL VIDE LETTER DATED 1/5/2012. THEY READ AS UNDER: ITA NO.809 & 919/MUM/2010 : ASST.YEAR 2004-05 2 THE FOLLOWING REVISED/ADDITIONAL GROUNDS OF APPEAL ARE WITHOUT PREJUDICE TO ONE AN OTHER. 1. ON THE FACTS AND CIRCUMSTANCES OF THE APPELLANT S CASE AND IN LAW THE LD. CIT(A) ERRED IN CONFIRMING THE LD. AOS ACTION IN R EDUCING 90% OF THE OTHER INCOME OF RS.1,27,11,247/- FROM THE PROFIT OF THE BUSINES S FOR THE PURPOSE OF COMPUTING DEDUCTION U/S. 8OHHF IN RESPECT OF THE FOLLOWING IN COME: A. DUTY DRAWBACK RS. 7,85,924/- B. SUNDRY BALANCES WRITTEN BACK RS.35,52,880/- (33,32,056 + 2,51,269) C. MISCELLANEOUS INCOME RS.52,56,657/- (50,40,378 + 2,16,279) D. COMPENSATION RS. 33,32,065/- 2. ON THE FACTS AND CIRCUMSTANCES OF THE APPELLANT S CASE AND IN LAW THE LD. CIT(A) ERRED IN CONFIRMING THE LD. AOS ACTION OF R EDUCING 9O% OF COMPENSATION RECEIVED OF RS 33,32,065/- TWICE FROM THE PROFIT O F THE BUSINESS FOR THE PURPOSE OF COMPUTING DEDUCTION U/S. 8OHHF. 3. ON THE FACTS AND CIRCUMSTANCES OF THE APPELLANT S CASE AND IN LAW THE LD. CIT(A) ERRED IN CONFIRMING THE LD. AOS ACTION OF NOT SETTING OFF SUNDRY BALANCES WRITTEN OFF OF RS. 2,51,269/-AGAINST SUNDRY BALAN CES WRITTEN BACK OF RS. 35,52,880/-. 4. THE APPELLANT CRAVE LEAVES TO ADD, AMEND, ALTER, MODIFY AND OR WITHDRAW ANY OF THE ABOVE GROUNDS OF APPEAL. REVENUES GROUNDS OF APPEAL IN ITA NO: 809/MUM/2010 : THE FOLLOWING GROUND OF APPEAL ARE WITHOUT PREJUDI CE TO ONE ANOTHER. 1.ON THE FACTS AND CIRCUMSTANCES OF THE APPELLANT S CASE AND IN LAW THE LD. CIT(A) ERRED IN CONFIRMING THE LD. AOS ACTION IN R EDUCING 90% OF THE OTHER INCOME OF RS.1,16,34,773/- COMPRISING OF DUTY DRAW BACK, S UNDRY BALANCE WRITTEN OFF, COMPENSATION RECEIVED AND MISCELLANEOUS INCOME FRO M THE PROFIT OF THE BUSINESS FOR THE PURPOSE OF COMPUTING DEDUCTION U/S.80 HHF. 2. THE APPELLANT CRAVE LEAVES TO ADD, AMEND, ALTER , MODIFY AND OR WITHDRAW ANY OF THE ABOVE GROUNDS OF APPEAL. 2. AT THE TIME OF HEARING LD. AR DID NOT PRESS GROU ND NO.3 OF ASSESSEES APPEAL, THEREFORE, THE SAME IS DISMISSED AS NOT PRE SSED. 3. THE ASSESSEE IS ELIGIBLE FOR GRANT OF DEDUCTION UNDER SECTION 80HHF OF THE INCOME TAX ACT, 1961(THE ACT). HOWEVER, WHILE COMP UTING THE QUANTUM OF DEDUCTION THE AO REDUCED 90% OF THE FOLLOWING RECEI PTS ON THE GROUND THAT ITA NO.809 & 919/MUM/2010 : ASST.YEAR 2004-05 3 THESE RECEIPTS FALL WITHIN THE SCOPE OF SUB-CLAUSE( A) OF CLAUSE (F) OF EXPLANATION TO SECTION 80 HHF OF THE ACT. DUTY DRAW BACK RS. 7,85,924/- SUNDRY BALANCES WRITTEN BACK RS. 35,52,880/- MISCELLANEOUS INCOME RS. 50,40,378/- TOTAL RS. 93,79,182/- ============== ACCORDING TO AO THE OPERATIVE WORD USED IN SECTION 80 HHF IS DERIVED, WHICH MEANS THAT THE DEDUCTION UNDER THIS SECTION IS AVAI LABLE WITH RESPECT TO INCOME, WHICH ASSESSEE DERIVES FROM THE BUSINESS OF EXPORT OUT OF INDIA OF THE SPECIFIED GOODS, SOFTWARE OR SOFTWARE RIGHT. ACCOR DING TO AO FOR ANY INCOME TO BE ELIGIBLE FOR DEDUCTION UNDER SECTION 80HHF, IT I S NECESSARY THAT IT HAS A DIRECT NEXUS WITH THE EXPORT BUSINESS SPECIFIED THE REIN AND IT HAS TO BE NECESSARILY DERIVED FROM SUCH EXPORT BY THE ASSESSE E. FINDING THAT THESE RECEIPTS ARE IN THE NATURE OF RECEIPTS MENTIONED I N SUB-CLAUSE(A) OF CLAUSE (F) OF EXPLANATION TO SECTION 80HHF WHICH ARE BROKERAGE, C OMMISSION, INTEREST, RENT, CHARGES OR ANY OTHER RECEIPTS OF SIMILAR NATURE, LD. AO HAS REDUCED 90% OF THESE RECEIPTS WHILE COMPUTING PROFIT UNDER SECTION 80HHF. 3.1 IT MAY BE MENTIONED HERE THAT SUNDRY BALANCES W RITTEN BACK AMOUNTING TO RS.35,52,880/- COMPRISES OF TWO AMOUNTS, ONE IS RS.33,32,056/- AND THE OTHER AMOUNT IS RS.2,51,269/-. THE SUM OF RS.2,51, 269/- IS SUBJECT MATTER OF GROUND NO.3, WHICH HAS NOT BEEN PRESSED BY THE ASSE SSEE. THE DETAILS OF OTHER AMOUNT OF RS.33,32,056/- AS GIVEN IN THE ORDE R PASSED BY LD. CIT(A) IS AS UNDER: THE BREAK UP OF COMPENSATION RECEIVED OF RS.33,32,0 65/- IS AS UNDER: S.NO. DESCRIPTION AMOUNT 1. SWAMI FILMS FOR SCENE OF FILM MOTHER INDIA AND ANDA AZ FOR DDI FOR ITS PROGRAMME YAADIN 14,000 2. SAI SAPPRU CREATIONS RECEIVED AGAINST THE REQLINQUI SHMENT OF SATELLITE AND PAY TV RIGHTS OF FILM PRATIGYA 1,25,000 3. PAR 4 FILMS FOR TELECAST OF FILM SAILAAB ON 05-0 7-2003 ON DD METRO CHANNEL. 1,20,000 4. CINEMATT PICTURES 50% SHARE OF ASSIGNMENT OF ALL IN DIA TERRESTRIAL TELECAST RIGHTS OF FILM SARFAROSH FOR DELHI *LPTS (HINDI BEST) CHANNEL FOR ONE TELECAST ONLY WITHIN A PERIOD OF ONE 35,915 ITA NO.809 & 919/MUM/2010 : ASST.YEAR 2004-05 4 YEAR FROM THE DATE OF AGREEMENT. 5. INDIAN OVERSEAS BANK A/C. 1172 GOVT. OF MAHARSHTRA PAY & ACCOUNTS OFFICER COURT REFUND. 39,915 6. CINEMATT PICTURES FILMS RIGHTS SARFAROSH 28,72,9 50 7. CINEMATT PICTURES 30% SHARE OF RS.9,00,000/- FOR SA RFAROSH RIGHTS IS ACCOUNTED 2,70,000 TOTAL 34,77,330 ------------- LESS: PRIYA SHINE COMPENSATION GIVEN ON THE TITLES OF DVDS AND VCSS SOLD DURING THE YEAR, WHICH WERE HAVING MANUFA CTURING DEFECT. 1,45,265 NET INCOME CREDITED UNDER THE HEAD COMPENSATION 33 ,32,065 3.2 IT MAY FURTHER BE MENTIONED THAT DETAIL OF MISC ELLANEOUS INCOME OF RS.50,40,378/- IS ALSO DESCRIBED IN THE ORDER PASSE D BY LD. CIT(A) AND READ AS UNDER: COMPENSATION 33,32,065 INSURANCE CLAIM 1,71,739 MISCELLANEOUS INCOME 15,36,574 TOTAL 50,43,378 (TOTAL HAS BEEN WRONGLY MENTIONED. ACTUALLY IT IS 50,40,378/-) 3.3 FURTHER, DETAILS OF RS.15,36,574/- IS AS UNDER: FURTHER DETAILS OF MISCELLANEOUS INCOME OF RS.15,36 ,574/- IS AS UNDER: S.NO. DESCRIPTION AMOUNT 1. INDIAN FILMS EXPORTERS ASSOCIATION TOWARDS REFUND O F ANTI PIRACY FUND 12,82,500 2. REFUND OF CENTRAL EXCISE DUTY ON GOODS EXPORTED 75,981 3. PRIYA SHINE CREDIT NOTE- SUNDRY BALANCES WRITTEN BACK 1,78,093 TOTAL 15,36,574 ITA NO.809 & 919/MUM/2010 : ASST.YEAR 2004-05 5 3.4 FOR THE SAKE OF COMPLETENESS, THE COMPUTATION OF DEDUCTION UNDER SECTION 80 HHF AS DONE BY THE AO AS PER ANNEXURE-A ATTACHED TO THE ASSESSMENT ORDER, IS ALSO REPRODUCED BELOW: ANNEXURE :A WORKING OF DEDUCTION U/S. 80 HHF 1. EXPORT TURNOVER (AS PER FORM NO.10 CCAI) RS.70,61,0 0,996 2. TOTAL TURNOVER RS. 79,51,81,036 ADD: SALES TAX ( AS DISCUSSED ABOVE) RS. 9,30,420 RS.79,61,11,456 PROFIT OF THE BUSINESS: PROFIT AS PER FORM NO.10CCAI R S.1,63,87,729 1. BAD DEBTS (PARA 40 RS. 34,373 2. LATE PAYMENT OF PF & ESIC(PARA 7) RS. 6,35,755 3. WEBSITE DEVELOPMENT (PARA 8) RS. 2,19,854 4. COMPUTER SOFTWARE (PARA-9) RS. 19,408 5. INTEREST ON SERVICE TAX (PARA-10) RS. 1,75,002 6. DISALLOWANCE U/S.14A(PARA-12) RS. 20,000 RS. 11,04 ,392 RS.1,74,92,121 LESS: INTEREST RECEIVED ON BANK DEPOSITS RS. 17,53,796 RS.1,57,38,325 LESS: 90% OF OTHER INCOME (AS DISCUSSED IN PARA 5) DUTY DRAW BACK RS. 7,85,924 SUNDRY BALANCE WRITTEN BACK RS. 35,52,880 MISCELLANEOUS INCOME RS. 52,56,657 (50,40,378 + 2,16,279) COMPENSATION RECEIVED RS. 33,32,065/- RS.1,16,34,773 PROFIT OF THE BUSINESS RS. 41,03,552 DEDUCTION U/S.80HHF + 30% OF PROFIT X EXP ORT TURNOVER TOTAL TURNOVER. = 30 % OF 41,03,552 X 70,61,00,996 79,61,11,456 = 30% OF RS. 36,39,594/- = RS. 10,91,878/- 3.5 THE AFOREMENTIONED EXCLUSION OF 90% OF RECEIPTS WAS CHALLENGED IN AN APPEAL FILED BEFORE LD. CIT(A). IT WAS SUBMITTED T HAT AO HAS COMMITTED AN ERROR IN EXCLUDING 90% OF THE AFOREMENTIONED RECEIPTS AS THEY DO NOT FALL WITHIN THE SCOPE OF SUB-CLAUSE(A) OF CLAUSE (F) OF EXPLANATION TO SECTION 80 HHF. RELIANCE WAS PLACED ON VARIOUS DECISIONS TO CONTEND THAT SUC H ACTION OF THE AO WAS ITA NO.809 & 919/MUM/2010 : ASST.YEAR 2004-05 6 AGAINST THE LAW. HOWEVER, LD. CIT(A) HAS UPHELD TH E ACTION OF THE AO WITH THE FOLLOWING OBSERVATIONS: 6. I HAVE CAREFULLY CONSIDERED THE ASSESSMENT ORD ER AND THE WRITTEN SUBMISSION FILED DURING THE ASSESSMENT PROCEEDINGS. THE APPELLANT HAS MADE A PAINSTAKING EFFORT TO HIGHLIGHT THAT ALL THE JUDGEMENTS CITED BY THE AO RELATE TO DEDUCTION SECTION OTHER THAN 80HHF. CONSEQUENTLY, IT IS CLAIMED THAT THEY DO NOT APPLY IN ITS CASE. THIS A RGUMENT OR REASONING IS DEVOID OF MERITS. THE RATIO OF ALL THE DECISIONS C ITED BY THE AO WOULD APPLY AS THEY LAY DOWN THE GROUND RULES AND ENSURE THAT O NLY THOSE INCOMES WHICH ARE DIRECTLY LINKED TO EXPORTS GET ELIGIBLE F OR DEDUCTION. ALL THE RECEIPTS CITED BY THE APPELLANT HAVE AN ELEMENT OF TURNOVER AND CAN BE ASSESSED UNDER BUSINESS HEAD BUT THEY DO NOT IPSO F ACTO QUALIFY FOR DEDUCTION. MORE SO WHEN THE SPECIFIC PROVISIONS PROHIBIT INCLU DING ALL THE RECEIPTS OF THESE NATURE. FINALLY IN THE RECENT DE CISION OF THE SUPREME COURT IN LIBERTY INDIA, IT HAS BEEN HELD THAT DEDUC TION SECTIONS LIKE THIS ONE ARE A CODE BY THEMSELVES AS THEY CONTAIN BOTH SUBST ANTIVE AS WELL AS PROCEDURAL PROVISIONS. THE WORK DERIVED FROM IS NARROWER IN CONNOTATION AS COMPARED TO THE WORDS ATTRIBUTABLE TO. BY USI NG THE EXPRESSION DERIVED FROM PARLIAMENT INTENDED TO COVER SOURCES N OT BEYOND THE FIRST DEGREE. ON THE FACTS OF THE PRESENT CASE, THE DUTY DRAWBACK, SUNDRY BALANCES WRITTEN OFF, COMPENSATION RECEIVED AND MIS CELLANEOUS INCOME DO NOT QUALIFY TO BE SOURCES OF THE FIRST DEGREE. AS SUCH THE ACTION OF THE AO IS UPHELD AND THIS GROUND IS DISMISSED. (EMPHASIS OURS) 3.6 IT CAN BE SEEN FROM THE AFOREMENTIONED OBSERVAT IONS OF LD. CIT(A) THAT HE HAS ADMITTED THAT ALL THE RECEIPTS CITED BY THE ASS ESSEE HAVE AN ELEMENT OF TURNOVER AND CAN BE ASSESSED UNDER THE BUSINESS HEA D BUT THEY DO NOT IPSO FACTO QUALIFY THE DEDUCTION. IT IS IN THIS MANNER LD. C IT(A) HAS UPHELD THE ACTION OF AO. THE ASSESSEE IS AGGRIEVED AND, HENC E, HAS RAISED GROUND NO.1 & 2. 4. AFTER NARRATING THE FACTS, IT WAS SUBMITTED BY L D. AR THAT THE RECEIPTS, OF WHICH 90% HAS BEEN REDUCED BY THE AO, ARE PERTAININ G TO BUSINESS OF THE ASSESSEE WHICH HAS BEEN HELD TO BE ELIGIBLE FOR DED UCTION UNDER SECTION 80HHF BY THE AO HIMSELF. HE, THEREFORE, SUBMITTED THAT I T IS NOT DISPUTED THAT BUSINESS OF THE ASSESSEE IS ENTITLED FOR DEDUCTION UNDER SECTION 80HHF OF THE ACT. LD. AR REFERRED TO THE DECISION OF ITAT IN TH E CASE OF ACIT VS. STAR INDIA PVT. LTD., 117 ITD 319 TO CONTEND THAT THE PROVISIO NS OF SECTION 80 HHF ARE SIMILAR TO THE PROVISIONS CONTAINED IN SECTION 80HH C . THE ONLY DIFFERENCE IS THAT FOR THE PURPOSE OF SECTION 80HHC, 90% OF THE S UM REFERRED TO IN CLAUSES ITA NO.809 & 919/MUM/2010 : ASST.YEAR 2004-05 7 (IIIA) TO (IIIE) OF SECTION 28 HAS ALSO TO BE EXCLU DED FROM THE PROFITS OF THE BUSINESS WHILE SUCH AMOUNT IS NOT REQUIRED TO BE DE DUCTED IN COMPUTING PROFITS OF BUSINESS UNDER SECTION 80 HHF. IN THIS REGARD HE HAS REFERRED TO THE FOLLOWING OBSERVATIONS: 11. A COMPARISON OF THE ABOVE PROVISIONS CLEARLY S HOWS THAT THE LANGUAGE IN BOTH THE SECTIONS IS ALMOST SIMILAR AS FAR AS COMPUTATIO N OF ELIGIBLE PROFITS OF BUSINESS IS CONCERNED. UNDER BOTH THE PROVISIONS, THE DEDUCT ION IS AVAILABLE IN RESPECT OF THE PROFITS DERIVED FROM THE BUSINESS SPECIFIED IN SUB-SECTION (1), I.E., PROFITS DERIVED BY THE ASSESSEE FROM THE BUSINESS OF EXPORT OF GOODS OR MERCHANDISE (SECTION 80HHC), PROFITS DERIVED FROM THE BUSINESS OF EXPORT OF ANY FILM SOFTWARE, TELEVISION SOFTWARE, MUSIC SOFTWARE, TELEVISION NEW S SOFTWARE, INCLUDING TELECAST RIGHTS (SECTION 80HHF). SUB-SECTION (3) OF BOTH THE PROVISIONS DEFINES PROFITS DERIVED FROM SUCH BUSINESS. SUB-SECTION (3) UNDER B OTH THE SECTIONS REFERS TO PROFITS OF BUSINESS WHICH HAS BEEN FURTHER DEFINE D IN EXPLANATION (BAA) OF SECTION 80HHC AND EXPLANATION (F) OF SECTION 80HHF IN THE S IMILAR MANNER. THE ONLY DIFFERENCE IS THAT FOR THE PURPOSE OF SECTION 80HHC , 90 PER CENT OF SUM REFERRED TO IN CLAUSES (IIIA) TO (IIIE) OF SECTION 28 HAS ALSO TO BE EXCLUDED FROM THE PROFITS OF BUSINESS WHILE SUCH AMOUNT IS NOT REQUIRED TO BE DE DUCTED IN COMPUTING THE PROFITS OF BUSINESS UNDER SECTION 80HHF. (EMPHASIS OURS) 4.1 HE SUBMITTED THAT CLAUSES (IIIA) TO (IIIE) O F SECTION 28 INTER-ALIA INCLUDE DEPB BENEFITS. THEREFORE, HE SUBMITTED THAT RECEI PTS OF DEPB CANNOT BE EXCLUDED AS THEY DO NOT FIND MENTION IN SUB-CLAUSE( A) OF CLAUSE (F) OF EXPLANATION TO SECTION 80HHF. HE FURTHER, REFERRED TO THE AFOREMENTIONED DECISION IN THE CASE OF ACIT VS. STAR INDIA PVT. L TD. (SUPRA), WHEREIN AFTER CONSIDERING EXPLANATION- (C) TO SECTION 80HHF, IT WAS OBSERVED THAT THE AMOUNT OF INCOME EARNED IN RESPECT OF SOFTWARE RIGHTS WOU LD HAVE TO BE TREATED AS TURNOVER. THE PURPOSE BEHIND PRODUCTION OF SUCH SO FTWARE IS TO VIEW/EXHIBIT PROGRAMMES CONTAINED THEREIN. CONSEQUENTLY, RIGHT TO EXHIBIT SUCH PROGRAMMES WOULD CERTAINLY FALL WITHIN THE SCOPE OF SOFTWARE RIGHTS. HE CONTENDED THAT WHILE DECIDING THAT THE RECEIPTS OF THE ASSESSEE IN THE SHAPE OF CABLE SUBSCRIPTION WERE ELIGIBLE FOR DEDUCTION UND ER SECTION 80 HHF THE TRIBUNAL HAS CONSIDERED THE DECISION OF HONBLE SUP REME COURT IN THE CASE OF CIT VS. A. RAVINDRANATHAN NAIR, 295 ITR 228 AND ALS O THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. BANGALORE CLOTHING CO. 260 ITR 371(BOM) AND HELD THAT THE RECEIPTS FROM INDEPEN DENT ACTIVITY IF FOUND PART OF PROFITS OF THE BUSINESS HAS TO BE CONSIDE RED PART OF THE TOTAL TURNOVER. ITA NO.809 & 919/MUM/2010 : ASST.YEAR 2004-05 8 THUS, IT WAS HELD THAT THE INCOME EARNED BY THE ASS ESSEE FROM CABLE OPERATION WAS OPERATIONAL INCOME AND WOULD FORM PART OF TOTA L TURNOVER. CONSEQUENTLY NO PART OF IT CAN BE EXCLUDED FROM THE PROFITS OF T HE BUSINESS. REFERENCE WAS MADE TO THE FOLLOWING OBSERVATIONS: 45. IN THE CASE OF RAVINDRANATHAN NAIR (SUPRA), TH E SCOPE OF EXPLANATION (BAA) SECTION 80HHC WAS NOT BEFORE THE COURT. THE ONLY QU ESTION REFERRED TO THE COURT FOR ITS OPINION WAS WHETHER LABOUR CHARGES RECEIVED BY THE ASSESSEE ON ACCOUNT OF JOB WORK COULD BE TREATED AS PART OF TOTAL TURNOVER . THE ISSUE WHETHER 90 PER CENT OF SUCH LABOUR CHARGES COULD BE EXCLUDED FROM THE P ROFITS OF BUSINESS IN TERMS OF EXPLANATION (BAA) WAS NEITHER BEFORE THE COURT NOR ANY ARGUMENT WAS ADVANCED ON THIS ASPECT OF THE MATTER BY EITHER OF THE PARTI ES. THEREFORE, THIS DECISION CANNOT BE SAID TO BE A PRECEDENT FOR THE PROPOSITION THAT IN CASE OF AN INDEPENDENT ACTIVITY INVOLVING ELEMENT OF TURNOVER, 90 PER CENT OF THE RECEIPTS SHOULD BE EXCLUDED FROM THE PROFITS OF BUSINESS. THIS DECISIO N IS A PRECEDENT ONLY FOR THE PROPOSITION THAT IN SUCH CASE THE RECEIPT WOULD FOR M PART OF TOTAL TURNOVER IN TERMS OF SECTION 80HHC(3) OF THE ACT. 46. FOR THE REASONS GIVEN IN THE PRECEDING PARA, WE ARE ALSO UNABLE TO ACCEPT THE CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE JUDGMENT OF HON. BOMBAY HIGH COURT IN THE CASE OF BANGALORE CLOTHING CO. (SUPRA) HAS BEEN APPROVED BY THE HON. SUPREME COURT IN THE CASE OF B ABY MARINE EXPORTS (SUPRA). IN THAT CASE ALSO, THE SUPREME COURT WAS NOT CONCER NED WITH THE SCOPE OF EXPLANATION (BAA) TO SECTION 80HHC. THE QUESTION BE FORE THE COURT WAS WHETHER THE EXPORT INCENTIVES RECEIVED BY THE SUPPORTING MA NUFACTURER FROM THE EXPORT HOUSE COULD BE CONSIDERED AS PART OF THE SALE PROCE EDS FOR CLAIMING DEDUCTION UNDER SECTION 80HHC. THE CONTENTION OF THE REVENUE WAS THAT EXPORT INCENTIVE WAS RECEIVED INDEPENDENTLY IN INDIAN CURRENCY WITHO UT HAVING ANY LINK OR NEXUS WITH ANY FOREIGN EARNING AND THEREFORE THE SAME COU LD NOT BE CONSIDERED AS PART OF THE SALE PROCEEDS. CONSEQUENTLY, DEDUCTION UNDER SECTION 80HHC(IA) COULD NOT BE ALLOWED. ON THE OTHER HAND, THE CONTENTION OF TH E ASSESSEE WAS THAT UNDER THE CONTRACT BETWEEN THE ASSESSEE AND THE EXPORT HOUSE, THE ASSESSEE WAS ENTITLED TO RECEIVE THE EXPORT INCENTIVES AS PART OF SALE CONSI DERATION AND THEREFORE, IT WAS ENTITLED TO DEDUCTION IN RESPECT OF SUCH AMOUNT. TH OUGH THE JUDGMENT OF BOMBAY HIGH COURT IN THE CASE OF BANGALORE CLOTHING CO. (S UPRA) WAS REFERRED TO BY THE LEARNED COUNSEL FOR THE ASSESSEE BUT THE SAID JUDGM ENT DOES NOT FIND ANY PLACE IN THE OPERATIVE PART OF THE JUDGMENT OF THE APEX COUR T. THE ENTIRE OPERATIVE PART OF THE JUDGMENT RELATED TO THE INTERPRETATION OF SECTI ON 80HHC(1A). AFTER INTERPRETING THE SAID PROVISIONS, THE COURT HELD THAT THE TRIBUN AL WAS JUSTIFIED IN HOLDING THAT EXPORT INCENTIVE WAS INTEGRAL PART OF SALE PRICE RE ALISED BY THE ASSESSEE. THEREFORE, IT CANNOT BE SAID THAT THE SAID JUDGMENT OF THE BOMBAY HIGH COURT STANDS APPROVED BY THE APEX COURT. 47. IN VIEW OF THE ABOVE DISCUSSION, IT HAS TO BE H ELD THAT THERE IS NO JUDGMENT OF THE APEX COURT ON THE SCOPE OF EXPLANATION (BAA) TO SECTION 80HHC. HOWEVER, WE FIND MERIT IN THE CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE SCOPE OF THE ABOVE EXPLANATION WAS CONSIDERED BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF BANGALORE CLOTHING CO. (SUPRA). IN THAT CAS E, THE ASSESSEE WAS EXPORTING GARMENTS MANUFACTURED BY IT IN ITS OWN FACTORY. IN ADDITION, THE ASSESSEE WAS ALSO DOING THE SAME WORK ON JOB-WORK BASIS FOR OTHE R PARTIES. THE JOB-WORK ITA NO.809 & 919/MUM/2010 : ASST.YEAR 2004-05 9 CHARGES FORMED PART OF THE BUSINESS PROFITS COMPUTE D UNDER THE HEAD PROFITS AND GAINS FROM BUSINESS AND PROFESSION. THE QUESTION B EFORE THE COURT WAS WHETHER 90 PER CENT OF JOB CHARGES COULD BE EXCLUDED FROM T HE PROFITS OF BUSINESS IN TERMS OF EXPLANATION (BAA) TO SECTION 80HHC. THE HONBLE COURT HELD THAT ACTIVITY OF MANUFACTURING RESULTED IN OPERATIONAL INCOME IRRESP ECTIVE OF THE FACT WHETHER GOODS WERE MANUFACTURED OF ITS OWN OR ON JOB-WORK B ASIS. IT WAS ALSO HELD THAT IN CASE OF OPERATIONAL INCOME, JOB CHARGES WOULD FORM PART OF TOTAL TURNOVER AS WELL AS PROFITS OF BUSINESS. THE COURT FURTHER HELD THAT IN SUCH CASES, WHERE ELEMENT OF TURNOVER WAS INVOLVED, 90 PER CENT OF JOB CHARGES C OULD NOT BE EXCLUDED FROM THE PROFITS OF BUSINESS. THEREFORE, THIS JUDGMENT IS A PRECEDENT FOR THE PROPOSITION THAT WHERE A BUSINESS ACTIVITY CARRIED ON BY THE ASSESSE E RESULTS IN OPERATIONAL INCOME THEN SUCH RECEIPTS WOULD FORM PART OF THE TOTAL TUR NOVER AND CONSEQUENTLY, NO PART OF IT COULD BE EXCLUDED FROM THE PROFITS OF BUSINES S COMPUTED UNDER THE HEAD PROFITS AND GAINS FROM BUSINESS AND PROFESSION IN TERMS OF THE EXPLANATION (BAA) TO SECTION 80HHC. THIS DECISION CLEARLY FORTI FIES THE VIEW TAKEN BY US. 48. IN VIEW OF THE ABOVE DISCUSSION, THE ORDER OF T HE CIT(A) IS UPHELD ON THE ISSUE DISCUSSED ABOVE. THIS WOULD DISPOSE OF GROUND NO. 2 RAISED BY THE REVENUE. 4.2 REFERRING TO ABOVE CONTENTIONS AND THE DETAILS DESCRIBED ABOVE HE SUBMITTED THAT AMOUNT OF RS.33,32,065/- RELATED TO BUSINESS OF THE ASSESSEE OF EXHIBITION AND TELECAST OF FILMS AND PROGRAMMES , THEREFORE, HE PLEADED THAT NO PART OF THE AFORESAID RECEIPTS CAN BE REDUCED BY RELYING UPON SUB-CLAUSE(A) OF CLAUSE (F) OF EXPLANATION TO SECTION 80 HHF. 4.3 COMING TO THE MISCELLANEOUS INCOME OF RS. 15,36 ,574/-, LD. AR SUBMITTED THAT THE AMOUNT OF RS.12,82,500/- RELATE S TO REFUND OF ANTI PIRACY FUND RECEIVED FROM INDIAN FILM EXPORT ASSOCIATION A ND A SUM OF RS.1,78,093/- WAS WRITTEN BACK BY WAY OF CREDIT NOTE TO PRIYA SHI NE. HE SUBMITTED THAT THESE ARE ALSO RECEIPTS CONCERNING WITH THE BUSINESS ACT IVITY OF THE ASSESSEE AND DO NOT FALL WITHIN THE SCOPE OF SUB-CLAUSE(A) OF CLAUS E (F) OF EXPLANATION TO SECTION 80 HHF. HE IN THIS REGARD REFERRED TO THE DECISION OF ITAT IN THE CASE OF EXTRUSION PROCESS PVT. LTD. VS. ITO 106 ITD 336, WH EREIN IT HAS BEEN HELD THAT PROFITS CHARGEABLE TO TAX UNDER SECTION 41(1) ARE P ROFITS OF THE BUSINESS FOR THE PURPOSE OF COMPUTING DEDUCTION UNDER SECTION 80HHC. IT WAS HELD THAT SECTION 41(1) PROVIDES FOR TREATING THE ASSESSMENT OF LIABILITY AS INCOME, PROVIDED THOSE LIABILITIES WERE CLAIMED AS DEDUCTIO N IN COMPUTING THE TAXABLE INCOME FOR EARLIER ASSESSMENT YEARS. IT SHOWS THAT SECTION 41(1) IS NOT CREATING ANY INCOME AS SUCH INDEPENDENTLY WITHOUT ANY BASIS. ON THE OTHER HAND, THE INCOME IS CREATED UNDER SECTION 41(1) ON THE GROUND THAT THE CORRESPONDING ITA NO.809 & 919/MUM/2010 : ASST.YEAR 2004-05 10 AMOUNTS WERE CLAIMED AS DEDUCTION IN THE EARLIER AS SESSMENT YEARS. THE PROFITS AND GAINS OF THE ASSESSEE WERE REDUCED TO T HAT EXTENT IN THE EARLIER ASSESSMENT YEARS. WHEN THOSE LIABILITIES CEASED TO EXIST, IT IS VERY NECESSARY TO WRITE BACK THE LIABILITIES AS A RESULT OF WHICH THE AMOUNTS NEEDS TO BE OFFERED AS INCOME IN THE ACCOUNTS UNDER SECTION 41( 1). THUS, IT WAS HELD THAT THERE WAS NO FORCE IN THE ARGUMENTS OF THE REVENUE THAT THE INCOME DEEMED UNDER SECTION 41(1) STANDS ALONE DIFFERENTLY AND DI STINCTLY FROM THE COMPUTATION OF BUSINESS INCOME OF AN ASSESSEE PROVI DED UNDER THE PROVISIONS OF LAW CONTAINED IN SECTION 28 TO 43C. THUS, IT WA S HELD THAT 90% OF THE AMOUNT WRITTEN BACK COULD NOT BE EXCLUDED AS PER EX PLANATION (BAA) TO SECTION 80HHC. 4.4 SO FAR AS IT RELATES TO REFUND OF CENTRAL EXCIS E DUTY ON EXPORT, HE SUBMITTED THAT IT IS ALSO INCOME RELATING TO EXPORT AND ASSESSABLE UNDER SECTION 41(1) OF THE ACT, THEREFORE, COVERED BY AFOREMENTIO NED DECISION OF TRIBUNAL IN THE CASE OF EXTRUSION PROCESS PVT. LTD. VS. ITO (SU PRA). 5. APROPOS GROUND NO.2, LD. AR SUBMITTED THAT AMOU NT OF RS.33,32,065/- WAS PART AND PARCEL OF AMOUNT OF RS.35,52,880/- ADD ED BY THE AO BY NARRATING SUNDRY BALANCES WRITTEN BACK AND AGAIN THE SAME A MOUNT WAS ADDED BEING PART OF MISCELLANEOUS INCOME OF RS.50,40,378/-. T HUS, HE PLEADED THAT THE SAID AMOUNT OF RS.33,32,065/- HAS BEEN CONSIDERED T WICE FOR COMPUTING INCOME FALLING WITHIN THE SCOPE OF SUB-CLAUSE(A) O F CLAUSE (F) OF EXPLANATION TO SECTION 80HHF. HE SUBMITTED THAT IT IS CLEAR FROM THE DETAILS GIVEN BEFORE LD. CIT(A) AND, THEREFORE, THE SAID AMOUNT SHOULD BE E XCLUDED ON THE GROUND THAT IT HAS BEEN TAKEN TWICE BY THE AO. 6. ON THE OTHER HAND, RELYING UPON THE ASSESSMENT O RDER IT WAS SUBMITTED BY LD. DR THAT THE AO WAS RIGHT IN TAKING OTHER RE CEIPTS WITHIN THE SCOPE OF SUB-CLAUSE (A) OF CLAUSE (F) OF EXPLANATION TO SEC TION 80HHF. HE FURTHER SUBMITTED THAT LD. CIT(A) HAS ALSO UPHELD THE ACTI ON OF AO AND HIS ORDER SHOULD BE UPHELD. ITA NO.809 & 919/MUM/2010 : ASST.YEAR 2004-05 11 7. WE HAVE HEARD BOTH THE PARTIES AND THEIR CONTENT IONS HAVE CAREFULLY BEEN CONSIDERED. THE PROVISIONS OF SECTION 80 HHF HAVE BEEN CAREFULLY ANALYZED BY CO-ORDINATE BENCH IN THE CASE OF ACIT VS. STAR INDI A PVT. LTD. (SUPRA) AND AFTER CAREFUL CONSIDERATION THEY HAVE COME TO THE CONCLU SION THAT THE PROVISIONS OF SECTION 80HHF ARE SIMILAR TO THE PROVISIONS CONTAIN ED IN SECTION 80HHC SUBJECT TO THE DIFFERENCE THAT UNDER SECTION 80HHC , 90% OF THE SUM REFERRED TO IN CLAUSE(IIIA) TO (IIIE) AT SECTION 28 HAS ALSO TO BE EXCLUDED FROM THE PROFITS OF THE BUSINESS WHILE SUCH AMOUNT IS NOT REQUIRED TO B E DEDUCTED IN COMPUTING PROFITS OF BUSINESS UNDER SECTION 80HHF. THE RELEV ANT OBSERVATIONS HAVE ALREADY BEEN REPRODUCED ABOVE. PROVISIONS OF CLAU SE (IIIA) TO (IIIE) OF SECTION 28 INTER-ALIA INCLUDE DUTY DRAW BACK. THEREFORE, IN A BSENCE OF ANY EXPRESS PROVISION IN SECTION 80HHF DUTY DRAW BACK CANNOT BE EXCLUDED WITH REFERENCE TO SUB-CLAUSE(A) OF CLAUSE (F) OF EXPLANATION TO SE CTION 80HHF. 7.1 IN THE AFOREMENTIONED DECISION IT HAS ALSO BEEN ANALYSED THAT RECEIPTS WHICH ARE FROM INDEPENDENT ACTIVITY AND WHICH FOUND PART OF THE PROFIT OF THE BUSINESS ARE TO BE CONSIDERED AS PART OF THE T OTAL TURNOVER. BY HOLDING SO RELIANCE HAS BEEN PLACED BY THE CO-ORDINATE BENCH O N THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. K. RAVINDRANAT HAN NAIR (SUPRA) AND DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE O F CIT VS. BANGALORE CLOTHING COMPANY(SUPRA). IN THE CASE OF CIT VS. BA NGALORE CLOTHING COMPANY (SUPRA) IT HAS BEEN HELD THAT EXPLANATION (BAA) (WH ICH IS SIMILAR TO SUB-CLAUSE (A) OF CLAUSE (F) TO SECTION 80HHF EXCEPT THE DIFFE RENCE OF EXCLUSION OF RECEIPTS REFERRED IN CLAUSES (IIIA) TO (IIIE) OF SECTION 28) CANNOT BE INVOKED IN EVERY MATTER INVOLVING RECEIPTS BY WAY OF BROKERAGE, COMMISSION, INTEREST, RENT, LABOUR CHARGES, ETC. IT WAS OBSERVED THAT THESE ITEMS OF INCOME HAVE TO BE SEEN IN THE CONTEXT OF THE BUSINESS ACTIVITY OF THE ASSESSEE. IF RECEIPTS OF LABOUR CHARGES, INTEREST, COMMISSION, ETC. ACCRUES BY WAY OF OPERAT ING INCOME IT WILL FALL OUTSIDE THE SCOPE OF EXPLANATION (BAA). IT WAS FOUND THAT TRIBUNAL HAD RECORDED A FINDING THAT JOB WORK ACTIVITY OF THE ASSESSEE, REC EIPTS OF WHICH WAS EXCLUDED BY THE AO BY REFERRING TO EXPLANATION (BAA), WAS LINKE D TO THE MANUFACTURING ACTIVITY AND THERE WAS NO DIFFERENCE BETWEEN ACTIVI TIES RELATING TO THE EXPORT ITA NO.809 & 919/MUM/2010 : ASST.YEAR 2004-05 12 BUSINESS CARRIED ON BY THE ASSESSEE AND THE PROCESS CARRIED UNDER JOB WORK CONTRACT. THUS, IT WAS HELD THAT JOB WORK RECEIPT S ACCRUED FROM MANUFACTURING ACTIVITY AND 90% OF SUCH RECEIPTS COULD NOT BE EXCL UDED FROM BUSINESS PROFITS WHILE COMPUTED UNDER SECTION 80HHC OF THE ACT. IN THE LIGHT OF THESE OBSERVATIONS OF HONBLE BOMBAY HIGH COURT, WE HAVE TO CONSIDER THE NATURE OF RECEIPTS WHICH HAVE BEEN EXCLUDED BY THE AO FROM T HE ELIGIBLE PROFITS FOR THE PURPOSE OF DEDUCTION UNDER SECTION 80HHF. THE DETA ILS HAVE ALREADY BEEN DESCRIBED IN THE EARLIER PART OF THIS ORDER (PARA 3 .1 TO 3.3). 7.2 FIRST DETAIL IS GIVEN IN PARA 3.1, WHICH IS F OR SUM OF RS.33,32,065/-. IT CAN BE SEEN THAT ALL RECEIPTS OF THE ASSESSEE ARE R EGARDING TELECAST OF FILMS AND PROGRAMMES AND THUS, ALL THESE RECEIPTS RELATE TO B USINESS ACTIVITY OF THE ASSESSEE OF TELECASTING FILMS AND PROGRAMMES. THEY CANNOT BE TERMED TO BE RECEIPTS DISTINCT FROM THE ACTIVITY OF THE ASSESSEE OF TELECASTING THE FILMS AND PROGRAMMES. 7.3 IN PARA 3.2 DETAILS REGARDING RS.50,40,378/- ARE GIVEN WHICH COMPRISE ALSO OF AFOREMENTIONED AMOUNT OF RS.33,32,065/- AND APART FROM MISCELLANEOUS INCOME OF RS.15,36,574/- (WHICH WE SH ALL DEAL LATER ON) ANOTHER AMOUNT IS ONLY A SUM OF RS.1,71,739/- REPRESENTING INSURANCE CLAIM. THE INSURANCE CLAIM CANNOT BE RELATED TO BUSINESS ACTIV ITY OF THE ASSESSEE. THE SAME CANNOT BE CONSIDERED TO BE BUSINESS ACTIVITY O F THE ASSESSEE, THEREFORE, FALL WITHIN THE SCOPE OF THE SUB-CLAUSE (A) OF CLA USE (F) OF EXPLANATION TO 80HHF. 7.4 IN PARA 3.3 DETAILS OF RS.15,36,574/- IS GIVEN, OUT OF WHICH AMOUNT OF RS.12,82,500/- AND RS.1,78,093/- RELATE TO RECEIPTS FROM INDIAN FILMS EXPORT ASSOCIATION TOWARDS REFUND OF ANTI PIRACY FUNDS AND PRIYA SHINE CREDIT NOTE RESPECTIVELY. THESE AMOUNTS ARE ALSO RECEIVED BY T HE ASSESSEE AS AMOUNT WRITTEN BACK AND COVERED BY THE DECISION OF ITAT IN THE CASE OF EXTRUSION PROCESS PVT. LTD. VS. ITO (SUPRA). REFUND OF CENT RAL EXCISE DUTY AMOUNTING TO RS.75,981/- ALSO CANNOT BE EXCLUDED AS THE SAME IS NOT IN THE NATURE OF ITEMS DESCRIBED IN SUB-CLAUSE (A) OF CLAUSE (F) OF EXPLAN ATION TO SECTION 80HHF. THEREFORE, APPLYING THE RATIO OF HONBLE BOMBAY HIG H COURT IN THE CASE OF CIT ITA NO.809 & 919/MUM/2010 : ASST.YEAR 2004-05 13 VS. BANGALORE CLOTHING COMPANY(SUPRA) IT IS HELD TH AT AMOUNT OF RS.7,85,924/- BEING DUTY DRAWBACK; AMOUNT OF RS.33,32,065/- BE ING RECEIPTS IN THE NATURE OF OPERATING INCOME AND AMOUNT OF RS.15,36,5 74/- BEING PART OF MISCELLANEOUS INCOME RELATING TO RECEIPT OF THE ASS ESSEE FROM INDIAN FILM EXPORT ASSOCIATION, REFUND OF CENTRAL EXCISE DUTY A ND CREDIT NOTE OF PRIYA SHINE DO NOT FALL WITHIN THE AMBIT OF SUB-CLAUSE( A) OF CLAUSE(F) OF EXPLANATION TO SECTION 80HHF. THESE AMOUNTS ARE HELD NOT TO B E EXCLUDIBLE FROM THE COMPUTATION OF DEDUCTION UNDER SECTION 80HHF. THE AO MAY RECOMPUTED THE DEDUCTION UNDER SECTION 80HHF ACCORDINGLY. 7.5 SO FAR AS IT RELATES TO GROUND NO.2 OF THE ASSE SSEES APPEAL, WE FOUND THAT THE AMOUNT OF RS.33,32,065/- HAS BEEN ADDED TWICE BY THE AO. HOWEVER, THIS ISSUE IS RESTORED BACK TO THE FILE OF AO FOR VERIFI CATION OF THE CONTENTION OF THE ASSESSEE AND IF THE SAID AMOUNT IS TAKEN TWICE BY THE AO WHILE COMPUTING THE TOTAL AMOUNT AT RS.93,79,182/- AS DESCRIBED IN PARA 5.4 OF THE ASSESSMENT ORDER THEN THE SAID AMOUNT SHOULD BE EXCLUDED AS THE SAME CANNOT BE CONSIDERED TWICE BY THE A.O. IT MAY BE MENTIONED H ERE THAT WE HAVE ALREADY HELD THAT THE SAID AMOUNT OF RS.33,32,065/- IS OPER ATIONAL INCOME AND NO PART OF IT CAN BE EXCLUDED UNDER SUB-CLAUSE (A) CLAUSE (F) OF EXPLANATION TO SECTION 80HHF. 7.5 IN VIEW OF ABOVE DISCUSSIONS, GROUND NO.1 OF TH E ASSESSEES APPEAL IS PARTLY ALLOWED AND GROUND NO.2 IS ALLOWED FOR STATI STICAL PURPOSES. GROUND NO.3 IS DISMISSED BEING NOT PRESSED. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED IN THE MANNER AFORESAID. REVENUES APPEAL IN ITA NO.919/MUM/2010: 9. APROPOS GROUND NO.1, THE INTEREST EARNED BY THE ASSESSEE ON BANK DEPOSITS AMOUNTING TO RS.17,53,796/- WAS TREATED BY THE AO AS INCOME FROM OTHER SOURCES. BEFORE LD. CIT(A) IT WAS CLAIMED TH AT THE SAID AMOUNTS COULD NOT BE ASSESSED AS INCOME FROM OTHER SOURCES AS FDR WERE KEPT AS MARGIN ITA NO.809 & 919/MUM/2010 : ASST.YEAR 2004-05 14 MONEY FOR SECURING EXPORT PAYMENTS. IT WAS SUBMITT ED THAT 100 PROFIT OF THE ASSESSEE IS ELIGIBLE FOR DEDUCTION UNDER SECTION 80 HHF. IT WAS ALTERNATIVE CONTENTION OF THE ASSESSEE THAT ASSESSEE HAS INCURR ED INTEREST EXPENDITURE AMOUNTING TO RS.3,40,39,517/- ON BORROWED CAPITAL A ND THUS, THERE IS NET INTEREST EXPENDITURE OF RS.3,22,85,721/-. IT WAS S UBMITTED THAT THE INTEREST INCOME OF THE ASSESSEE HAS DIRECT NEXUS WITH THE IN TEREST EXPENDITURE, THEREFORE, SUCH INTEREST INCOME SHOULD BE SET OFF A GAINST INTEREST EXPENDITURE. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE A ND RELYING UPON THE DECISION OF SPECIAL BENCH OF ITAT IN THE CASE OF LALSON ENTE RPRISES, 89 ITD 25 (DEL) (SB), LD. CIT(A) HAS HELD THAT INTEREST INCOME IS TO BE ASSESSED AS BUSINESS INCOME AND SUCH INTEREST INCOME IS REQUIRED TO BE SET OFF AGAINST INTEREST EXPENDITURE AND NO PART OF INTEREST INCOME CAN BE REDUCED FROM THE PROFITS OF THE BUSINESS. 10. AFTER NARRATING THE FACTS, LD. DR RELIED UPON T HE ORDER PASSED BY AO AND SUBMITTED THAT THE AO WAS RIGHT IN TREATING THE INC OME EARNED BY THE ASSESSEE FROM BANK DEPOSITS AS INCOME FROM OTHER SOURCES. T HUS, HE PLEADED THAT LD. CIT(A) HAS WRONGLY GRANTED RELIEF TO THE ASSESSEE A ND HIS ORDER SHOULD BE SET ASIDE AND THAT OF AO BE RESTORED. 11. ON THE OTHER HAND, IT WAS SUBMITTED BY LD. AR T HAT LD. CIT(A) HAS RIGHTLY GRANTED RELIEF TO THE ASSESSEE. HE SUBMITTED THAT WHAT LD. CIT(A) HAS DONE IS NETTING OF THE INTEREST INCOME WITH THE INTEREST PA ID AND THIS PRINCIPLE HAS BEEN APPROVED BY HONBLE SUPREME COURT IN THE CASE OF AC G ASSOCIATED CAPSULES VS. CIT, 247 CTR (SC) 372, WHEREIN IT HAS BEEN HELD THAT 90% OF THE NET INTEREST OR NET RENT WHICH HAS BEEN INCLUDED IN THE PROFITS OF THE ASSESSEE AS COMPUTED UNDER THE HEAD PROFITS AND GAINS OF BUSIN ESS OR PROFESSION AND NOT THE GROSS INTEREST OR GROSS RENT, IS TO BE DEDUCTED UNDER CLAUSE (I) OF EXPLANATION (BAA) TO SECTION 80 HHC FOR DETERMINING THE PROFITS OF THE BUSINESS. 12. WE HAVE HEARD BOTH THE PARTIES AND THEIR CONTEN TIONS HAVE CAREFULLY BEEN CONSIDERED. IT HAS BEEN THE CONTENTION OF THE ASSE SSEE THAT FDRS WERE KEPT AS MARGIN MONEY FOR SECURING EXPORT PAYMENT. THIS CON TENTION OF THE ASSESSEE HAS NOT BEEN DISPUTED . THE FACT THAT ASSESSEE HAD INCURRED INTEREST ITA NO.809 & 919/MUM/2010 : ASST.YEAR 2004-05 15 EXPENDITURE OF RS.3,40,39,517/- ON BORROWED CAPITA L IS ALSO NOT DISPUTED. THEREFORE, WE FIND NO INFIRMITY IN THE ORDER OF LD . CIT(A) VIDE WHICH IT HAS BEEN HELD THAT THE INTEREST EARNED BY THE ASSESSEE ON FD R COULD NOT BE SEPARATELY ASSESSED AS INCOME FROM OTHER SOURCES. WE DECLINE TO INTERFERE AND THIS GROUND OF THE REVENUE IS DISMISSED. 13. APROPOS GROUND NO.2, AS IT CAN BE SEEN FROM THE GROUNDS OF APPEAL FILED BY THE REVENUE, THE RELEVANT PAYMENTS HAVE BEEN M ADE BY THE ASSESSEE WITHIN GRACE PERIOD AND THIS FINDING OF LD. CIT(A) HAS NOT BEEN DISPUTED THAT THE PAYMENTS HAVE BEEN MADE WITHIN GRACE PERIOD. A CCORDING TO SUBSEQUENT DECISION OF HONBLE SUPREME COURT IN THE CASE OF CI T VS. ALOM EXTRUSIONS LTD., 319 ITR 306, IT HAS BEEN HELD THAT OMISSION OF SECO ND PROVISO TO SECTION 43B AND THE AMENDMENT OF FIRST PROVISO BY FINANCE ACT, 2003, BRINGING ABOUT UNIFORMITY IN PAYMENT OF TAX, DUTY, CESS AND FEE ON ONE HAND AND CONTRIBUTION OF EMPLOYEES WELFARE FUND ON THE OTHER ARE CURATIVE IN NATURE AND THUS EFFECTIVE RETROSPECTIVELY I.E. W.E.F. 1/4/1988 I.E. THE DATE OF INSERTION OF FIRST PROVISO. THUS, ACCORDING TO THE SAID DECISION IF PAYMENTS AR E MADE BEFORE DUE DATE OF FILING THE RETURN THEN DISALLOWANCE CANNOT BE MADE. IN THE PRESENT CASE ASSESSEE HAS MADE PAYMENTS WITHIN THE GRACE PERIOD WHICH IS MUCH PRIOR TO DUE DATE OF FILING THE RETURN. THEREFORE, WE DO NOT FIND ANY INFIRMITY IN THE RELIEF GRANTED BY LD. CIT(A). WE DECLINE TO INTERF ERE AND THIS GROUND OF THE REVENUE IS ALSO DISMISSED. 14. IN THE RESULT, THE APPEAL FILED BY THE ASSESSE E IS PARTLY ALLOWED IN THE MANNER AFORESAID AND APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THI S 18 TH JUNE, 2014 . 0 * -./ 1'2 18/06/2014 . * 9 SD/- SD/- (RAJENDRA) (I.P.BANSAL) ' ' ' ' / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI; 1' DATED : 18 TH JUNE, 2014. VM. ITA NO.809 & 919/MUM/2010 : ASST.YEAR 2004-05 16 0 * (+: ; :/+ 0 * (+: ; :/+ 0 * (+: ; :/+ 0 * (+: ; :/+/ COPY OF THE ORDER FORWARDED TO : 1. $% / THE APPELLANT 2. ()$% / THE RESPONDENT. 3. <() / THE CIT, MUMBAI. 4. < / CIT(A)-13, MUMBAI 5. :?9 (+' , , / DR, ITAT, MUMBAI 6. 9@ A / GUARD FILE. 0' 0' 0' 0' / BY ORDER, ):+ (+ //TRUE COPY// B BB B/ // /C C C C (DY./ASSTT. REGISTRAR) , , , , / ITAT, MUMBAI ITA NO.809 & 919/MUM/2010 : ASST.YEAR 2004-05 17 DATE INITIAL 1. DRAFT DICTATED ON 10.06.2014 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 11.06.2014 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS 7. FILE SENT TO THE BENCH CLERK SR.PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER. 11. DRAFT DICTATION SHEETS ARE ATTACHED SR.PS