The Assistant Commissioner of Income Tax, Amritsar. V. M/s. Ess Kay International Exports, Amritsar.

MA 85/ASR/2014

• Counselvise Citation: [2016] 124 COUNSELVISE.COM (IT) 3962 (ITAT-AMRITSAR)
• Duration Of Justice: 1 year(s) 10 month(s) 10 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 29-03-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 05-02-2016
• Assessment Year: 2000-2001
• Appeal Filed On: 19-05-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R K SHARDA
• Section: 80HHC; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, AMRITSAR BENCH; AMRITSAR BEFORE SH. A.D. JAIN, JUDICIAL MEMBER AND SH. T.S. KAPOOR, ACCOUNTANT MEMBER M.A. NOS. 85, 86 & 87(ASR)/2014 (ARISING OUT OF I.T.A. NOS. 31, 32 & 389(ASR)/2013 & 2009) ASSESSMENT YEARS: 2000-01, 2001-02 & 2004-05 PAN :AAAFE5499B M/S. ESS KAY INTERNATIONAL EXPORTS, VS. ASSTT. COM MR. OF INCOME TAX, AMRITSAR. AMRITSAR. (APPELLANT) (RESPONDENT) APPELLANT BY:SH. TARUN BANSAL, ADVOCATE RESPONDENT BY: SH. R.K. SHARDA, DR DATE OF HEARING:05/02/2016 DATE OF PRONOUNCEMENT: 29/02/2016 ORDER PER T.S. KAPOOR, AM: THIS IS BUNCH OF THREE MISCELLANEOUS APPLICATIONS WHICH HAS BEEN FILED BY THE ASSESSEE AGAINST THE CONSOLIDATED ORD ER OF THE TRIBUNAL, PASSED ON 31.12.2013, IN ITA NO. 389(ASR)/2009 & IT A NO. 31 & 32(ASR)/2013. 2. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT VIDE ORDER DATED 31.12.2013, THE AMRITSAR BENCH OF THE TRIBUNAL HAD ALLOWED THE APPEALS OF THE REVENUE AND HAD DISMISSED THE CROSS OBJECTIO NS FILED BY THE ASSESSEE. THE LD. COUNSEL SUBMITTED THAT EARLIER T HE ASSESSEE HAD FILED MISCELLANEOUS APPLICATIONS. HOWEVER, VIDE LETTER DA TED 04.01.2016, HE HAS FILED AMENDED MISCELLANEOUS APPLICATIONS AND T HEREFORE, EARLIER MISC. APPLICATIONS STAND WITHDRAWN. THE LD. COUNSEL SUBMITTED THAT M.A. M.A. NOS. 85 TO 87(ASR)/2014 2 NOS. 85, 86 & 87(ASR)/2014 ARE AGAINST THE ORDER, D ATED 31.12.2013, PASSED BY THE TRIBUNAL IN ITA NOS. 31, 32 & 389(ASR )/2013. 3. THE LD. COUNSEL FIRST TOOK M.A. NOS. 85 & 86(ASR )/2014. HE SUBMITTED THAT THERE ARE TWO ISSUES IN THESE MISC. APPLICATIONS WHICH ARE COMMON. FIRST ISSUE IS THAT THE ASSESSEE HAD EARNED CERTAIN INTEREST ON FIXED DEPOSITS WHICH WERE PLEDGED TO THE BANK FOR GETTING OVER-DRAFT LIMITS AND THE ASSESSEE HAD NETTED INTEREST EARNED ON FIXED DEPOSITS AGAINST THE INTEREST PAID TO THE BANK ON OVER-DRAFT LIMIT. THE AO HAD NOT ALLOWED NETTING OF THE INTEREST, WHEREAS THE LD. C IT(A) HAS ALLOWED NETTING OF INTEREST HOLDING THAT THE ASSESSEE FIRM HAD BEEN ABLE TO ESTABLISH DIRECT NEXUS BETWEEN THE INTEREST PAID AN D INTEREST EARNED ON FIXED DEPOSITS. HOWEVER, THE TRIBUNAL HAD REVERSED THE ORDER OF THE LD. CIT(A) HOLDING THAT NOTHING HAS BEEN BROUGHT ON RECORD BY THE ASSESSEE BEFORE THE LD. CIT(A) OR EVEN BEFORE US TO PROVE THE NEXUS BETWEEN THE INTEREST EXPENDITURE AND INTEREST INCOM E AND IN THIS RESPECT OUR ATTENTION WAS INVITED TO THE RELEVANT PORTION OF THE TRIBUNAL ORDER AND ALSO INVITED OUR ATTENTION TO THE FINDINGS OF T HE LD. CIT(A) WHERE HE HAD CLEARLY HELD THAT THE ASSESSEE WAS ABLE TO ESTA BLISH NEXUS BETWEEN INTEREST PAID AND INTEREST RECEIVED. THEREFORE, HE ARGUED THAT THERE WAS A CLEAR MISTAKE APPARENT FROM THE RECORD, AS THE TRIB UNAL HAS WRONGLY HELD THAT BEFORE THE LD. CIT(A) NEXUS WAS NOT ESTA BLISHED. 4. ARGUING UPON THE SECOND ISSUE, THE LD. COUNSEL F OR THE ASSESSEE SUBMITTED THAT WHILE ALLOWING THE APPEAL OF THE REV ENUE, THE TRIBUNAL M.A. NOS. 85 TO 87(ASR)/2014 3 HAD PASSED AN ORDER STATING THEREIN THAT THE ORDER OF THE LD. CIT(A) BE VACATED AND THAT OF THE AO BE RESTORED. THE LD. COU NSEL SUBMITTED THAT SUCH ORDER WOULD WITHDRAW OTHER RELIEF ALLOWED BY THE LD. CIT(A), FOR WHICH EVEN THE DEPARTMENT HAD NOT FILED APPEAL BEFO RE THE TRIBUNAL AND THEREFORE, IT IS A MISTAKE APPARENT FROM THE RECORD AND NEEDS TO BE RECTIFIED. 5. THE LD. DR, ON THE OTHER HAND, RELIED UPON THE O RDER OF THE TRIBUNAL AND SUBMITTED THAT THE TRIBUNAL HAS PASSED THE ORDER AFTER DEALING WITH ALL THE ISSUES RAISED BY THE ASSESSEE. 6. WE HAVE HEARD THE RIVAL PARTIES AND HAVE GONE TH ROUGH THE MATERIAL PLACED ON RECORD. WE FIND THAT THE TRIBUNA L HAD ALLOWED THE APPEALS OF THE REVENUE BY HOLDING AS UNDER: 12. IN THE PRESENT CASE, THERE IS NOTHING BROUGHT ON RECORD BY THE ASSESSEE BEFORE THE LD. CIT(A) THAT INTEREST IS A R ECEIPT CHARGEABLE AS PROFITS AND GAINS OF BUSINESS AND CHARGEABLE TO TAX U/S 28 OF THE ACT AND WHETHER ANY PART OF SUCH INTEREST INCOME IS LIABLE TO BE COMPUTED UNDER THE HEAD PROFITS AND GAINS OF BUSI NESS OR PROFESSION . THEREFORE, THE DECISION OF HONBLE SU PREME COURT IN THE CASE OF M/S. ACG ASSOCIATED CAPSULES PVT. LTD. VS. COMMISSIONER OF INCOME TAX, (SUPRA), CANNOT BE MADE APPLICABLE IN T HE PRESENT FACTS AND CIRCUMSTANCES OF THE CASE. MOREOVER, NOTHING HA S BEEN BROUGHT ON RECORD BY THE ASSESSEE BEFORE THE LD. CIT(A) OR EVEN BEFORE US TO PROVE THE NEXUS BETWEEN THE INTEREST EXPENDITURE A ND INTEREST INCOME AND THEREFORE, THE DECISION OF HONBLE DEHI HIGH COURT IN THE CASE OF C.I.T. VS. SHRI RAM HONDA POWER EQUIP (SUPR A) CANNOT BE MADE APPLICABLE IN THE PRESENT FACTS AND CIRCUMSTAN CES OF THE CASE. THEREFORE, THE LD. CIT(A) IS NOT JUSTIFIED IN ALL THE THREE ASSESSMENT YEARS TO ALLOW RELIEF TO THE ASSESSEE. M.A. NOS. 85 TO 87(ASR)/2014 4 7. WE FURTHER FIND FROM THE ORDER OF THE LD. CIT(A) THAT IN ITA NO.31(ASR)/2013, THE LD. CIT(A) HAD ALLOWED THE REL IEF TO THE ASSESSEE BY HOLDING AS UNDER: 7. AS REGARDS THE FACTS FOR THE ASSESSMENT YEAR 20 00-01 IN ITA NO.31(ASR)/2013, THE LD. COUNSEL FOR THE ASSESSEE A RGUED THAT THE ASSESSEE HAS MADE INVESTMENT IN FDRS WHICH HAS BEEN PLEDGED WITH THE BANK AS BANK GUARANTEE AND BANK INTEREST OF RS. 19,325/- REPRESENTS THE NET AMOUNT AFTER ADJUSTING INTEREST PAID ON OVERDRAFT AND INTEREST CHARGED BY THE BANK ON PURCHASE OF BIL L. THE AO IN THE PRESENT CASE ALSO ADOPTED GROSS INTEREST INSTEAD OF NET INTEREST. THE LD. CIT(A) FOLLOWING THE JUDGMENT OF THE HONBLE SU PREME COURT IN THE CASE OF M/S. ACG ASSOCIATED CAPSULES PVT. LTD. VS. COMMISSIONER OF INCOME TAX, (SUPRA) OBSERVED AS UNDER: I AM OF THE CONSIDERED OPINION TO DIRECT THE A.O. TO RECOMPUTED THE DEDUCTION U/S 80HHC BY GRANTING NETT ING OF BANK INTEREST (BANK INTT. PAID VIS--VIS FDR INTT. RECEIVED AS ON THE FACE OF THE GIVEN FACTS AND CIRCUMSTANCES OF THE CASE, I FIND THAT THE ASSESSEE FIRM HAS BEEN ABLE TO ESTABL ISH DIRECT NEXUS BETWEEN THE BANK INTEREST PAID AND FDR INTERE ST INCOME ACCRUED/RECEIVED BY IT AS THE ASSESSEE WAS BOUND TO PURCHASE THE SAID FDR IN ORDER TO MEET OUT THE BASIC REQUIRE MENTS OF ITS BANKERS SO AS TO SECURE/PROCURE THE O.D. LIMIT BY P LEDGING THE FDRS PURCHASED IN THE NAME OF THE APPELLANT FIRM IT SELF, OUT OF ITS BUSINESS ACCUMULATIONS, APPEARING ON ITS ASSET SIDE OF ITS BALANCE SHEET. IN THE TOTALITY OF FACTS AND CIRCUMS TANCES, THE APPELLANT IS ENTITLED TO THE NETTING OF INTEREST WHILE WORKING OUT THE DEDUCTION U/S 80HHC ELIGIBLE AND ADMISSIBL E TO THE APPELLANT FIRM FOR THE ASSESSMENT YEAR 2000-01. IN CONCLUSION, THIS GROUND OF APPEAL NO.4 IS DISPOSED OFF IN FAVOU R OF THE APPELLANT WITH THE DIRECTION TO THE AO TO ALLOW DED UCTION U/S 80HHC OF THE ACT BY ALLOWING NETTING OF INTEREST CL AIMED BY THE APPELLANT, AFTER VERIFICATION FROM RECORDS 8. FROM THE ABOVE FINDINGS OF THE TRIBUNAL AND THE LD. CIT(A), WE FIND THAT THE FINDINGS GIVEN BY THE TRIBUNAL IN ITS ORDE R DATED 31.12.2013 ARE M.A. NOS. 85 TO 87(ASR)/2014 5 CONTRARY TO THE FINDING GIVEN BY THE LD. CIT(A). TH E LD. CIT(A) HAS GIVEN CLEAR FINDING OF FACT THAT THE ASSESSEE HAD BEEN AB LE TO ESTABLISH DIRECT NEXUS BETWEEN THE BANK INTEREST PAID AND INTEREST EARNED ON FDR, WHEREAS THE TRIBUNAL HAD RECORDED THAT BEFORE THE LD. CIT(A), THE ASSESSEE WAS NOT ABLE TO ESTABLISH THE CLEAR NEXUS. THIS IS A MISTAKE APPARENT FROM RECORD WHICH NEEDS TO BE RECTIFIED UN DER THE PROVISIONS OF LAW. THE FIRST ISSUE RAISED BY THE ASSESSEE IN BOTH THE MISC. APPLICATIONS IS ALLOWED. 9. AS REGARDS THE SECOND ISSUE RAISED BY THE ASSESS EE THAT THE TRIBUNAL HAS RESTORED THE COMPLETE ORDER OF THE AO AND THUS, THE ASSESSEE WILL BE DEPRIVED OF THE RELIEF ALLOWED BY THE LD. CIT(A) FOR WHICH EVEN THE REVENUE HAS NOT FILED APPEAL, WE FIND THAT IN THESE APPEALS, THE REVENUE HAD RAISED THE ISSUE OF NETTING OF INTEREST ONLY. IN THE GROUNDS OF APPEAL TAKEN BY THE REVENUE AS NOTED BY THE TRIBUNA L AT PAGE 3-4 OF ITS ORDER AND NO OTHER GROUND HAS BEEN TAKEN BY THE REV ENUE. THEREFORE, THE ORDER PASSED BY THE TRIBUNAL THAT THE ORDER OF THE LD. CIT(A) BE VACATED AND THAT OF THE AO BE RESTORED IS ONLY DIR ECTED AGAINST THE GROUNDS OF APPEAL TAKEN BY THE REVENUE AND CANNOT I N ANY WAY BE MEANT FOR ANY OTHER RELIEF ALLOWED BY THE LD. CIT(A) FOR WHICH THE REVENUE EVEN HAD NOT FILED APPEAL. THEREFORE, THE ARGUMENTS OF THE LD. COUNSEL ARE MISCONCEIVED AND THE DIRECTION OF THE TRIBUNAL FOR RESTORING OF AOS ORDER INSTEAD OF CIT(A) ORDER RELATES TO ONLY NETT ING OF INTEREST FOR WHICH M.A. NOS. 85 TO 87(ASR)/2014 6 THE REVENUE HAD FILED APPEAL. IN VIEW OF THE ABOVE, THE SECOND GROUND TAKEN BY THE ASSESSEE BEING MISCONCEIVED IS DISMISS ED. 10. IN VIEW OF THE ABOVE, M.A. NOS. 85 & 86(ASR)/20 14 ARE PARTLY ALLOWED AND THE APPEAL RELATING TO NETTING OF INTER EST ARE LISTED FOR HEARING ON 16.03.2016. 11. NOW, COMING TO MA NO. 87(ASR)/2013 (ARISING OUT OF ITA NO.389(ASR)/2009), THE LD. COUNSEL FOR THE ASSESSEE INVITED OUR ATTENTION TO THE FIRST GROUND IN REVENUES APPEAL IN ITA NO.3 89(ASR)/2009 AND SUBMITTED THAT THE TRIBUNAL HAD NOT ADJUDICATED O N THIS GROUND AND IN THIS RESPECT OUR ATTENTION WAS INVITED TO THE ORDER OF THE TRIBUNAL IN THE AFORESAID APPEAL.. 12. AS REGARDS THE SECOND ISSUE, THE LD. COUNSEL F OR THE ASSESSEE SUBMITTED THAT THE ISSUE RELATING TO NETTING OF INT EREST RAISED BY THE ASSESSEE IS COMMON, AS IN EARLIER M.A. NOS. 85 & 8 6(ASR)/2014. 13. THE LD. DR, ON THE OTHER HAD, RELIED UPON THE O RDER OF THE TRIBUNAL. 14. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE GO NE THROUGH THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT IN ITA N O.389(ASR)/2009, FOLLOWING GROUNDS WERE TAKEN BY THE REVENUE : 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, LD. CIT(A) WAS JUSTIFIED IN COMPUTING THE PRO FITS U/S 80HHC OF THE INCOME TAX ACT, AT 48,09,195/- AND DI RECTING THIS OFFICE TO RECOMPUTED THE INCOME AS PER HIS DIR ECTIONS, WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE IN THIS CASE HAS ADOPTED DOUBLE STANDARD OF ACCOUNTING IN AS MUC H AS WHILE COMPUTING THE TAXABLE INCOME, IT HAS DEDUCTED FROM ITS PROFITS THE INTEREST PAID TO PARTNERS AND DEPRECA TION TOTALING RS.26,55,612/- TO WORK OUT TAXABLE INCOME BUT ON TH E OTHER HAND WHILE COMPUTING PROFIT U/S 80HHC THIS EXPENDIT URE OF M.A. NOS. 85 TO 87(ASR)/2014 7 RS.26,55,612/- HAS NOT BEEN ADDED TO THE INDIRECT COST THEREBY WORKING OUT THE PROFIT U/S 80HHC AT RS.48,0 9,195/- 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, LD. CIT(A) WAS JUSTIFIED WHILE CALCULATING DE DUCTION U/S 80HHC, THE ASSESSEE TOOK INTO CONSIDERATION THE NET INTEREST AND NOT THE GROSS INTEREST, THEREBY INCREASING DEDU CTION U/S 80HHC. 3. APPELLANT CRAVES LEAVE TO AMEND OR ADD ANY ONE O R MORE GROUNDS OF APPEAL. 15. FROM THE ORDER OF THE TRIBUNAL STARTING FROM PA RA 4 TO 6, WE FIND THAT FIRST GROUND TAKEN BY THE REVENUE HAS NOT BEEN ADJUDICATED BY THE TRIBUNAL. THEREFORE, IT IS A MISTAKE APPARENT FROM THE RECORD, WHICH IS REQUIRED TO BE RECTIFIED UNDER THE PROVISIONS OF LA W. 16. THE SECOND ISSUE OF NETTING OF INTEREST HAS AL READY BEEN DECIDED IN FAVOUR OF THE ASSESSEE. IN VIEW OF THE ABOVE M.A. N O.87(ASR)/2014 IS ALLOWED. 17. THE APPEALS ON MERITS WILL BE HEARD ON 16.03.20 16 AND NO SEPARATE NOTICE IS REQUIRED TO BE GIVEN TO THE PAR TIES SINCE THE DATE WAS PRONOUNCED IN THE OPEN COURT. 17. IN NUTSHELL, M.A. NOS. 85 & 86(ASR)/2014 ARE PA RTLY ALLOWED AND M.A. NO.87(ASR)/2014 IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 29/02/2016 . SD/- SD/- (T.S. KAPOOR) (A.D. JAIN) ACCOUNTANT MEMBER JUDICIAL MEM BER DATED: 29/02/2016 /SKR/ COPY OF ORDER FORWARDED TO: 1. THE ASSESSEE: M/S ESS KAY INTERNATIONAL EXPORTS, AMRITSAR. M.A. NOS. 85 TO 87(ASR)/2014 8 2. THE ACIT, CIRCLE-V/ITO-5(1), AMRITSAR. 3. THE CIT(A), ASR. 4. THE CIT, ASR.5. THE SR. DR, ITAT, ASR.