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Income Tax Appellate Tribunal, ‘’B’’ BENCH, AHMEDABAD
(Applicant) (Respondent) Revenue by : Shri Sanjay Kumar, Sr.D.R Assessee by : Shri Jyotish M. Shah, A.R सुनवाई क� तार�ख/Date of Hearing : 27/06/2019 घोषणा क� तार�ख /Date of Pronouncement: 28/06/2019 आदेश/O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:
The captioned appeal has been filed at the instance of the Revenue against the order of the Learned Commissioner of Income Tax(Appeals)-9, Ahmedabad [Ld.CIT(A) in short], dated 15/09/2017 arising in the matter of assessment order passed under s. 143(3) r.w.s 254 of the Income Tax Act, 1961 (here-in-after referred to as "the Act") dated 25/10/2016 relevant to Assessment Year (AY) 2003-04.
The assessee has raised the following grounds of appeal: Page 1 of 9
1 The Ld.CIT(A) has erred in law and on facts in allowing the deduction u/s.80HHC since other receipts like FD interest, other interest, incentive and miscellaneous income receipts are not eligible for the deductions and the same cannot be treated as export profit. 2. The Ld.CIT(A) has erred in law and on facts in allowing rebate on excise duty on the ground that the said receips were not derived from export business relying on the decision of Hon’ble ITAT for A.Y. 2000-01.
3. On the facts and circumstances of the case, the Ld.Commissioner of Income- tax(A) ought to have upheld the order of the Assessing Officer in respect of above issues.
4. It is, therefore, praye that the order of the Ld Commissioner of Income- tax(A) may be set-aside and that of the Assessing Officer be restored.
The effective ground of appeal raised by the Revenue is that the learned CIT (A) erred in granting the deduction under section 80HHC of the Act in respect of interest income and rebate in the excise duty.
Briefly stated facts are that the assessee in the present case is a private limited company and engaged in the manufacturing business of chemicals and pesticides as well as trading in shares and the securities. The assessee in its audited profit and loss account has shown income by way of excise duty rebate and bank interest for ₹89,16,188.00 and 79,72,346.00 respectively. The assessee in respect of such income claimed the deduction under section 80HHC of the Act. However, the AO was of the view that the impugned income is not arising from the activities of the exports of the assessee. Therefore, the same cannot be eligible for deduction under section 80HHC of the Act. Accordingly, the AO reduced the deduction claimed by the assessee under section 80HHC of the Act in proportion to the aforesaid income.
The aggrieved assessee preferred an appeal to the learned CIT (A).
The assessee before the learned CIT (A) submitted that the impugned interest income was shown as other income in the audited financial statements, which is nothing but the business income. The AO also admitted this fact in the giving effect order of the higher authority. Therefore, the assessee claimed that it is eligible for deduction under section 80HHC of the Act.
3.1 The learned CIT (A) after considering the submission of the assessee allowed the deduction under section 80HHC of the Act in respect of interest income and a rebate of the excise duty. The relevant extract of the order is reproduced as under:
Deduction under section 80HHC of the Act in respect of interest income
5.2 I have carefully considered the rival contention as well as the observation of the A.O. It is observed that the A.O has rejected the claim of the appellant u/s. 8O HHC of the Act on interest on fixed deposits amounting to Rs. 79,72,3467-and on rebate on excise duty for an amount of Rs. 89,16,1887-. The A.O has mentioned in the order of assessment that the Hon'ble Tribunal vide their order in dated 6/11/2015 had set aside the assessment proceedings on a specific issue of 80HHC to the desk of the A.O. The Hon'ble ITAT had directed as follows :- "The Assessing Officer took up consequential proceedings. The case file reveals that there is no discussion on the section 80HHC in consequential order dated 23.12.2010 as the same only considers this issue of section 80HHC deduction in final computation to the tune of Rs.1,45,42,665/-. The CIT(A) follows case laws of CIT vs. Pandyan Chemicals 262 ITR 278(SC) and that of Liberty India Ltd 317 ITR 218(SC) qua assessee's interest on FDRs and Excise duty rebate; respectively. We repeat that neither in the reassessment nor the lower appellate authority have discussed about the relevant factual position on the above stated factors of interest and excise duty vis-a-vis Section 80HHC deduction in question. We are of the opinion in this backdrop of facts that the Assessing Officer shall re-adjudicate upon the issue and pass a fresh order in yet another innings. It is made clear that the assesses shall place on record all materials justifying in its FDRs interest and excise duty for the purpose of section 80HHC deduction.."
During the assessment proceedings the A.O has observed that the appellant had credited other income of Rs. 1,69,24,649A to the P & L A/c. that includes interest on FOR and rebate on excise duty. According to A.O the appellant is engaged in the business of export and was entitled to deduction u/s.SOHHC for the profit derived from the export of goods. The receipt which do not have direct relevance with the element of turnover, according to A.O, should not be considered for computation of deduction u/s.8HHC. For this purpose the A.O has placed the reliance on the judgment of Hon'ble Supreme Court in the case of Pandyan Chemicals Ltd. Vs CIT 262 ITR 278. According to A.O the appellant could not substantiate that the interest income has any relevance with the export income of the appellant. During the appellate proceedings the appellant submitted that it has submitted all the necessary details with regard to interest on fixed deposits and rebate on excise duty that has been reflected as the other income in P & L A/c. Therefore, it has disagreed with trie A.O to categorize the other income under the head income from other sources. The appellant appellant has contended that it has been consistently following and claiming before the revenue the amount of interest earned from fixed deposit as income from business only. The fixed deposits are kept in the bank as easy liquidity instead of borrowing from financial institutions for the purpose of its business. In the order of CiT(A)-X), Ahmedabad passed vide order No.CIT(A)-X!/474/Jan 08/07-08 dated 9/1/2009 the CIT(A)-XI, has held that the interest income from the fixed deposit, is the business income of the appellant. Therefore, the A.O cannot deny giving the benefit of deduction u/s.80HHC of the I.T.Act. The CIT(A)-XI, has further held that "however, it would be relevant to take the 90% of net of interest expenditure and interest receipts for the purpose of the computing the benefits u/s.80HHC of the I.T.Act. In respect of total turnover exceeding Rs. 10 crores, I am of the view that this restrictions are only with regard to receipts as per clause-(iii) (d) and (iv)(e) of sec.28 of the I.T.Act. Since, the interest income is only a business income, the restrictions coming as per the provisions of sec.SOHHC of the I.T.Act cannot be applied. Therefore, the A.O is directed to allow appellant's clam in light of the above discussion. Accordingly, this ground of appeal is allowed." Further the appellant has also relied upon the judgment of jurisdictional High Court in the case of Empire Pumps Pvt. Ltd. Vs ACIT wherein it was held that income earned from fixed deposit placed for business purpose cannot be treated as income from other sources and it is part of assesses business income. I agree with the contention of the appellant and its reliance placed on the judgment of Empire Pumps Pvt. Ltd.(supra). Further! also agree with the findings given by the then CIT(A)-Xi, with regard to the treatment to be given for interest earned on fixed deposits. I am of the considered view that as the appellant has been treating the interest on fixed deposits as its business income, the A.O cannot deny the benefit on the same for deduction u/s.80HHC of the Act. Therefore, the A.O is directed to allow the interest earned on fixed deposits while calculating the claim of deduction u/s.80HHC as per the provisions of the Act and treat the same as business income.
Deduction under section 80HHC of the Act in respect of rebate on excise duty: The A.O in the assessment proceedings has also denied the inclusion of 90% of receipts from excise duty rebate as per the formula prescribed u/s 80 HHC of the Act. The appellant has placed its rejjallce'wifri regard to excise duty rebate on the findings of Hon'bie Tribunal Ar/medabad for\YY.2000-01. Hon'ble Triounai v'de their order in ITA Nc.342/Ahd/2012 dated 17/11/2015 has held at para-6 as follows :- “6. We find that learned CIT(A) is completely in error in declining the deduction under section 80HHC in respect of excise duty refund of Rs. 48,30,6507-, solely on the basis that it is not covered by section 28(iiic) of the Act. The impact of it's being covered by section 28(iiic) is in fact against the assessee inasmuch as, by the virtue of Explanation (baa) below section 80HHC(4C). 90% of such receipts are to be excluded. Now that the learned CIT(A) has categorically held that "these receipts do not strictly fall within the provisions of section 28(iiic) of the Act." The natural corollary of this finding is that 90% of excise duty refund is not to be deducted while computing deduction u/s.80HHC of the Act - precisely what was done by the Assessing Officer. We have also noted, as evident from material on record, that excise duty refund represents refund of such excise duty as is paid with respect to production which is eventually exported. In this view of the matter, excise duty refund cannot be viewed as a standalone income and is to be very much included in eligible profits. Therefore learned C1T(A) was in error in excluding the same from profits eligible for deduction under section 80HHC. Accordingly, we uphold the grievance of the assessee and direct the Assessing Officer to include this amount of Rs. 48,30,6507- in profits eligible for deduction under section 80HHC. The assessee succeeds in this point." Relying on the above referred findings of Hon'ble Tribunal I agree with the contention of the appellant that the A.O should have included the amount of Rs.89,16,1887- on account of excise duty rebate in profits eligible for deduction u/s.80HHC as per the provisions of the Act. Accordingly, the ground of appeal no.2 of the appellant is hereby allowed.
Being aggrieved by the order of the learned CIT (A), the Revenue is in appeal before us:
The learned DR before us vehemently supported the order of the AO. On the contrary, the learned AR before us filed a paper book running from pages 1 to 59 and vehemently relied on the order of the learned CIT (A).
We have heard the rival contentions of both the parties and perused the materials available on record. Regarding the interest income, the learned AR before us has relied on certain judgments as detailed under:
Hon’ble Gujarat High Court in the case of Empire Pumps Private Ltd versus ACIT reported in 54 taxmann.com 317 wherein it was held as under: “10. Thus, it is clear that the income earned from fixed deposit placed for business purpose cannot be treated as income from other source but must be seen as part of the assessee's business income. In the present case also the assessee was compelled to park a part of its funds in fixed deposits under the insistence of the financial institutions and therefore the income received thereupon cannot be termed to be income from other sources.”
5.1 An analysis of the judgment above reveals that the facts of the case on hand are different from the facts of the case as relied upon by the learned AR for the assessee. In the above-stated case, the assessee was compelled to make the fixed deposit with the financial institutions whereas in the case on hand the assessee was having an extra fund available with it and therefore this that fund was deposited with the bank as fixed deposits. Thus it is transpired that the assessee in the case on hand had surplus fund which was deposited with the bank to earn the income on such idle fund lying with it. Therefore, in our considered view, the impugned income by way of interest does not represent the income arising to the assessee from its export activities. Therefore we hold that such interest income cannot be subject to deduction under section 80HHC of the Act on the strength of the aforesaid judgment.
5.2 Hon’ble Delhi High Court in the case of Indian Oil Panipat Power Consortium Limited Vs. ITO reported in 315 ITR 255 wherein it was held as under:
“The test, therefore, is whether the activity which is taken up for setting up of the business and the funds which are garnered are inextricably connected to the setting up of the plant. “
An analysis of the judgment above reveals that the interest income should be inextricably linked with the setting up the plant. The facts of the present case are different from the case, as cited above. However, we still find that the impugned interest income is not inextricably connected with the export business of the assessee.
5.3 Similarly, we also note that the other cases relied upon by the learned AR for the assessee are distinguishable from the present facts of the case. Therefore we are reluctant to rely upon such judgments.
5.4 At this juncture, we are inclined to refer to the provisions of section 80HHC of the Act which reads as under:
[Deduction in respect of profits retained for export business. 2880HHC. 29[(1) Where an assessee, being an Indian company or a person (other than a company) resident in India, is engaged in the business of export out of India of any goods or merchandise to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, 30[a deduction to the extent of profits 31, referred to in sub-section (1B),] derived by the assessee from the export of such goods or merchandise 5.5 The provision above requires that the deduction shall be available to the assessee to the extent of the profit derived from the export of goods or merchandise. In the case on hand, such interest income does not represent from the export of the goods. We also note that such impugned interest income was also not arising in connection with the export activities of the assessee. Therefore, we are not in agreement with the finding of the learned CIT (A). Accordingly, we hold that the impugned interest income on by the assessee is not eligible for deduction under section 80HHC of the Act.
5.6 Regarding the rebate of excise duty amounting to ₹89,16,188.00, we note that the assessee is entitled to the deduction under section 80HHC of the Act in respect of such amount by virtue of the order of the ITAT in the own case of the assessee in ITA 342/AHD/2012 pertaining to the assessment year 2000-01 vide order dated 17th the November 2015. The relevant extract of the order is reproduced as under:
6. We find that learned CIT(A) is completely in error in declining the deduction under section 80HHC, in respect of excise duty refund of Rs.48,30,650/- solely on the basis that is not covered by section 28(iiiC) of the Act. The impact of it’s being covered by section 28(iiiC) is infact against the assessee inasmuch as by the virtue of Explanation (baa) below section 80HHC(4C), 90% of such receipts are to be excluded. Now that the learned CIT(A) has categorically held that “these receipts are to be excluded. Now that the learned CIT(A) has categorically held that ‘’these receipts do not strickly fall within the provisions of section 28(iiic) of the Act.’’ The natural corollary of this findings is that 90% of excise duty refund is not to be deducted while computing deduction under section 80HHC of the Act- precisely what was done by the Assessing Officer. We have also noted, as evident from material on record, that excise duty refund represents refund of such excise duty as is paid with respect to production which is eventually exported. In this view of the matter, excise duty refund cannot be viewed as a standalone income and is to be very much included in eligible profits. Therefore learned CIT(A) was in error in excluding the same from profits eligible for deduction under section 80HHC. Accordingly, we uphold the grievance of the assessee and direct the Assessing Officer to include this amount of Rs.48,30,650/- in profits eligible for deduction under section 80HHC. The assessee succeeds in this point.
In view of the above, we hold that the assessee is entitled to the deduction under section 80 HHC of the Act in respect of excise duty rebate as discussed above. Hence the ground of appeal of the Revenue is partly allowed.
In the result, the appeal of the Revenue is partly allowed.
Order pronounced in the Court on 28/06/2019 at Ahmedabad.