COMMISSIONER OF INCOME TAX vs. NACHMO KNITEX LTD.

ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE M.R. SHAH) [1] Feeling aggrieved and dissatisfied with the judgment and order dated 19.09.2005 passed by the learned Income Tax Appellate Tribunal (hereinafter referred to as “the ITAT”) in ITA No.1488/Ahd/2000 for A.Y. 1996-97, by which the learned ITAT has partly allowed the said appeal preferred by the assessee, the revenue has preferred the present appeal to consider the following substantial questions of law. [A] Whether on the facts and circumstances of the case and in law, the Appellate Tribunal was right in upholding the order of the CIT(A) directing to exclude sales-tax while computing total turnover for the purpose of deduction under Section 80HHC of the I.T. Act? [B] Whether the Appellate Tribunal is right in law and on fact in directing to exclude 90% of the net interest income as against the gross interest of Rs.2,13,31,237/- adopted by the Assessing Officer for the purpose of granting deduction u/s.80HHC? [2] Heard Varun K. Patel, learned advocate appearing on behalf of the appellant – revenue and Mr.S. N. Soparkar, learned senior advocate appearing on behalf of the respondent – assessee. [3] At the outset, it is required to be noted that so far as the O/TAXAP/883/2006 JUDGMENT question No(A) i.e. whether the Appellate Tribunal was right in upholding the order of the CIT(A) directing to exclude sales-tax while computing total turnover for the purpose of deduction under Section 80HHC of the I.T. Act is concerned, the same is squarely covered by the decision of the Hon’ble Supreme Court in the case of reported in [2007] 290 ITR 667 (SC) by which it is held by the Hon’ble Supreme Court that excise duty and sales tax also cannot form part of the “total turnover” under section 80HHC(3) of the I.T. Act. It is required to be noted that the issues / questions raised in the present appeal are for the period prior to insertion of section 80HHC(3) of the Income Tax Act. Applying the ratio laid down by the Hon’ble Supreme Court in the case of Commissioner of Income [4] Now so far as question No.(B) i.e. whether the Appellate Tribunal is right in law and on fact in directing to exclude 90% of the net interest income as against the gross interest of Rs.2,13,31,237/- adopted by the Assessing Officer for the purpose of granting deduction u/s.80HHC is concerned, it is required to be noted that as been approved by the Hon’ble Supreme Court in the case of ACG O/TAXAP/883/2006 JUDGMENT Tax, reported in [2012] 343 ITR 89 SC. In the said decision, the Hon’ble Supreme Court has held that 90% of not the gross interest but only the net interest, which has been included in the profits of the business of the assessee as computed under the heads “Profits and gains of business or profession” is to be deducted under clause (1) of Hon’ble Supreme Court in the case of ACG Associated Capsules [5] In view of the above, the present appeal deserves to be dismissed and accordingly is dismissed. (M.R.SHAH, J.) (R.P.DHOLARIA,J.)

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