THE COMMR. OF INCOME TAX-III LDH. vs. M/S NAHAR SPINNING MILLS LTD.

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ITA/470/2006HC Punjab & HaryanaPHHC01075196200612 November 2009Author: MR. JUSTICE GURDEV SINGH,MR. JUSTICE ADARSH KUMAR GOEL3 pages
AI SummaryRemanded

What did the High Court hold?

The High Court allowed the appeal filed by the Revenue. Regarding the first question concerning the exclusion of Central Sales Tax and Sales Tax from total turnover for Section 80HHC deduction, the Revenue conceded that this issue was covered by the Supreme Court's decision in CIT v. Lakshmi Machine and this Court's decision in CIT v. Vardhman Polytex Ltd. For the second question, regarding the treatment of interest, portfolio, miscellaneous, and rental income for Section 80HHC computation, the Revenue pointed to the Supreme Court's judgment in Hero Exports v. CIT, necessitating reconsideration by the Tribunal. The third question, concerning the allowability of pre-operative expenses, was noted as having been raised before the Tribunal but not adjudicated. In light of these submissions, the High Court set aside the ITAT's order and remanded the matter to the Tribunal for a fresh decision in accordance with the law.

What were the facts?

The Revenue, Commissioner of Income Tax-III, appealed to the High Court of Punjab and Haryana against an order dated May 31, 2005, passed by the Income Tax Appellate Tribunal (ITAT), Chandigarh Bench 'A'. The appeal concerned assessment year 1993-94 and challenged the ITAT's decision on three substantial questions of law. The ITAT had ruled on the exclusion of Central Sales Tax and Sales Tax from total turnover for Section 80HHC deduction, the treatment of certain income for Section 80HHC computation, and the allowability of pre-operative expenses. The High Court noted that the revenue conceded the first question and sought reconsideration of the second based on Supreme Court judgments. The third question was noted as not adjudicated by the ITAT.

What were the issues?

The High Court was to decide three substantial questions of law: 1. Whether the ITAT was correct in holding that Central Sales Tax and Sales Tax should be excluded from the total turnover for computing deduction under Section 80HHC of the Income Tax Act, 1961. 2. Whether the ITAT was correct in directing that 10% of interest income, portfolio income, miscellaneous receipts, and rental income should not be reduced from business profit for computing deduction under Section 80HHC. 3. Whether the ITAT was justified in allowing pre-operative expenses of Rs. 60,11,744 by ignoring Section 35(D)(2)(d) of the Act, which requires them to be treated as capital expenditure. Contentions: Assessee: Not recorded. Revenue: For question 1, the revenue conceded that the issue was covered by Supreme Court judgments in CIT v. Lakshmi Machine (2007) and this Court's judgment in CIT v. Vardhman Polytex Ltd. (2008). For question 2, the revenue submitted that the Supreme Court's decision in Hero Exports v. CIT (2007) required reconsideration of the matter by the Tribunal. For question 3, the revenue stated that the question arose before the Tribunal but was not adjudicated upon.

Which sections of the Income-tax Act were involved?

Section 260A,Section 80HHC,Section 35(D)(2)(d)

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. I.T.A. No.470 of 2006 (O&M) Date of decision: 12.11.2009 Commissioner of Income Tax-III -----Appellant Vs. M/s Nahar Spinning Mills Ltd. -----Respondent CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOEL HON'BLE MR. JUSTICE GURDEV SINGH Present:- Mr. Rajesh Sethi, Sr. Standing Counsel for the revenue. Mr. Sanjay Bansal, Sr. Advocate with Mr. Prashant Bansal, Advocate for the assessee. ---

ORDER:

1.

This appeal has been preferred by revenue under Section 260A of the Income Tax Act, 1961 (for short, “the Act”) against the order dated 31.5.2005 of the Income Tax Appellate Tribunal, Chandigarh Bench ‘A’ in I.T.A. No.5/Chandi/1996 for the assessment year 1993-94, proposing to raise following substantial questions of law:- 1. “Whether on the facts and circumstances of the case, the Hon’ble ITAT was right in law in holding that Central Sales Tax and Sales Tax be excluded from the total turnover of the assessee while computing deduction u/s 80 HHC?” 2. “Whether on the facts and in the circumstances of the case, the ITAT was correct in law in directing not to reduce 10% of the interest income portfolio income, investment income, Misc. receipt and rental income from the profit of business for the purpose of computation of deduction under section 80 HHC of I.T. Act, 1961?” 3. “Whether on the facts and in the circumstances of the case, the Hon’ble ITAT was justified in allowing

pre-operative

expenses

of Rs.6011,744/- by ignoring provisions of section 35(D)(2)(d) of I.T. Act, 1961 which requires to be treated as capital expenditure?”

2.

Learned counsel for the revenue fairly states that question No.1 can no longer be pressed in view of judgment of the Hon’ble Supreme Court in Commissioner of Income Tax v. Lakshmi Machine (2007) 290 ITR 667 and judgment of this Court in Commissioner of Income Tax v. Vardhman Polytex Ltd. (2008) 296 ITR 382. 3. With regard to question No.2, it is submitted that after filing of the appeal, identical question has been considered by the Hon’ble Supreme Court in Hero Exports v. Commisisoner of Income Tax (2007) 295 ITR 454 and in view of said judgment, the matter will require reconsideration by the Tribunal.

4.

As regards question No.3, it is submitted that the said question arose before the Tribunal but has not been adjudicated upon.

5.

Learned counsel for the assessee does not dispute the above position.

6.

Accordingly, this appeal is allowed. The order of the Tribunal is set aside and the matter is remanded to the Tribunal for fresh decision in accordance with law. (ADARSH KUMAR GOEL) JUDGE November 12, 2009 ( GURDEV SINGH ) ashwani JUDGE 3

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