COMMISSIONER OF INCOME TAX-IIISURAT vs. BHOJAL GEMS

O/TAXAP/62/2006 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 62 of 2006

FOR APPROVAL AND SIGNATURE:

HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER ================================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ================================================================ COMMISSIONER OF INCOME TAX-IIISURAT....Appellant(s) Versus BHOJAL GEMS....Opponent(s) ================================================================ Appearance: MR SUDHIR M MEHTA, ADVOCATE for the Appellant(s) No. 1 MR MANISH J SHAH, ADVOCATE for the Opponent(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER Date : 13/11/2014 ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) 1. This is an appeal by the appellant- Page 1 of 5

O/TAXAP/62/2006 JUDGMENT revenue, seeking to challenge the order of the learned ITAT, Ahmedabad Bench “A” (for short, ‘the Tribunal’), Dated : 19.05.2005, rendered in ITA No. 2996/Ahd/2004 for the A.Y. 2001-02, whereby, the Tribunal partly allowed the appeal of the respondent-assessee. 2. The brief facts of the case are that the respondent-assessee, who is engaged in the business of import, export and manufacturing of diamonds, filed its return of income for the A.Y. 2001-02 on 30.10.2001, declaring its total income at Rs.52,83,140/-. Pursuant thereto, the case of the respondent-asessee was examined and the AO excluded an amount of Rs.5,93,150/- from deduction under Section 80HHC of the Act. Being aggrieved thereby, the assessee approached the learned CIT(A), who dismissed the appeal of the assessee. The assessee, hence, approached the Tribunal against the order of the CIT(A), wherein, the Tribunal passed the impugned order. Hence, the present appeal. 3. At the time of admission, this Court framed the following question for consideration; “Whether on the facts and circumstances of the case, and in law the Appellate Tribunal was justified in holding that the interest received on Fixed Deposits should be netted out of the purposes of Page 2 of 5

O/TAXAP/62/2006 JUDGMENT computation of deduction u/s.80HHC?” 4. Heard, Mr. Mehta, learned Advocate for the appellant-revenue, and Mr. Shah, learned Advocate for the Respondent-assessee, and perused the material on record as well as the orders passed by the CIT(A) and Tribunal. The issue involved in this matter is no more res integra and is covered by a decision of the the Apex Court in the case of “COMMISSIONER OF INCOME TAX VS. LAKSHMI MACHINE WORKS”, [2007] 290 ITR 667(SC), wherein, the Apex Court hold that while interpreting the words “total turnover” in the formula in Section 80HHC, one has to give a schematic interpretation and the various amendments made therein show that receipts by way of brokerage, commission, interest, rent, etc. do not form part of business profits, as they have no nexus with the activity of export. 5. As is clear from the material on record, in the instant case, the AO while examining the case of the respondent-assessee for the relevant assessment year, noted that the assessee had paid Rs.1,72,49,210/- to the bank as interest and thereby, the assessee netted out the FD interest to the tune of Rs.5,93,150/-, which was not related to export of the assessee. The AO, therefore, did not treat the same as income from business and hold that the said amount was not Page 3 of 5

O/TAXAP/62/2006 JUDGMENT liable to deduction under Section 80HHC of the Act. However, while doing so the AO overlooked the earlier decision of the Tribunal in “LALSONS ENTERPRISE & ORS. VS. DCIT”, 89 ITD 25 (Del)(SB), wherein, the Tribunal held that 90 per cent of net interest remaining after a set off of interest paid which has nexus between the interest that can be reduced and 90 per cent of the gross interest. We are therefore of the opinion that the Tribunal, in the case of the assessee, rightly placed reliance on the same and remanded the said issue to AO to enable him to consider 90 per cent of the net interest while allowing assessee’s claim under Section 80HHC in respect of the income from interest. 6. Hence, in view of the above discussion and in view of the ratio laid down by the apex Court in the case of “LAKSHMI MACHINE WORKS”(Supra), we are of the opinion that the Tribunal committed no error in passing the impugned order. Under the circumstances, present appeal deserves to be dismissed. 7. In the result, the appeal fails and stands DISMISSED as being without merit. No order as to costs. (K.S.JHAVERI, J.) Page 4 of 5

O/TAXAP/62/2006 JUDGMENT (K.J.THAKER, J) UMESH Page 5 of 5