COMMISSIONER OF INCOME TAX-IIISURAT vs. PANKAJ DIAMOND

O/TAXAP/961/2006 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 961 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 PANKAJ DIAMOND....Opponent(s) ================================================================ Appearance: MR SUDHIR M MEHTA, ADVOCATE for the Appellant(s) No. 1 RULE SERVED for the Opponent(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE KS JHAVERI and Page 1 of 7

O/TAXAP/961/2006 JUDGMENT HONOURABLE MR.JUSTICE K.J.THAKER

Date : 21/11/2014

ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) 1. This Tax Appeal u/s.260A of the Income-tax Act, 1961 is filed against the judgment and order dated 25.11.2005 passed by the Income Tax Appellate Tribunal, Ahmedabad “Surat Camp” - Surat in ITA No.398/A/2003 whereby, the appeal filed by the assessee was partly allowed for statistical purpose. 2. Briefly stated, the facts are that the assessee-firm is engaged in the business of export of diamonds. The assessee filed its return of income for the Assessment Year 1999-2000 on 29.12.1999 declaring total income of Rs.13,880/-. Along with the return, copies of the Balance Sheet, Profit and Loss Account, Tax Audit Report as required u/s.44-AB of the Act and Audit Report u/s.80-HHC of the Act were produced. The return was processed u/s.143(1) of the Act and vide order dated 26.03.2002, the A.O assessed the total income of the assessee at Rs.63,31,560/- u/s.143(3) of the Act. 3. Being aggrieved by the order passed by the A.O., appeal was preferred before the CIT(A). By Page 2 of 7

O/TAXAP/961/2006 JUDGMENT order dated 05.12.2002, the CIT(A) partly allowed the appeal. Against the order of the CIT(A), appeal was preferred before the Appellate Tribunal. By impugned judgment and order dated 25.11.2005, the Appellate Tribunal partly allowed the appeal filed by the assessee. Being aggrieved by the impugned judgment of the Appellant Tribunal, the Revenue has preferred the present appeal. 4. We have heard learned counsel for the Revenue. Though served, none appears on behalf of the assessee. The appeal was admitted vide order dated 28.12.2006, which reads as under; “Heard the learned counsel for the appellant. Considering the submissions, the appeal is admitted in terms of the following substantial questions of law: (A) 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 for the purpose of computation of deduction u/s.80HHC? (B) Whether on the facts and circumstances of the case, and in law the Appellate Tribunal was justified in holding that the export of rejected and rough diamonds are eligible for deduction u/s.80HHC of the Act? Page 3 of 7

O/TAXAP/961/2006 JUDGMENT Issue notice to the other side. Paper Book be filed within three months. List the appeal for final hearing after three months.” 5. Insofar as question no.1 is concerned, the same is already concluded by a decision of the Apex Court in the case of ACG Associated Capsules Pvt. Ltd. (formerly Associated Capsules Pvt. Ltd.) v. Commissioner of Income-Tax, [2012] 343 ITR 89 (SC) wherein, it is held that ninety per cent of not the gross rent or gross interest but only the net interest or net rent, which had been included in the profits of business of the assessee as computed under the head “Profits and gains of business or profession”, was to be deducted under clause(1) of Explanation (baa) to Section 80HHC for determining the profits of the business. 6. Insofar question no.2 is concerned, the same is already concluded by a decision of this Court rendered in Tax Appeal No.62/2006 decided on 28.09.2006, which is reproduced hereunder; “Heard learned counsel for the parties. The following questions are proposed for admission in this appeal: Page 4 of 7

O/TAXAP/961/2006 JUDGMENT “A. Whether

the

facts

and circumstances of the case, and in law the Appellate Tribunal was justified in holding that the exchange rate difference pertaining to exports made in earlier years was `profits of business' within the meaning of Sec.80 HHC of the Act? B. Whether on the facts and in the circumstances of the case, and in law the Appellant Tribunal was justified in holding that the issue was squarely covered by the decision of the jurisdictional High Court in the case Hindustan Trading Corporation (160 ITR 15 (Guj) when the issue before the High Court in the said case was totally different? C. Whether on the facts and in the circumstances of the case, and in law the Appellate Tribunal was justified in holding that “any other receipt of a similar nature” as mentioned in explanation (baa) to Section 80HHC(4B) would not include receipt on account of exchange rate difference? D. Whether

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 computation of deduction u/s.80HHC? E. Whether

the

facts

and circumstances of the case, and in law the Appellate Tribunal was justified in holding that the export of rejected and rough diamonds are eligible for deduction Page 5 of 7

O/TAXAP/961/2006 JUDGMENT u/s.80HHC of the Act? So far as Questions A, B and C are concerned, similar questions were considered in the case of Commissioner of Income Tax vs. Amba Impex (2006) 282 ITR 144 (Guj) and the matter was sent back to the Tribunal to decide the issue in the light of the decision in Amba Impex (supra). Therefore, we remit the matter back to the Tribunal so far as the issues raised in questions A, B and C are concerned. The Tribunal is directed to decide the issues afresh in light of our decision in Commissioner of Income Tax vs. Amba Impex (2006) 282 ITR 144 (Guj). So far as Question E is concerned, it relates to deduction under Section 80HHC on the rejected rough diamonds, which are exported. When admitted facts are that they are exported, they are eligible for deduction under Section 80HHC, therefore, no case is made out for admission of this appeal in case of Question E also. We, therefore, admit this appeal in terms of question D only, which reads as under: “Whether

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 computation of deduction u/s.80HHC?” Issue notice to the other side. Paper Book be filed within three months. List the appeals for final hearing after three months.” Page 6 of 7

O/TAXAP/961/2006 JUDGMENT 7. Since the questions of law raised in this appeal are already concluded by the aforesaid decisions, we are not assigning elaborate reasons while disposing of this appeal as we concur with the view rendered in the above-referred decisions. Accordingly, the questions are answered in favour of the assessee and against the Revenue. The appeal stands disposed of accordingly. (K.S.JHAVERI, J.) (K.J.THAKER, J) Pravin/* Page 7 of 7