M/S NAHAR SPINNING MILLS LTD vs. THE COMMISSIONER OF IT

ITA No.54 of 2006 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No.54 of 2006 Date of decision: 28.7.2014 M/s Nahar Spinning Mills Limited ……Appellant Vs. The Commissioner of Income Tax(Central), Ludhiana …..Respondent CORAM: HON’BLE MR. JUSTICE AJAY KUMAR MITTAL HON’BLE MR. JUSTICE JASPAL SINGH Present: Mr. Sanjay Bansal, Sr. Advocate with Ms. Rajni Pal, Advocate for the appellant. Mr. Rajesh Katoch, Advocate for the respondent. Ajay Kumar Mittal,J. 1. This appeal has been preferred by the assessee under Section 260A of the Income Tax Act, 1961 (in short, “the Act”) against the order dated 12.8.2005, Annexure P.1 passed by Income Tax Appellate Tribunal, Chandigarh Bench, ‘A’ (in short, “the Tribunal') in ITA.Nos.523 and 294/Chandi/2003 for the assessment year 2000-01, claiming following substantial questions of law:- “(i)Whether on the facts and the circumstances of the case, the Hon’ble ITAT was legally correct in holding that service charges i.e. dyeing receipts and knitting receipts were liable to be considered as other receipts of similar nature as defined in GURBAX SINGH 2014.08.06 13:31 I attest to the accuracy and integrity of this document High Court Chandigarh

ITA No.54 of 2006 2 Explanation (baa) to Section 80HHC of the Act? (ii) Whether on the facts and circumstances of the case, the Tribunal was right in law in holding that service charges i.e dyeing receipts and knitting receipts were to be excluded from business profits for the purpose of computing deduction under section 80HHC of the Act as the same were covered in ‘other receipts of similar nature’ as per Explanation (baa) to section 80HHC of the Act? iii) Whether on the facts and in circumstances of the case, the Tribunal was legally correct in holding that the amount of ` 5,87,952/- paid to Municipal Corporation for legalizing the construction was penal in nature and therefore not an allowable expenditure? iv) Whether The Tribunal was legally correct in holding that the amount of ` 5,87,952/- paid to Municipal Corporation for legalizing the construction was penal in nature and therefore not an allowable business expenditure contrary to the view taken by the High Court of Rajasthan in the case of Jaswant Trading Co. vs. CIT (1995) 212 ITR 293 (Raj.)?” 3. A few facts relevant for the decision of the controversy involved as narrated in the appeal may be noticed. The appellant company is engaged in the manufacturing activity of textile and hosiery garments. It is also engaged in processing of goods i.e. dyeing process and knitting on behalf of other parties. It is further carrying on the trading business of goods. During the year under consideration, the assessee company had exported both manufactured as well as traded goods as a result of which the value of such goods was shown as a part of the total turnover. Similarly, the receipts on account of job charges i.e. dyeing and knitting charges were also shown as business receipts but the said charges had not been included in the total turnover while working out deduction under section 80HHC of the Act. GURBAX SINGH 2014.08.06 13:31 I attest to the accuracy and integrity of this document High Court Chandigarh

ITA No.54 of 2006 3 The Assessing officer vide order dated 30.7.2002, Annexure P.3 included the amount of job charges/service charges i.e. dyeing receipts and knitting receipts in the total turnover while calculating deduction under section 80HHC of the Act and also held that if the service charges receipts were excluded from the total turnover for computation of deduction under Section 80HHC of the Act then alternatively service charges earned should be treated as other receipts of similar nature in terms of Explanation (baa) of Section 80HHC of the Act and 90% of such receipts and excluded from the business profits for computing deduction under section 80HHC of the Act. Aggrieved by the order, the assessee filed appeal before the Commissioner of Income Tax (Appeals) [CIT(A)]. Vide order dated 24.2.2003, Annexure P.2, the [CIT(A)] partly allowed the appeal and directed not to include service charges receipts in the total turnover and also directed not to treat these service charges as other receipts of similar nature in terms of explanation (baa) of Section 80HHC. The revenue filed appeal before the Tribunal. Vide order dated 12.8.2005, Annexure P.1, the Tribunal partly allowed the appeal, upholding the action of CIT(A) regarding exclusion of service charges from the total turnover. It was further held that service charges should be treated as receipts of similar nature in terms of Explanation (baa) and 90% of the same should be reduced from the business profits for computing deduction under Section 80HHC of the Act. Hence the instant appeal by the assessee. 4. Learned counsel for the parties are ad idem that question Nos. (i) and (ii) stand concluded by order dated 6.3.2014 rendered in ITA No.98 of 2008 (Commissioner of Income Tax III, Ludhiana vs. M/s Nahar GURBAX SINGH 2014.08.06 13:31 I attest to the accuracy and integrity of this document High Court Chandigarh

ITA No.54 of 2006 4 Spinning Mills Limited, 373, IAA, Ludhiana). Consequently, the said questions are disposed of in the same terms. Further, Question Nos.(iii) and (iv) stand concluded by our decision of even date in ITA No.69 of 2008 (M/s Nahar Spinning Mills Limited vs. The Commissioner of Income Tax, Ludhiana) i.e. against the assessee. The said questions are disposed of in the same terms. 5. In view of the above, the appeal is disposed of accordingly. (Ajay Kumar Mittal) Judge July 28, 2014 (Jaspal Singh) Judge ‘gs’ GURBAX SINGH 2014.08.06 13:31 I attest to the accuracy and integrity of this document High Court Chandigarh