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Income Tax Appellate Tribunal, “C” BENCH, MUMBAI
AadoSa / O R D E R महावीर स िंह, न्याययक दस्य/ PER MAHAVIR SINGH, JM:
These appeal filed by the assessee are arising out of the different orders of Commissioner of Income Tax (Appeals)-21, Mumbai [in short ITAs No. 6226 & 7148/Mum/2017 CIT(A)], Appeal Nos. CIT(A)-21/DCIT-13(1)(2)/IT-438 & 332/2015-16 & 2016-17 dated 05.06.2017 & 27.09.2017. The Assessments were framed by the Dy. Commissioner of Income Tax, Circle-13(1)(2), Mumbai (in short ‘ACIT/ITO/ AO’) for the A.Ys. 2013-14 & 2014-15 vide order dated 19.02.2016 & 25.10.2016 under section 143(3) of the Income Tax Act, 1961 (hereinafter ‘the Act’).
At the outset, the learned Counsel pointed out that there is a delay in filing of this appeal before Tribunal by 31 days. The learned Counsel explained that the CIT(A) passed an order on 05.06.2017, which was received by assessee on 12.07.2017 and the due date of filing of appeal before Tribunal was 10.09.2017. But an appeal before Tribunal was filed on 11.10.2017. Thus, there was a delay of 31 days in filing of these appeals. The learned Counsel for the assessee filed condonation petition along with affidavit of the Managing Director stating the reason in para 3 to 5 as under:
“3. As regards delay of 31 days in filing appeal before Your Honours, it is submitted that the order of Ld. CIT(A) was received by the appellant company and handed over to the Managing Director of the company, Mr. Arvind Iyer for taking further action. The Managing Director of the company was travelling for business purposes to various places in the month of September and October' 2017. The Managing Director of the appellant was frequently travelling to various places like Nagpur, New York, New Orleans and Las Vegas during the aforesaid period. He was only ITAs No. 6226 & 7148/Mum/2017 available for few days in the office during the aforesaid period wherein he was continuously occupied with pending business work. Thus, due to his non-availability and preoccupation with other work during the aforesaid period, he could not give instructions to the staff to seek advice from consultants and carry out appeal filing procedure in the present case. Accordingly, the appeal filing procedure remained unattended and the appeal could not be filed in time before Hon'ble Tribunal. Copy of the flight tickets on sample basis of Mr. Arvind Iyer, Managing Director of the appellant company is enclosed herewith for Your Honour's reference.
4. It is submitted that no sooner did Mr. Arvind lyer, Managing Director of the appellant company realized that the appeal before Hon'ble Tribunal was left to be filed, he immediately arranged to send the papers to the consultants for filing the appeal before Hon'ble Tribunal.
It is submitted that due to the above reason which were beyond our control of the appellant, there was a sufficient cause in not filing the appeal in time before Your Honours. It is submitted that there was no malafide intention on part of the appellant in not filing the appeal before Your Honours in time.”
ITAs No. 6226 & 7148/Mum/2017
When the above reasons were confronted to the learned Sr. Departmental Representative, he only contested the admission of appeal because there this was delayed by 31 days.
After considering the submissions and going by the reasons stated in the petition which were beyond the control of assessee’s Managing Director as he was travelling for business purposes out of India and hence, there was delayed in filing the appeals. We are of the view that cause is reasonable and hence, we condone the delay and admit these two appeals.
5. The two inter-connected common issue in both the years, is as regards to the order of CIT(A) confirming the action of the AO in denial of deduction under section 80IC of the Act in respect of balances written back of ₹ 3,47,626/-. For this assessee has raised the identical worded grounds in both the years and facts and circumstances are also identical. Hence, we will take the facts from AY 2013-14 in . The relevant ground raised
in AY 2013-14 reads as under: -
1. The Ld. CIT(A) has erred in law and in facts in confirming the denial of deduction u/s. 80-IC of the Act in respect of sundry balances written back of Rs. 8,67775/-.
2. The Ld. CIT (A) has erred in law and in facts in confirming the denial of deduction u/s. 80-IC of the Act in respect of interest income of Rs. 3,47,626/-.
ITAs No. 6226 & 7148/Mum/2017
3. Alternatively, the Ld. CIT(A) and erred in law and in facts in not appreciating that to the extent interest expense that had direct nexus with interest income ought to have been allowed against the said interest income and the deduction u/s. 80-IC of the Act ought to have been granted on the enhanced business profits."
We have noted from the assessment order that the assessee has disclosed other income of ₹ 14,80,122/- and credited the same to profit and loss account. According to him, this income is from other sources and not income from business and hence, the claim of deduction under section 80IC of the Act was disallowed. Following are the other incomes: - Sl Particulars Amount (₹) No. 1. Interest income 3,47,626 2. Sundry balances written back 8,67,775/- 3. Miscellaneous Income (Scrap Scale) 2,64,721/- Aggrieved, assessee preferred the appeal before CIT(A). The CIT(A) allowed the claim of the assessee under section 80IC of the Act in regard to Misc. Income i.e. Scrap sale but treated the interest income and sundry balances written back amounting to ₹ 3,47,626/- and ₹ 8,67,775/- respectively as income from other sources. Aggrieved, assessee is in appeal before Tribunal in respect to these two disallowances confirmed by CIT(A).
7. We have heard rival contentions and gone through the facts and circumstances of the case. We find that the CIT(A) himself admitted that as regards to interest income at best it can be considered to be arising from its connection with the business and condition for availing ITAs No. 6226 & 7148/Mum/2017 borrowings. Similarly, he also noted that sundry balances written back are also arising out of the same business transactions but he noted that interest income immediately arises from deployment of funds as investment and is not derived from manufacturing and the industrial undertaking. Similar is the position with respect of sundry balances written back, hence, he confirmed the disallowance of deduction under section 80IC of the Act made by the Assessing Officer. We noted that Sundry balances written back are arising out of the business transaction and there is no doubt about it. Even the fixed deposits are paid as margin money against letter of credit issued by the bank and CIT(A) himself agreed to this aspect.
Before us, the learned Counsel for the assessee relied on the decision of Hon’ble Gujarat High court in the case of CIT vs. Pratham Developers (2013) 355 ITR 507 (Guj), wherein Hon’ble Gujarat High Court has considered the issue in great detail and allow the claim of deduction in respect of balances written of out of the payments to contractors and suppliers and allowed the claim of deduction under section 80IB(10) of the Act by observing in Para 6 to 7 as under:-
“6. With respect to the remaining amount covered under the discussion, balance written off out of the payments to contractors and suppliers, we notice that assessee had consistently taken a stand that :
The amounts have been generated during the course of business. In case of supplier payments sometimes the Appellant deducts some amounts and ITAs No. 6226 & 7148/Mum/2017 pays the bills. Since the amounts are generated during the course of business the same are eligible for deduction u/s. 80-IB(10) of the Act.
It would thus emerge that during the course of business in developing housing project, assessee had made payments to the suppliers towards various purchases made. On such payments, the assessee would occasionally deduct some amounts and pay the bill. Difference between the bill amount and payment actually made would be the amount generated during the course of business. Assessee therefore, contended that same should form part of eligible deduction under section 80IB(10) of the Act. We have no hesitation in upholding the view of the CIT (Appeals) as well as Tribunal. Assessee following mercantile system of accounting may have debited claim in the bill amount raised by the suppliers or contractors. However, as is likely to happen in any business of similar nature, the supply of material may be found wanting at a later stage. They may either be defective or sometimes minor unintentional short supply. This could be the reason why assessee instead of making full payment, deducts a portion of the supplier's bill. There may be other reasons such as late supply of the ITAs No. 6226 & 7148/Mum/2017 material etc. why such eventuality, may arise. Essentially in all such cases, what would happen is that assessee would actually expend less amount than what the bill amount would be indicating. In essence, therefore, such margin would go to reduce the assessee's cost of acquisition of the supply. Such amount therefore, cannot be dissociated or divested from assessee's business. Such receipt therefore, cannot be stated to be not arising out of the assessee's business of development of housing project.
Similarly, the learned Counsel for the assessee also relied on the Tribunal’s decision in assessee’s own case for AY 2012-13 in vide order dated 07.02.2018, the Tribunal considering the decision of Jurisdictional High Court in the case of CIT vs. Jagdishprasad M. Joshi [2009] 318 ITR 420 (Bombay) allowed the claim of deduction in respect of interest income under section 10A of the Act vide Para 7 and 8 ad under: - “7. I have heard the rival contentions of both the parties. Assessee is engaged in business of trading and manufacturing in pharmaceutical products. Assessee imported the raw material from Japan and letter of credit was issued by the bank. Against the letter of credit assessee was required to open a fixed deposit as margin money on which the interest income of Rs.2,27,290/- was earned. I find that similar ITAs No. 6226 & 7148/Mum/2017 issue had come up before the Hon’ble Gujarat High Court and the Hon’ble Gujarat High Court considering the decision of Hon’ble Supreme Court in the case of Liberty India vs. CIT (2009) 317 ITR 218/183 Taxman 349 (SC) has held as under:
II-Section 80-I of the Income-tax Act, 1961 - Deductions - Profits and gains from industrial undertakings etc. after certain dates (Computation of) - Assessment years 1989-90 to 199293 - Whether where interest earned by assessee from 'B' had direct nexus with business, it was required to be considered as 'derived from' business for purpose of computing amount of deduction under section 80-I - Held, yes - Whether where assessee was compelled to park a part of its funds in fixed deposits under insistence of financial institutions, interest income received on said deposits was to be regarded as business income for purpose of computing amount of deduction under section 80-I - Held, yes [Paras 7,8 and 10][In favour of assessee]
8. I find that similar issue was considered in respect of deduction under section 10A in the ITAs No. 6226 & 7148/Mum/2017 (87 taxmann.com 182) by the decision of Hon’ble Karnataka High Court (Full Bench). The issue before the High Court was with respect to disallowance of deduction under section 10A on the interest of fixed deposit kept in ordinary course of business. After considering the decision of Hon’ble Supreme Court Liberty India vs. CIT (supra) the Hon’ble Gujarat High Court in the case of Empire Pumps (P.) Ltd. vs. ACIT (supra) has held that assessee is allowed deduction under section 10A on the said interest income earned by the assessee on the bank deposit kept in the ordinary course of business. Similarly, Hon’ble Jurisdictional High Court in the case of CIT vs. Jagdishprasad M. Joshi 318 ITR 420 has held that the interest income on fixed deposit with bank was eligible for deduction under section 80IA. Similarly, Tribunal of Delhi Bench in the case of Pioneer Industries vs. ITO in dated 02.05.2016 wherein interest on fixed deposits kept as margin money against opening of letter of credit was held as eligible under section 80IC. Therefore, I am of the view that assessee is entitled for the same. Hence, we allow this appeal in favour of the assessee.”