ADDL CIT 19(3), MUMBAI vs. PETROLEUM INDIA INTERNATIONAL, MUMBAI

2 4657 & 46658/09 ITA No.1741&6322/10 ITA No.2686&6421/12 2. Common grounds have been taken in all the years under consideration, therefore, all the appeals were heard together and are now decided by this consolidated order.

Rival contentions have been heard and record perused. WE shall take the appeal for assessment year 2003-2004 as a lead appeal. Facts in brief are that the assessee is a consortium of several public and private companies in Petroleum sector as its members. It is engaged in the business of providing operation assistance and technical back-up to foreign companies. During the scrutiny assessment the AO made disallowance u/s.40(a)(iii) on the plea that non-deduction tax. The CIT(A) deleted the disallowance by following the order of the Tribunal in assessee’s own case dated 5-9-2008 for the assessment year 2003-04.

From the record we found that after considering the assessee’s case, the Tribunal by its consolidated order dated 5-9-2008 decided this issue in assessee’s favour. The assessee has filed a copy of the Tribunal’s order. The findings of the Tribunal appears in para 5 of the said order are as under :- "5. We have considered the rival submissions carefully. We find that the basic facts of the case are not in dispute. We find that the issue of applicability of provision of Sec 40( a)(iii) of the Act is covered in favour of the assessee with the decision of the Mumbai Tribunal in assessee's own case for the Assessment years 1989- 90, 1990-91 and 1991-92 (supra) wherein the Tribunal on identical facts has decided the issue in favour of the assessee. We hold that the Tribunal after considering all the facts of the case and the pleading of the parties and the relevant case law cited at the bar has concluded that it cannot be stated that the seconded personnel were not the employees of the assessee company and so the foreign allowance paid to them by the assessee company cannot be considered as part of salary and so provisions of Sec 40(a)(iii)

We have considered rival contentions and found that this ground of appeal was also the subject matter of appeals in earlier assessment years before the Tribunal in which the facts were same as in the year under this appeal. After considering the similar facts and explanation, the Tribunal has allowed the appeal by its order dated 5-9-2008. Our attention was 4 4657 & 46658/09 ITA No.1741&6322/10 ITA No.2686&6421/12 drawn at para 12 of the order of the Tribunal, wherein it was observed as under :- “12. We have considered the rival submissions carefully. We find that the language of Sec 91(1) of the Act is un-ambiguous on the issue, which provides that where the assessee proves that in respect of his income which accrued or arose during that previous year outside India and he has paid in any country with which there is no agreement u/s 90 for the relief or avoidance of double taxation, he shall be entitled to deduction from the Indian Income Tax payable by him of a sum calculated on such doubly taxed income. We find that nowhere in the provision of sec 91 (1) of the Act, it is provided that the payment of taxes outside India shall be during the relevant previous year itself The purpose of this provision of Sec 91 (1) of the Act is to provide relief in a case where the assessee has paid the taxes outside the country, not to subject such assessee to double taxation on the same income. If the interpretation put forward by the Ld CIT DR is accepted, it shall render the provision of Sec 91 (1) itself as redundant. We find that the assessee has discharged its onus of proving that it has in fact made the payment of taxes in Kuwait in subsequent periods. The CIT(A) has recorded the dates and amount of payment of taxes in Kuwait by the assessee and has recorded that the assessee has furnished before him the original documents evidencing these payments and the same have also been furnished before the Assessing Officer and has been verified by him. There is no material before us to controvert these findings of the CIT(A). in these facts of the case; we hold that the assessee is entitled to relief u/s 91 (1) of the Act and the order of the CIT(A) is confirmed and the ground of appeal

We have considered the rival contention and found that the funds placed with the bank were inextricably related with the business of the assessee and was under business compulsion. It was not a surplus fund which was deposited by the assessee for earning interest income. In the facts of instant case, we found that proposition of law laid down by the jurisdictional High Court is applicable to the facts of the case, insofar as there is an inextricable nexus between assessee’s business and the deposits kept apart for the said purpose of business, which is clearly established. The CIT(A) has elaborately dealt with the issue and held that putting in bank for getting letter of credit/ bank guarantee was inextricably linked with the business of assessee, therefore, interest earned thereon are assessable as business income. The proposition of law laid down by the Hon’ble Bombay High Court in the case of Indo Swiss Jewels Ltd., 284 ITR 389 (Bom) and also the decision of Hon’ble Supreme Court in the case of Karnal Co-operative Sugal Mills Ltd., 243 ITR 2(SC) are applicable to the facts of assessee’s case. The detailed finding recorded 8 4657 & 46658/09 ITA No.1741&6322/10 ITA No.2686&6421/12 by the CIT(A) has not been controverted. Accordingly, we do not find any reason to interfere in the order of the CIT(A) for treating the interest income as business income”” in place of “ income from other sources””.

The next grievance of Revenue relates to the treatment of foreign exchange fluctuation. We found that the observations of AO on this issue are found in para 5.4 of his order. The facts show that the sum of Rs.88.99 lacs was credited to the assessee’s profit and loss account as gain due to fluctuations in foreign exchange. In the earlier assessment years too, this issue was involved, namely, whether the gain from foreign exchange fluctuations was assessable under the head business income. It was fairly conceded by ld. AR that matter was restored to the file of AO by the Tribunal in assessee’s own case in the assessment year 2003-04 vide order dated 28-9-2012. Respectfully following the order of the Tribunal in assessee’s own case, we set aside the order of the CIT(A) on this issue and matter is restored back to the file of AO for deciding in terms of directions given by the Tribunal in its order dated 28-9-2012 for the assessment year 2003-04. We direct accordingly.

The deduction claimed by the assessee u/s 80HHC of the Act was declined by the A.O. after having observed at para 10 of his order for want of evidence in support of the figures adopted for calculation of 80HHC and no proof in support of export realization hae been filed by the assessee. By the impugned order, the ld. CIT(A) allowed the assessee’s claim by

We have considered the rival contentions and perused the records. We found that without controverting the precise observation of the A.O., the ld. CIT(A) deleted the disallowance made by the A.O. In the interest of justice, we restore this issue to the file of the A.O. for the deciding the same a fresh after considering the documents filed before the ld.CIT(A) to justify the claim of deduction u/s 80HHC of the Act.

The assessee’s claim of deduction u/s 80HHE of the Act was declined by the A.O. by observing at para 9 of his order. As per the A.O., the assessee did not file any evidence in support of the eligible amount of deduction u/s 80HHE of the Act. Without controverting the finding of the A.O., the ld. CIT(A) has allowed the claim of assessee. In the interest of justice, we restore this issue back to the file of the A.O. for deciding the issue afresh after examining the documents filed by the assessee.

The A.O. also disallowed the claim of deduction u/s 80HHB of the Act after having observing at para 8.1 to 8.7 of his order according to which the assessee has not prepared any balance sheet in respect of this project. By the impugned order, the ld. CIT(A) allowed the claim since the assessee fulfilled the conditions of section 80HHB of the Act. It appears that these details were not available before the A.O., therefore, in the interest of justice, we restore this issue also to the file of the A.O. for 10 4657 & 46658/09 ITA No.1741&6322/10 ITA No.2686&6421/12 deciding the same afresh after giving sufficient opportunity of being heard to the assessee.

The next grievance of the revenue relates to deleting disallowance of Rs.3420/- on account of business gifts. The CIT(A) has deleted the disallowance by observing that expenditure was indeed for the purpose of the assessee’s business and for no other purpose. This finding of the CIT(A) was not controverted by the ld. DR by bringing any positive material on record. Accordingly, we do not find any reason to interfere in the order of CIT(A) for deleting the disallowance on account of business gift. 16. In the result, all appeals of revenue are allowed in part, in terms indicated hereinabove. Order pronounced in the open court on this 20/11/2015.