Income Tax Appellate Tribunal - Mumbai
B. Arunkumar And Co. vs Addl. Cit, Range-16(3) on 30 May, 2007
Equivalent citations: [2008]110ITD131(MUM), [2008]299ITR109(MUM)
ORDER
D.K. Srivastava, Accountant Member
1. Both the appeals filed by the assessee are directed against the common order passed by the CIT(A) on 20.01.2004 for assessment years 1995-96 and 2000-01. Issues raised in both the appeals are identical. We therefore find it convenient to dispose of both the appeals by a common order.
2. Ground No. 1 in both the appeals is identically worded except for the difference in figures. It relates to the claim of the assessee for deduction Under Section 80HHC. Ground No. 1 in both the appeals is in two parts. We shall first take up first part. In the first part, namely, Ground No. 1(a), the assessee has challenged the order of the CIT(A) in treating export of rough diamonds as minerals and thereby refusing to grant deduction Under Section 80HHC of the I-T Act. Ground No. 1(a) reads as under:
1(a) The ld. Assessing Officer had excluded the export of Rough Diamonds aggregating to Rs. 24,55,216/- from the export turnover of the firm on the ground that the "Rough Diamonds" as exported by the firm are minerals and therefore not eligible for deduction under section 80HHC of the Act.
It is submitted that Rough Diamonds as exported by the firm are not the minerals excluded from the scope of section 80HHC of the Act.
The conclusion arrived at by the ld. Assessing Officer is erroneous and contrary to the facts.
3. At the assessment stage, the assessee claimed before the Assessing Officer that it was engaged in the business of importing rough diamonds, cutting and polishing them and then exporting cut and polished diamonds. It claimed that the rough diamonds as imported were assorted according to their technical specifications and were used for cutting and polishing. It submitted before the Assessing Officer that during the course of cutting and polishing, it was found at times that the rough diamonds were technically not suitable for further processing and that these semi-processed rough diamonds did not have any ready market in India and as such were sold in international market. The assessee claimed before the Assessing Officer that the diamonds imported by it were processed involving several processes, e.g., cutting and polishing and it was only in the course of such processing that some diamonds were found unsuitable for further processing with the result that they were taken out of the manufacturing process and were accordingly sold as rough diamonds. The assessee claimed that rough diamonds exported by it were processed diamonds and not minerals as envisaged in section 80HHC of the I-T Act. The assessee claimed deduction Under Section 80HHC in respect of the profits derived from the export of such rough diamonds. The Assessing Officer examined the claim of the assessee and held that the rough diamonds exported by the assessee were minerals and not processed minerals within the meaning of section 80HHC. He therefore disallowed the claim of the assessee following the decision of this Tribunal in Classic Diamonds (I) Ltd. 275 ITD 245 in which it has been held that the deduction Under Section 80HHC was not admissible on export of rough diamonds. On appeal, the ld. CIT(A) has endorsed the order of the Assessing Officer in this behalf with the following observations:
Rival contentions have carefully been considered. After careful reading of the provisions of section 80HHC, CBDT Circular No. 693 dated 19.11.1994 and the items of Twelfth Schedule I have come to the conclusion that appellant's case fall under the item 10 of the Twelfth Schedule which is specific about cut and polished minerals and rocks including cut and polished granites. Such rejected rough diamonds cannot be considered as cut and polished minerals or rocks. Moreover, the various circulars issued by the CBDT dated 19.12.1991 and 19.11.1994 have clearly specified that the deduction Under Section 80HHC will be available only in respect of cut and polished diamonds and gem stones. This issue has further been resolved by the jurisdictional Hon'ble ITAT, Mumbai in the case of Classic Diamonds India Ltd., 76 ITD 246 wherein it has been held that deduction Under Section 80HHC would not be admissible on export of rough diamonds. As far as the decision of Mumbai Tribunal in its own case is concerned, same has carefully been read. After careful reading of Hon'ble ITAT Mumbai decision, it has come to my notice that Hon'ble ITAT has confirmed the inclusion of the export receipts of rough diamonds as part of total turnover, but the issue of the inclusion of the same as a part of export turnover has not been decided in favour of the appellant. Therefore appellant's plea that the export receipts of rough diamonds should be considered as part of export turnover is not acceptable. The decision of Mumbai Tribunal cited by the appellant in the case of Agarwal Family Trust is also not applicable at all to the facts of the appellant as it was about the broken pieces of diamonds and not in respect of the rough diamonds. Moreover, it is a single member bench unreported decision which is very old while the decision of Hon'ble ITAT, Mumbai in the case of Classic Diamonds is the recent reported decision comprising of two membeRs. In totality of these facts and circumstances, I have come to the conclusion that the appellant is not eligible for deduction Under Section 80HHC in respect of the export receipts of rejected rough diamonds. Therefore, appellant's appeal is dismissed on this ground.
4. Aggrieved by the aforesaid order of the CIT(A), the assessee is now in appeal before this Tribunal. At the time of hearing before us, the learned counsel for the assessee first submitted that the diamonds were not minerals within the meaning of section 80HHC(2)(b)(ii) as held by a Single Member Bench of this Tribunal in Premier Diamonds v. ACIT 116 Taxman 273 (Mag.) following the order of another Single Member Bench of this Tribunal in Agarwal Family Trust v. ITO {Order dated 19th April 1999 in ITA No. 1914/Bom./93 (AY 1989-90)} and therefore the rough diamonds would be eligible for relief Under Section 80HHC.
5. He next submitted, without prejudice to his earlier argument, that the rough diamonds, in any case, were processed minerals and thus would be eligible for deduction Under Section 80HHC. In this connection, he filed a chart showing Process Flow of Rough Diamonds. According to the assessee, certain processes are required to be carried out after excavation of Kimberlite (Ore) in order to convert it into rough diamonds. In order to extract diamonds from Kimberlite, crushing, milling, washing and screening are carried out through various methods and it is only then that skilled workers sort out rough diamonds. Such rough diamonds are imported into India, which may be un-assorted or mixed rough diamonds. They are again sorted in India by skilled assorters and ultimately issued for manufacturing polished diamonds through various processes. According to the ld. counsel, it is only in the course of cutting and polishing of the rough diamonds that it is found at times that rough diamonds are technically not suitable for further processing and therefore such rough diamonds are sold in the market.
6. He further submits that rough diamonds are washed and levigated before they are imported and they are, after their import, subjected to boiling and cleaning. He submits that the benefit of section 80HHC is available to both the traders as well as manufacturers and therefore it is not essential that the assessee must himself process the rough diamonds in order to claim deduction Under Section 80HHC. He submits that the rough diamonds as exported are not minerals but are processed minerals and hence the profits derived from their export: are eligible for deduction Under Section 80HHC.
7. As regards the admissibility of deduction of the profits derived from the export of such rough diamonds, the ld. counsel submits that section 80HHC of the I-T Act envisages tax benefits on export of goods or merchandise out of India in hard currency. He submits that the benefit Under Section 80HHC is undoubtedly not available in respect of export of minerals and mineral ores but "processed" minerals are specifically excluded from the minerals. According to him, the diamonds exported by the assessee are processed minerals, namely, rough diamonds and not minerals per se as envisaged in section 80HHC. He contended that the legislative intent was to exclude only minerals per se and not those minerals to which value has been added by processing them and therefore such value added minerals were eligible for special relief Under Section 80HHC. In reply, the ld. Departmental Representative supported the orders passed by the Assessing Officer and the ld. CIT(A).
8. We have heard the parties. Clause (b) of Sub-section (2) of section 80HHC excludes "(i) mineral oil; and (ii) minerals and ores (other than processed minerals and ores specified in the Twelfth Schedule)" from the purview of section 80HHC(1) in that the benefit of section 80HHC is not available in respect of the profits derived from their export. In the case before us, we are concerned with Sub-clause (ii) of clause (b) of sub-section (2) of section 80HHC. The issue for adjudication is whether rough diamonds are minerals and if so whether they are processed minerals. If they are not minerals, the case of the assessee will straightway fall outside the scope of the said provision making the assessee eligible for deduction Under Section 80HHC. If it is, however, held that they are minerals, then it will have to be further seen whether they are "processed minerals and ores specified in the Twelfth Schedule" so as to exclude them from the "minerals".
9. We shall first examine whether diamonds are minerals. "Diamond" is defined at page 661 of The New Shorter Oxford English Dictionary (Volume One) - 1993 Edition as "a colourless or lightly tinted precious stone of great brilliance, hardness, and value, occurring chiefly in alluvial deposits, the allotrope of carbon of which it consists (the hardest naturally occurring substance)...." According to section 3(a) of the Mines and Minerals (Development and Regulation) Act, 1957, "'minerals' includes all minerals excluding mineral oils." The definition of "minerals" in the said Act is not exhaustive. However, Part "C" of the First Schedule to the said Act specifies "Precious stones" in the list of "Metallic and Non-metallic minerals". For exhaustive definition of the term "minerals", we have to turn to the Mines Act, 1952 which defines "minerals" as meaning "all substances which can be obtained from the earth by mining, digging, drilling, dredging, hydraulicing, quarrying, or by any other operation and includes mineral oils (which in turn include natural gas and petroleum)." Likewise, section 2(e) of the Atomic Energy Act, 1962 defines "Minerals" as including "all substances obtained or obtainable from the soil (including alluvium or rocks) by underground or surface working." Black's Law Dictionary (Seventh Edition) defines "minerals" at page 1009 as "Any natural inorganic matter that has a definite chemical composition and specific physical properties that give it value most minerals are crystalline solids." The New Shorter Oxford English Dictionary (Volume One) - 1993 Edition - explains the meaning of "minerals" at page 1780 as "Of a material substance: neither animal nor vegetable in origin; inorganic...." A mineral is thus a natural body destitute of organization or life. Mineral bodies occur in three physical conditions of solid, liquid and gas. The word "minerals" would thus mean and cover all substances other than the agricultural surface of the ground which may be got for manufacturing or mercantile purposes, such as stone or clay, whether got from a mine, or by open working, and whether containing metallic substances or substances entirely non-metallic. Tested on the aforesaid parameters, diamonds will fall in the category of minerals.
10. As stated earlier in this Order, the learned counsel for the assessee has referred to two orders passed by the Single Member Benches of this Tribunal. First order is in the case of Agarwal Family Trust (supra) in which the learned Single Member has held: "Such small pieces of broken diamond cannot be considered in my opinion as mineral ore. They are the export of diamonds only." The aforesaid decision has been followed by another Single Member Bench in Premier Diamonds (supra). It is well established that the decisions rendered by the Single Member Benches are not binding on Division Benches of two Members or larger Benches. On merits also, what has been held in Agarwal Family Trust is that the broken diamonds are not mineral ores. In the case before us, we are concerned with the issue as to whether the rough diamonds are "minerals" and not whether they are "mineral ores". The distinction between "minerals" and "mineral ores" are too well known to warrant any elaboration here. In any case, the authorities cited above clearly indicate that diamonds are minerals. Thus both the decisions of the Single Member Benches do not assist the assessee in any way.
11. The alternative case of the assessee, however, is that rough diamonds exported by it are "processed minerals" and thus they stand specifically excluded from the "minerals". In this connection, the learned counsel for the assessee has taken us through the Twelfth Schedule, which contains a list of processed minerals and ores. For better appreciation, it may be useful to reproduce Twelfth Schedule, which reads as under:
THE TWELFTH SCHEDULE [See section 80HHC(2)(b)(ii)] PROCESSED MINERALS AND ORES
(i) Pulverised or micronised--barytes, calcite, steatite, pyrophylite, wollastonite, zircon, bentonite, red or yellow oxide, red or yellow ochre, talc, quartz, feldspar, silica powder, garnet, silliminite, fireclay, ballclay, manganese dioxide ore.
(ii) Processed or activated--bentonite, diatomious earth, fullers earth.
(iii) Processed--kaolin (china clay), whiting, calcium carbonate.
(iv) Beneficated--chromite, flourspar, graphite, vermiculite, ilminite, brown ilminite (lencoxene) rutile, monazite and other mineral concentrates.
(v) Mica blocks, mica splittings, mica condenser films, mica powder, micanite, silvered mica, punched mica, mica paper, mica tapes, mica flakes.
(vi) Exfoliated--vermiculite, calcined kyanite, magnesite, calcined magnesite, calcined alumina.
(vii) Sized iron ore processed by mechanical screening or crushing and screening through dry process or mechanical crushing, screening, washing and classification through wet process.
(viii) Iron ore concentrates processed through crushing, grinding or magnetic separation.
(ix) Agglomerated iron ore.
(x) Cut and polished minerals and rocks including cut and polished granite.
Explanation.-- For the purposes of this Schedule, "Processed", in relation to any mineral or ore, means--
(a) dressing through mechanical means to obtain concentrates after removal of gangue and unwanted deleterious substances or through other means without altering the minerological identity;
(b) pulverisation, calcination or micronisation;
(c) agglomeration from fines;
(d) cutting and polishing;
(e) washing and levigation;
(f) benefication by mechanical screening or crushing and screening through dry process;
(g) sizing by crushing, screening, washing and classification through wet process;
(h) other upgrading techniques such as removal of impurities through chemical treatment, refining by gratuity separation, bleaching, floatation or filtration.
12. The case of the Department is that it is only "cut and polished minerals and rocks including cut and polished granite", which have been classified as "processed minerals and ores" and hence rough diamonds, which are not cut and polished minerals, are not eligible for deduction Under Section 80HHC. The case of the assessee, on the other hand, is that the rough diamonds are "processed" minerals within the meaning of the term "processed" occurring in the Explanation in the Twelfth Schedule.
13. We have given serious consideration to the rival submissions. The Twelfth Schedule lists 10 items under the head "PROCESSED MINERALS AND ORES". Item No. (x) specifies " Cut and polished minerals and rocks including cut and polished granite" as a processed mineral. Item No. (x) does not envisage any further processing of " Cut and polished minerals and rocks including cut and polished granite" but treats them by themselves as processed minerals. Careful perusal of the aforesaid ten items in the Twelfth Schedule shows that the term "processed" has been used in item nos. (ii), (iii), (vii) and (viii) in relation to certain specified minerals and ores and not in relation to other items including item No. (x). Wherever further processing is envisaged to any specific mineral, it is clearly indicated which is evident from the fact that certain items in the Twelfth Schedule are expressly preceded by the word "processed" as in item Nos. (ii), (iii), (vii) and (viii). Quite apparently, rough diamonds do not fall in any of the categories under the aforesaid items. Secondly, the meaning given to the term "processed" in the Explanation to the Twelfth Schedule has to be read in the context of the word "processed" used to qualify certain specific minerals identified in item nos. (ii), (iii), (vii) and (viii) and not in relation to other minerals and ores falling under other items of the Schedule which are neither qualified nor preceded by the word "processed". Therefore, the meaning assigned to the term "processed" in the Explanation to the Twelfth Schedule cannot be extended to qualify the minerals and ores in general over and above those listed in items (ii), (iii), (vii) and (viii). The meaning of the term "Processed" given in the Explanation is relevant for understanding the meaning of the term "processed" as used in item nos. (ii), (iii), (vii) and (viii) alone and not in relation to other minerals and ores falling under other items including item No. (x) of the said Schedule. Thirdly, we find that first nine items of the said Schedule deal with certain specific minerals identified therein while item No. (x) deals with minerals not specified in the first nine items of the Schedule. Rough diamonds do not fall in any of the first nine items of the Schedule. They fall under item No. (x) of the said Schedule. In order to be covered under item No. (x), the minerals, and the diamonds are minerals as held above, must be "Cut and polished minerals and rocks including cut and polished granite" and not rough diamonds. Thus the case of the assessee is squarely hit by item No. (x) of the Twelfth Schedule which classifies "Cut and polished minerals and rocks including cut and polished granite" alone as processed mineral. The emphasis in item (x) is on "cut and polished minerals" and not on cut or polished minerals. Quite apparently, the case of the assessee does not fall under item No. (x) of the Twelfth Schedule and hence the rough diamonds exported by it cannot be considered as eligible for deduction Under Section 80HHC of the 1-T Act. We hold accordingly. The order of the learned CIT(A) is confirmed in this behalf.
14. The Assessing Officer has referred to and extracted relevant portion of the Circular F. No. 178/2006/83-IT (A-l) dated 22.5.84 issued by the Central Board of Direct Taxes in the assessment order in which it has been clarified that the export of cut and polished diamonds and Gems stones will not amount to export of minerals and ores. By Finance (No. 2) Act 1991, sub-clause (ii) of clause (b) of sub-section (2) of section 80HHC was amended so as to exclude processed minerals and ores specified in the Twelfth Schedule from the purview of minerals and ores. The Central Board of Direct Taxes has again clarified vide its Circular No. 693 dated 19.11.1994 that "The entry in the Twelfth Schedule is very clear and unambiguous and uses the term "cut and polished". Therefore, for availing of the benefit Under Section 80HHC, it is necessary that the rock is not only cut into blocks but also polished' before it is exported. The Assessing Officer has further observed in the assessment order that the Hon'ble Karnataka High Court has held the aforesaid Circular to be valid and in accordance with the provisions of section 80HHC and the Twelfth Schedule in God Granite v. CBDT 218 ITR 298 (Karn.). In our view, the Assessing Officer has correctly appreciated the issue under consideration and the CIT(A) has rightly affirmed his decision. In taking the aforesaid view, we are very ably guided and fortified by the decision of a coordinate Bench of this Tribunal in ACIT v. Classic Diamonds (I) Ltd. (2000) 75 ITD 245 (Mum.). We are in respectful agreement with the aforesaid decision.
15. The learned counsel for the assessee however relied upon the order of a Division Bench of this Tribunal in assessee's own case for AY 1985-86. We have given careful consideration to the aforesaid decision. In AY 1985-86, the provisions of section 80HHC(2)(b) were differently worded from those in the assessment years under appeal. As already stated earlier in this Order, it is the Finance (No. 2) Act 1991, which has amended sub-clause (ii) of clause (b) of sub-section (2) of section 80HHC so as to exclude "processed minerals and ores specified in the Twelfth Schedule" from the purview of minerals and ores. This issue was therefore not under consideration in the assessee's case for AY 1985-86. The decision in ACIT v. Classic Diamonds (I) Ltd. (supra) was not brought to the notice of the Bench deciding the assessee's appeal for AY 1985-86 though the said decision had been rendered and was available. If the existing decision of a Division Bench in Classic Diamonds (I) Ltd. (supra) had been brought to the notice of a succeeding Division Bench deciding the appeal in the assessee's own case for AY 1985-86 involving similar issue, the succeeding Division Bench would have been obliged to follow the decision of a co-ordinate Division Bench in Classic Diamonds (I) Ltd., in terms of the decision of the Hon'ble Supreme Court in Union of India v. Paras Laminates 186 ITR 722, 726-27 (SC) in which it has been held that a Bench of two members must not lightly disregard the decision of another Bench of the same Tribunal on an identical question. In an identical situation a coordinate Bench of this Tribunal has taken the following view in Mehratex India Ltd. v. DCIT (2005) 3 SOT 539:
9. It is thus beyond dispute that a decision which is per incuriam is not a binding judicial precedent. It is also well-settled that when it is not open to a High Court Bench to differ from the decision of a bench of equal strength, it cannot also be open to a bench of this Tribunal to differ from the view taken by a co-ordinate Bench of equal strength. The only option in case one doubts the correctness of such a decision is to refer the matter for constitution of a larger Bench. A decision ignoring this rule of precedent, which is duly approved by the Hon'ble Courts from time-to-time cannot but be viewed as per incuriam. Therefore, following the Hon'ble AP High Court Full Bench decision in the case of B.R. Construction (supra), such a decision of the co-ordinate Bench was of no precedence value.
16. Respectfully following the aforesaid view taken by a coordinate Bench of this Tribunal, we consider ourselves bound by the decision in ACIT v. Classic Diamonds (I) Ltd. (supra). Both the Assessing Officer and the CIT(A) have followed the aforesaid order of the Tribunal in deciding upon the issue against the assessee. In our view, the learned CIT(A) has committed no error in following the aforesaid decision of this Tribunal. In fact, we are equally bound to follow the aforesaid decision till a higher judicial forum supercedes it. In this view of the matter, it cannot be said that the impugned order passed by the learned CIT(A) is irregular, illegal or irrational warranting our intervention. It is well settled that an order passed by a quasi-judicial authority, like the AO and the CIT(A), which is not found to be irregular, illegal, irrational or contrary to law cannot be interfered with in the appellate proceedings. In this view of the matter, the order of the CIT(A) is confirmed. In view of the foregoing, Ground No. 1 taken by the assessee in both the appeals is dismissed.
17. We shall now take up ground No. 1(b), which is identical in both the appeals except for the difference in the amount. Ground No. 1(b) reads as under:
1(a) The ld. Assessing Officer erred in treating Interest aggregating to Rs. 15,73,681/- received by the firm as Income from other sources and accordingly excluding the same from the business profits for the purpose of computing deduction allowable under section 80HHC of the Act.
It is submitted that the firm has advanced temporary loans for which it has received interest at the same time the firm has paid interest aggregating to Rs. 4,06,74,657/- on the borrowing out of which the said loans were given. Therefore, there is no positive income from "Interest" which could be excluded from the business profits. The appellant has correctly reduced the interest expenses by the amount of interest received by the firm.
The conclusion arrived at by the ld. Assessing Officer is erroneous and contrary to the facts.
18. Briefly stated, the facts of the case are that the assessee had advanced temporary loans on interest pursuant to which it received interest amounting to Rs. 15,73,681/- in AY 1995-96 and Rs. 73,463/- in AY 2000-01. The assessee had also paid interest to the banks for availing credit facilities and also to others for obtaining unsecured loans. The Assessing Officer treated the interest received on amounts advanced as income from other sources and consequently brought the same to the charge of income-tax Under Section 56 of the I-T Act. He did not allow set off of interest paid as interest paid was claimed by the assessee to be a business expenditure Under Section 36(l)(iii) of the I-T Act. On appeal, the ld. CIT(A) has confirmed the order of the Assessing Officer in this behalf. He held that impugned interest receipts were rightly taxed by the Assessing Officer as income from other sources. Without prejudice to the aforesaid finding, the ld. CIT(A) has also held that even if the interest receipts were treated as business receipts, the benefit of set off of interest payments against interest receipts would not be available as they did not have any correlation and nexus. Being aggrieved by the aforesaid order of the CIT(A), the assessee is now in appeal before this Tribunal.
19. In support of the appeal, the ld. counsel for the assessee submitted that the advances given by the assessee were temporary in nature in order to earn some interest so as to reduce the overall interest burden. He contended that the amount of interest received on such temporary advances could not be treated as income from other sources. According to him, they should be treated as income from business as the advances fetching interest were given during the course of business. He also referred to the decision in Lalsons Enterprises 89 ITD 25 (SB) for claiming the benefit of set off of interest payments against interest receipts, which, according to him, has been approved by the Hon'ble Delhi High Court in Sriram Honda 289 ITR 475 (Del.).
20. In reply, the ld. Departmental Representative supported the orders passed by the Assessing Officer and the CIT(A). He contended that the impugned interest receipts have rightly been taxed as income from other sources and hence they were not eligible for set off against interest payments falling Under Section 36(1)(iii).
21. We have heard the parties. In the case before us, interest receipts have been earned on advances given to third parties. Hon'ble Bombay High Court has held in CIT v. Indo Swiss Jewels Ltd. 284 ITR 389 (Bom.) that interest earned on short term inter-corporate deposits made out of amount set apart for import of machinery is assessable as business income and not as income from other sources. At the time of hearing, the said judgment was not cited at the Bar but is binding on us and is also relevant for deciding the issue. Taking judicial notice of the principles laid down in the said judgment, the case of the assessee needs to be restored to the file of the AO for a fresh decision in accordance with law after bringing the following materials on record:
(i) Whether, as claimed by the assessee, the impugned interest bearing advances or deposits were made out of interest bearing credit facilities or loans obtained from the banks and "set apart" for the purpose of the business for which they were obtained? The test that should be applied by the AO is whether the advances were given out of the interest bearing credit obtained and set apart by the assessee for that business purpose for which they were obtained so as to reduce the interest burden. If the assessee satisfies the aforesaid test to the satisfaction of the AO, the interest so received should be assessed Under Section 28 as non-operational business income in terms of the judgment in Bangalore Clothing 260 ITR 371 (Bom.) and, in that case, should be set off against the interest payments Under Section 36(1)(iii) in terms of the decision of a Special Bench of this Tribunal in Lalsons Enterprises 89 ITD 25 (SB) in which it has been held that "it is only the 90% of the net interest remaining after allowing a set-off of interest paid, which has a nexus with the interest received, that can he reduced and not 90% of the gross interest".
(ii) If the assessee, on the other hand, fails to establish to the satisfaction of the AO that interest bearing advances or deposits were made as a temporary measure out of the interest bearing credit facilities obtained from the banks and set apart by it for the purpose for which they were obtained; or the AO, in the alternative, is in a position to establish that it is surplus funds (i.e., the money other than the one raised from the banks and set apart for the specified purpose) that were used for giving the advances or making the deposits fetching the interest or that the advances so given were not intended, as a temporary measure, to reduce the interest burden but to earn interest per se in the long run, the AO, in such a case, would tax the interest receipts as income from other sources Under Section 56 without setting off the same against interest payments Under Section 36(l)(iii).
In view of the foregoing, the issue raised by the assessee in Ground No. 1(b) is restored to the file of the AO for a fresh decision on the aforesaid lines, after giving a reasonable opportunity of hearing to the assessee. Ground No. 1(b) in both the appeals is treated as allowed for statistical purposes.
22. Ground No. 2, which is common in both the appeals, reads as under:
The CIT(A) erred in upholding the order of Assessing Officer reducing the business income of the appellant by allowing depreciation on immovable properties.
It is submitted that the appellant has not claimed depreciation on immovable properties and as such the same cannot be reduced from the business income of the appellant.
The conclusion arrived at by the ld. Assessing Officer is erroneous and contrary to the facts.
23. We have heard the parties. The ld. counsel for the assessee fairly conceded that the issue was covered against the assessee by the decision of a Special Bench of this Tribunal in Vahid Paper Converters v. ITO 98 ITD 165 (Ahd.) (SB) as also by the decision of the Hon'ble jurisdictional High Court in Scoop Industries Pvt. Ltd. 207 CTR 599 (Bom.). In this view of the matter, ground No. 2 taken by the assessee in both the appeals is dismissed. In view of the foregoing, both the appeals filed by the assessee are partly allowed.
Order pronounced on 30th May 2007