Income Tax Appellate Tribunal - Mumbai
Karp Impex Ltd. , Mumbai vs Department Of Income Tax on 21 December, 2006
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCHES "H", MUMBAI
BEFORE SHRI. PRAMOD KUMAR (A.M.) AND
SMT. ASHA VIJAYARAGHAVAN (J.M.)
ITA No.2998/MUM/2008
Assessment Year : 2004-2005
A.C.I.T. 5(2), Karp Impex Ltd.
R.No.571, 5th Flr., 1411, Prasad Chambers,
Aayakar Bhavan, M.K. Rd., Opera House,
Mumbai - 400 020. Vs. Mumbai - 400 004.
PAN : AABCK1823K
(Appellant) (Respondent)
Appellant by : Shri R.S. Srivastav
Respondent by : Shri D.R. Raiyani
ORDER
PER ASHA VIJAYARAGHAVAN, J.M.
This is an appeal filed by the revenue for the AY 2004-05 filed against the order of the CIT(A) passed on 08.02.2008 on the order of assessment dated 21.12.2006.
2. The first ground of appeal by the Revenue is against directions of the. CIT(A) to net off the interest of Rs. 8,87,968/- received on fixed deposit with the interest paid while computing the deduction u/s 80HHC of the I.T. Act, 1961.
3. While this issue has been decided in favour of the Assessee by the coordinate bench in the Assessee's own case for the earlier assessment year 2003-04,in ITA No ITA No 6988/M/2007 dated 4.12.2009, we find that, after the order of the ITAT, the jurisdictional High Court in the case of CIT v Asian Star Co Ltd ((2010) 231 CTR 1 Bom) has decided the very same issue against the assessee. In that case the Bombay High Court has held that when under Explanation (baa) to sec 80HHC, 90% of the receipts like 2 ITA No.2998/MUM/2008 Assessment Year : 2004-2005 interest, commission and brokerage, to be excluded, the parliament has provided 10% deduction towards possible expenditure that might have been incurred in earning those incomes. In a given case the Assessee might have expended a higher amount to earn that income. But once the parliament has legislated both about the nature of exclusion and the extent of exclusion, it is not open to the court to order otherwise by rewriting the Legislative provisions. Therefore 90% of the gross interest received by the must be excluded profits and gains of business, under explanation (baa) to sec 80HHC for the purpose of determining the deduction under that section. Respectfully following the decision of the jurisdictional High Court, we allow the appeal of the revenue, reverse the order of the CIT(A) and direct the exclusion of 90% of the gross interest received of Rs.7,99,171/- being 90% of the interest on FDR of Rs. 8,87,968/-, from the profits and gains of the business while computing relief u/s 80HHC- as has been done in the Assessment Order.
4. The second ground of appeal by the revenue is against deletion by. CIT(A) the proportionate disallowance of interest of Rs. 7,21,252/- made by the Assessing Officer on account of interest free investments with subsidiary companies without establishing business expediency. CIT(A) allowed the Assessee's claim following his earlier year order for AY 2003-04. We find that the same issue had been considered by the ITAT for the earlier AY 2003-04 in ITA No 6988/M/2007 dated 4.12.2009. In that order the ITAT has dismissed the revenue's appeal on this issue observing as under:
"5. Ground No.2 relates to disallowance of interest on of Rs. 7,12,296/- The AO noticed from the profit and loss account that the assessee had debited Rs 10,75,99,938/- towards interest expenses. From the balance sheet it was noticed that assessee had secured loan of Rs. 293,07,25,178/- on which these finance expenditure was claimed. From the schedule of investment it was noticed that the assessee had made following fresh investment.
Kashli Impex P.Ltd Rs. 90,00,000
Hardik diam NV, Belgium Rs. 11,21,890
Karp Impex KH Ltd Hongkong Rs 213,75,000
The AO held that as these investments have nothing to do with business activity of the assessee and it could not be said that these 3 ITA No.2998/MUM/2008 Assessment Year : 2004-2005 investments were made wholly from the company's own finds. Therefore the AO disallowed Rs. 7,12,296/- and added back to the total income of the assessee on appeal the CIT(A) main martial relief to the assessee. Being aggrieved revenue is in appeal before this Tribunal.
We have heard both sides and perused records. The CIT(A) while granting partial relief observed as under:
" I have gone through the arguments and submissions of the ld.AR of the appellant as well as the contents of the impugned assessment order. I find that the findings of the ld.AO are misplaced. He has given a clear finding in his impugned order that it could also not be said that the impugned investments were only from their own funds. This itself gives a way to the appellant towards justification of the interest paid on borrowed funds. For allowance of interest on borrowed funds, the Hon'ble Supreme Court has already stated and appointed in the case of S.A. Builders Ltd that it is not only the business of the appellant wherein those funds may be deployed but it may be the business of the subsidiary company even wherein those funds are employed for their business to make the interest paid allowable within the Meaning of Income Tax Act 1961 as a legitimate expenditure of the appellant for business purposes. Therefore, I do not see any justification for any proportionate disallowance for such business expenditure on account of interest paid. Since the ld. AO has already been directed in this order to net off the interest, an appropriate impact on deduction u/s 80HHC, may automatically be there. This ground of appeal is also, thus partly allowed."
As can be seen from the above observation, the CIT(A) granted relief to the assessee following the decision of the Hon'ble Supreme Court in the case of S.A. Builders vs CIT (269 ITR 535) Therefore, there is no infirmity in the order of the CIT(A). The second ground raised by the raised is also rejected."
5. Respectfully following the order of the coordinate bench in the Assessee's own case for the earlier assessment year 2003-04,in ITA No ITA No 6988/M/2007 dated 4.12.2009 we dismiss the revenue's appeal on this ground.
6. The next ground pertains to restriction by the CIT(A) of disallowance of Rs 1 lakh out of miscellaneous expenses. The CIT(A) has held as under:
"I have gone through the arguments and submissions of the Ld. A.R. as well as the contents of the impugned assessment order. I find that the Ld. A.O. has found only payment of Rs 1 lakh on 13.11.2003 paid to Bombay Hospital that is included and claimed as miscellaneous expenses to the tune of Rs 51,08,152/- The appellant could not explain it either at the stage of assessment or appeal that this payment of Rs. 1 Lakh is in any way incurred wholly and exclusively for business purpose. Thus this disallowance of Rs 1 4 ITA No.2998/MUM/2008 Assessment Year : 2004-2005 lakh is upheld out of Rs 2 lakhs. Rest of Rs 1 lakh out of Rs 2 lakh of disallowance is not sustainable as it is not based on any sound reasoning. Hence, the total disallowance of Rs 2 lakhs is restricted to Rs 1 lakh in the facts and circumstances of instant case. This ground of appeal is allowed partially."
7. Aggrieved the revenue is on appeal. We find that the disallowance of Rs. 1 lakh deleted by the CIT(A) has been done on an adhoc basis without any basis. Nothing has been brought on record to persuade us to take a different view from that of the CIT(A). We therefore confirm the order of the CIT(A) deleting the ad-hoc disallowance of Rs.1 lakhs out of the Miscellaneous expenses and dismiss the appeal by the revenue on this ground.
8. In the result, the appeal by the revenue is partly allowed.
Order pronounced on this 6th day of October, 2010.
Sd/- Sd/-
(PRAMOD KUMAR) (ASHA VIJAYARAGHAVAN)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai, Dated 06.10.2010
Janhavi
Copy to:
1. The appellant
2. The respondent
3. Commissioner of Income Tax (Appeals)- , Mumbai
4. Commissioner of Income Tax, City- , Mumbai
5. Departmental Representative, Bench ' ', Mumbai //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI