Income Tax Appellate Tribunal - Hyderabad
Deputy Commissioner Of Income Tax vs Infotech Enterprises on 30 December, 2005
Equivalent citations: (2006)100TTJ(HYD)610
ORDER
J. Sudhakar Reddy, A.M.
1. This is an appeal filed by the Revenue, directed against the order of the CIT(A)-III, Hyderabad, dt. 17th Dec., 2002, for asst. yr. 1999-2000, on the following effective grounds :
2. The learned CIT(A) has erred in directing the AO not to disallow 90 per cent of the interest received basing on Tribunal's decision dt. 31st May, 2002 in the case of the assessee for the asst, yr. 1998-99.
3. The decision of the Tribunal in ITA No. 51/Hyd/2002, dt. 31st May, 2002 for the asst. yr. 1998-99 on the basis of which the learned CIT(A) has given direction, was not accepted by the Department and a RA was filed before the High Court.
2. We have heard rival submissions. On a careful consideration of the facts and circumstances of the case, we are of the considered opinion that the issue is covered in favour of the assessee and against the Revenue by the decision of Special Bench of the Tribunal in the case of Lalsons Enterprises v. Dy. CIT (2004) 82 TTJ (Del)(SB) 1048 : (2004) 89 ITD 25 (Del)(SB).
3. The learned Departmental Representative, while agreeing that the order of the CIT(A) is in line with the proposition laid down by the Special Bench of the Tribunal, submitted that there was no nexus between the interest receipt and the interest payment and the matter has to be reconsidered.
4. The learned Counsel for the assessee, on the other hand, contended that the question regarding nexus was never a subject-matter of dispute either before the AO or before the first appellate authority and that whether there is a direct nexus or an indirect nexus when the transactions are part of one whole business, is essentially a question of fact and when there is no finding in this regard from the lower authorities, the learned Departmental Representative is precluded from raising this ground, He vehemently contended that the question requires investigation into facts and cannot be raised at this stage before the Tribunal. He referred to Section 254(1) of the IT Act, 1961, specifically to the term "thereon", and relied on the judgment of the Hon'ble jurisdictional High Court in the case of CIT v. Krishna Mining Company , as well as the Full Bench decision of the Hon'ble jurisdictional High Court in the case of CIT v. Late Begum Noor Banu Alladdin , and the judgment of the Hon'ble Supreme Court in the case of Hukumchand Mills Ltd. v. CIT for the proposition that the Tribunal can deal with only that part of the order of the first appellate authority which has been made subject matter of appeal before it. He relied on many other case laws in support of this proposition. His case is that the ground now being raised by the Revenue does not arise out of the order of the first appellate authority and it cannot be admitted by the Tribunal whose jurisdiction, as submitted earlier, is confined to passing of orders only on facts found by the lower authorities. He relied on the order of the Special Bench of the Tribunal in the case of Lalsons Enterprises (supra) and submitted that the receipts that are to be excluded from the business profits are those which are included in such . profits. He further submitted that in the assessee's own case for the preceding two years, the Tribunal upheld the assessee's contention. He vehemently contended that there is not even a prayer for admission of additional ground, from the Revenue.
5. The learned Departmental Representative submitted that the issue of nexus has been discussed by the Bangalore Bench of the Tribunal in the case of Pathi Designs v. Dy. CIT (2005) 2 SOT 408 (Bang), wherein the decision of the Special Bench was considered and the AO was directed to reduce 90 per cent of net interest remaining after allowing set-off of interest paid which had a nexus with the interest received.
6. On a careful consideration of the submissions of the parties, we find much force in the argument of the learned Counsel for the assessee. It is true that the Tribunal's powers are limited to dealing with only that part of the order of the first appellate authority which has been made subject-matter of appeal before it. The AO has nowhere in the assessment order found that there was no nexus between the interest received and the interest paid. The first appellate authority also has not given any adverse finding on this issue. Thus, it is not open for the Revenue to raise a factual issue without any basis or fresh material, for the first time before the Tribunal, that too without filing an additional ground of appeal. Moreover, the Special Bench of the Tribunal in the case of Lalsons Enterprises (supra) has stated that the receipts that are to, be excluded from the business profits are those which are included in the profit. It is common knowledge that the term "profit" connotes only net of income minus expenditure. When the net figure goes into profit, we do not understand how the gross figure can be taken out. To give an example :
Purchases 50 Sales 100Interest Paid 500 Interest receipts 500
Profit of business 50
Total 600 600
In the case illustrated above, no element of interest enters into net profit. If the concept of nexus is brought in then an amount of Rs. 500 (gross) should be reduced from an amount of Rs. 50 (net profit). This creates an anomalous situation. When no element of interest has entered the figure of "profit of business", the question of removing interest does not arise. There is no need for nexus. Thus, in our considered opinion, the law laid down in the case of Lalsons Enterprises (supra) does not call for any nexus between interest received and interest paid in cases where net profit is the criterion. What has to be looked into under Section 80HHC is "business profits' and this is not the' same as in Section 80-I wherein the concept of "derived from an undertaking" is considered. There is no concept of "derived from" under Section 80HHC, All that is to be seen is whether the interest in question is assessed as "business profits" and if so the interest component included in such business profits should be excluded in terms of Expln. (baa) to Section 80HHC and the formula applied. There seems to be confusion on the concept of "profits of business" as contemplated under Section 80HHC and the concept of "income derived from" contemplated under Section 80-I. All that is to be seen under Section 80HHC is whether it is "profit from business" or not and then, if it is so, apply the formula. Looking at the matter from any angle, the order of the first appellate authority has to be upheld, by following the order of the Tribunal in the case of the assessee for earlier years.
7. In the result, the appeal of the Revenue is dismissed.