M/S Vardhman Spinning And General Mills Ltd v. Commissioner Of Income Tax, Range-I, Ludhiana & Another

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH I.T.A No. 340 of 2007 Date of decision : September 05, 2008 M/S Vardhman Spinning and General Mills Ltd. ...... Appellant through Mr.Akshay Bhan, Advocate v. Commissioner of Income Tax, Range-I, Ludhiana & another, ...... Respondents CORAM : HON'BLE MR.JUSTICE ADARSH KUMAR GOEL HON'BLE MR.JUSTICE AJAY TEWARI *** 1. Whether Reporters of Local Newspapers may be allowed to see the judgment ? judgment ? 2. To be referred to the Reporters or not ? 3. Whether the judgment should be reported in the Digest ? *** AJAY TEWARI, J The present appeal proposes the following questions of law:- “ i)Whether the ITAT was justified in excluding theinterest income accrued from the loan given to the staffand workers and also FDR's from banks from the eligibleprofits for deduction under section 80 HHC of IncomeTax Act, when these two items form part of appellant'sbusiness income as they have been earned during thenormal business activity ? ii)Whether the ITAT was justified in excluding“Gross” interest income instead of “net” interest incomei.e the gross interest income less. The expenditure incurred by the assessee for earning such income, fromthe “eligible profits of business” for deduction undersection 80 HHC of Income Tax Act ?iii)Whether in the facts and circumstances of thepresent case the impugned orders A-1 and A-3 are legallysustainable in the eyes of law ? The essential factual matrix giving rise to this appeal is that theappellant, a manufacturer of cotton and acrylic yarn, originally filed itsreturn declaring income of Rs.13,45,07,470/- for the assessment year 1994-95, which was subsequently revised on 9.5.1995 claiming an additionalamount of Rs.7,64,649/- as a capital loss. The said return was processedunder Section 143(1)(a) of the Income Tax Act, 1961 (for short “the Act”)on 28.8.1995 at the total income of Rs.13,45,07,470/- and out of theresultant refund of Rs.1,34,670/- outstanding demand of Rs.1,12,064/- forthe assessment years 1987-88 and 1991-92 was adjusted and balance refundof Rs.22,606/- was issued to the appellant. The case was taken up for scrutiny assessment by issuing anotice under Section 143(2) of the Act dated 15.6.1995 and thereafter anotice under Section 142(1) of the Act along with questionnaire dated23.7.1996 calling for various details was also issued to the assessee. Byorder dated 29.11.1996, the total taxable income of the appellant wascomputed at Rs.13,69,74,107/-. Penalty proceedings under Section 271(1)(c) of the Act were also initiated. In Appeal, disallowance of Rs.55,709/-out of entertainment expenses and another disallowance of Rs.16,406/-which represented the amount of expenditure tax were reversed. Furtherthe deduction was reduced by Rs.5,49,000/-. Apart from this, the appellant I.T.A No. 340 of 2007 was also held entitled to exclude excise duty amounting to Rs.6,16,54,000/-and sales tax amounting to Rs.285 lacs from total turnover while workingout deduction under Section 80 HHC of the Act. The assessee was alsopermitted to exclude interest income earned by it from loans given to staffand workers and also from FDRs with banks from the business income.Another relief of Rs.13,46,687/- was allowed to the appellant under thehead of `interest income' for computation under Section 80 HHC of the Act.The appellant was also permitted an amount of Rs.10,91,129/- to be countedas deduction under Section 35AB of the Act. The appellate Authority alsoallowed the appellant to carry forward capital loss to the extent ofRs.9205769/- in place of originally claimed Rs.6101120/-. was also held entitled to exclude excise duty amounting to Rs.6,16,54,000/-and sales tax amounting to Rs.285 lacs from total turnover while workingout deduction under Section 80 HHC of the Act. The assessee was alsopermitted to exclude interest income earned by it from loans given to staffand workers and also from FDRs with banks from the business income.Another relief of Rs.13,46,687/- was allowed to the appellant under thehead of `interest income' for computation under Section 80 HHC of the Act.The appellant was also permitted an amount of Rs.10,91,129/- to be countedas deduction under Section 35AB of the Act. The appellate Authority alsoallowed the appellant to carry forward capital loss to the extent ofRs.9205769/- in place of originally claimed Rs.6101120/-. The revenue filed an appeal against the aforesaid order. TheTribunal by the impugned order reversed the finding of the first appellateauthority regarding the expenditure of Rs.16406/- as well as the decision topermit the appellant to treat the entire interest income as a part of thebusiness income, in view of the decision of this Court in CIT-III, Ludhianavs M/S Malwa Cotton Spinning Mills Ltd Ludhiana( ITA No.94 of 2006decided on 22.12.2006). As regards the finding that the appellant would beallowed to claim Rs.9205769/- as carried forward capital loss, the same wasset aside even while holding that the Assessing Officer had wrongly refusedto consider the claim for higher amount and consequently the matter wasremanded back to the Assessing Officer for consideration of the claim of theappellant on merit. In view of the decisions of this Court in CIT-III, LudhianavsM/S Malwa Cotton Spinning Mills Ltd Ludhiana(supra), as well as in thecase of M/S Vardhman Textiles Ltdvs Commissioner of Income Tax, I.T.A No. 340 of 2007 Ludhiana and another(ITA No.422 of 2008, decided on 11.8.2008), thequestions of law proposed herein do not arise. Consequently, the presentappeal is dismissed with no order as to costs. ( AJAY TEWARI ) JUDGE September 05, 2008'kk' ( ADARSH KUMAR GOEL ) JUDGE