The Commissioner Of Income Tax - 6 v. M/S.essel Propack Limited

IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO.4001 OF 2009 The Commissioner of Income Tax - 6 Versus M/s.Essel Propack Limited ..Appellant. ..Respondent. Mr.Suresh Kumar for the appellant.Mr.Sanjiv M. Shah for the respondent. CORAM : J.P. Devadhar & Mrs.Mridula Bhatkar, JJ. P.C. : DATE : 17[th] January, 2011. 1.Admit on the following substantial questions of law. a) (i)Whether on the facts and in the circumstances of the case, the ITAT are justified in law in directing the AO to exclude 90% of net interest income from the Profits of Business within the meaning of clause (baa) of explanation below section 80HHC of the I.T. Act without appreciating that the cost of earning independent incomes such as interest etc. is enshrined in the said clause (baa) of explanation providing for exclusion of only 90% of independent incomes and, therefore, for the purposes of clause (baa) only gross interest is to be taken into account as clarified in para 32.11 of Board's circular No.621 dated 19-12-1991 ?the ITAT are justified in law in directing the AO to exclude 90% of net interest income from the Profits of Business within the meaning of clause (baa) of explanation below section 80HHC of the I.T. Act without appreciating that the cost of earning independent incomes such as interest etc. is enshrined in the said clause (baa) of explanation providing for exclusion of only 90% of independent incomes and, therefore, for the purposes of clause (baa) only gross interest is to be taken into account as clarified in para 32.11 of Board's circular No.621 dated 19-12-1991 ? (ii)On the fact and in the circumstances of the case, the Tribunal failed to take notice that the issue is covered in favour of the department by the decision of the Madras High Court in the case of CIT V/s. V. Chinnapandi 282 ITR Tribunal failed to take notice that the issue is covered in favour of the department by the decision of the Madras High Court in the case of CIT V/s. V. Chinnapandi 282 ITR 389 (Madras), the Madras High Court's decision in the case of K.S. Subhaiah Pillai & Co. (India) Pvt. Ltd. Vs. CIT, 260 ITR 304 (Madras) and Punjab and Haryana Court's decision in the case of Rani Paliwal vs. CIT 263 ITR 220 (P & H) ? b)Whether on the facts and in the circumstances of the case, the ITAT erred in law in directing the AO not to exclude scrap sales from the Profit of Business within the meaning of clause (baa) of explanation below section 80HHC of the I.T. Act without appreciating that the issue is covered in favour of the department in view of the ratio laid down by the Supreme Court in the case of CIT Vs. K. Ravindranathan Nair 295 ITR 228, as sale of scrap is in the nature of independent income having no nexus with the export turnover ?ITAT erred in law in directing the AO not to exclude scrap sales from the Profit of Business within the meaning of clause (baa) of explanation below section 80HHC of the I.T. Act without appreciating that the issue is covered in favour of the department in view of the ratio laid down by the Supreme Court in the case of CIT Vs. K. Ravindranathan Nair 295 ITR 228, as sale of scrap is in the nature of independent income having no nexus with the export turnover ? c)Whether on the facts and in the circumstances of the case, Tribunal was justified in law in holding that there is no remission or cessation of liability in respect of amount of Rs.18,74,92,707/- and therefore the same is not taxable u/s 41(1) and or section 28(iv) of the IT Act even though the assessee has written back the above mentioned liability in its books of accounts by crediting the same to capital Reserve Account in the balance sheet and therefore in view of explanation 1 to Section 41(1) of the I.T. Act there is cessation or remission of liability and accordingly the above mentioned amount of Rs.18,74,92,707/- is taxable u/s.41(1) of the I.T. Act ?Tribunal was justified in law in holding that there is no remission or cessation of liability in respect of amount of Rs.18,74,92,707/- and therefore the same is not taxable u/s 41(1) and or section 28(iv) of the IT Act even though the assessee has written back the above mentioned liability in its books of accounts by crediting the same to capital Reserve Account in the balance sheet and therefore in view of explanation 1 to Section 41(1) of the I.T. Act there is cessation or remission of liability and accordingly the above mentioned amount of Rs.18,74,92,707/- is taxable u/s.41(1) of the I.T. Act ? 2.As regards question (a) is concerned, counsel on both the sides state that the said question is answered in favour of the Revenue by the decision of this Court in the case of Commissioner of Income Tax V/s. Asian Star Company Limited reported in 326 ITR 56. Accordingly, the first question is answered in favour of the Revenue and against the assessee. 3.As regards question (b) is concerned, counsel on both the sides state that in the light of the decision of this Court in the case of Commissioner of Income Tax V/s. Pfizer Limited reported in (2010) 233 CTR (Bom) 521 and the decision of this Court in the case of Commissioner of Income Tax V/s. M/s.Dresser Rand India Private Limited reported in 323 ITR 429, the matter has to be remanded back to the Tribunal for consideration afresh in accordance with law. Accordingly, the matter is restored to the file of the Tribunal for reconsidering question (b) afresh in the light of the aforesaid decisions. 4.As regards question (c) is concerned, it is seen from para-31 of the impugned order that the Tribunal has recorded a finding of fact that there is no cessation of liability. Hence, question (c) cannot be said to be a substantial question of law arising out of the order of the Tribunal. 5.The appeal is accordingly disposed off. No costs. (Mrs.Mridula Bhatkar, J.) (J.P. Devadhar, J.)