The Commissioner Of Income-Tax, Karnal v. M/S Liberty Shoes Ltd., Karnal

ITA No. 89 of 2009 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH CM No. 20509-CII of 2013 &ITA No. 89 of 2009 (O&M) Date of Decision: 3.12.2015 The Commissioner of Income-tax, Karnal ....Appellant. Versus M/s Liberty Shoes Ltd., Karnal ...Respondent. 1.Whether the Reporters of the local papers may be allowed to see the judgment?the judgment? 2.To be referred to the Reporters or not? 3.Whether the judgment should be reported in the Digest? CORAM:-HON'BLE MR. JUSTICE AJAY KUMAR MITTAL.HON'BLE MR. JUSTICE RAMENDRA JAIN. PRESENT: Mr. Yogesh Putney, Advocate for the appellant. Mr. S.K. Mukhi, Advocate for the respondent. AJAY KUMAR MITTAL, J. 1.This appeal has been preferred by the revenue underSection 260A of the Income Tax Act, 1961 (in short “the Act”) against theorder dated 20.6.2008 (Annexure A-3) passed by the Income TaxAppellate Tribunal, Delhi Bench “B”, New Delhi (hereinafter referred toas “the Tribunal”) in ITA No. 2251/(Del)/2006 for the assessment year2001-02, claiming the following substantial questions of law:- (i)Whether on the facts and in the circumstancesof the case, the Ld. ITAT was right in law in confirming the order of the CIT(A) on the issueof netting of interest for the purpose ofcomputation of deduction u/s 80 HHC of theAct? (ii)Whether on the facts and on the circumstancesof the case, the Ld. ITAT was right in law inconfirming the order of the CIT(A) directing theAO to treat the expenditure on the glow sign-boards as revenue expenditure? (iii)Whether on the facts and in the circumstancesof the case, the Ld. ITAT was right in law inupholding the orders of the CIT(A) in deletingthe addition made by the AO on account of baddebts whereas no details had been furnished bythe assessee before the Assessing Officer anddeduction u/s 36(1)(vii) is allowable only if thebad debts is written off as irrecoverable subjectto the provisions of sub-section (2) of Section36? 2. 2.Briefly stated, the facts necessary for adjudication of theinstant appeal as narrated therein may be noticed. The assessee filed itsreturn on 28.11.2000 for the assessment year 2001-02 declaring incomeat ` 5,91,03,210/-. The said return was processed under Section 143(1)on 29.4.2002 and refund of ` 41,64,440/- inclusive of interest amountingto ` 3,69,954/- under Section 244A of the Act was issued. The case wastaken up for scrutiny and notices under Sections 142(1) and 143(2) along with a detailed questionnaire were issued. The Assessing Officerframed the assessment under Section 143(3) of the Act vide order dated25.3.2003 (Annexure A-1) and disallowed the deduction under Section80HHC of the Act on interest income amounting to ` 18,10,236/- holdingthat the interest on deposits from banks was neither a business incomenor is eligible for deduction under Section 80HHC of the Act. The claimregarding netting of interest was also not accepted by the AssessingOfficer. Feeling aggrieved, the assessee filed an appeal before theCommissioner of Income Tax (Appeals) [for brevity “the CIT(A)”]. TheCIT(A) vide order dated 7.3.2006 (Annexure A-2) partly allowed theappeal. The CIT(A) directed the Assessing Officer to allow deductionunder Section 80IA of the Act on duty draw back and DEPB etc. and toallow the benefit of netting of interest for computing deduction underSection 80HHC of the Act. Further, the Assessing Officer was directedto treat expenditure on glow sign boards as of revenue in nature and todelete the disallowance of ` 13,52,389/- made on account of bad debts.Against the order, Annexure A-2, the revenue filed an appeal before theTribunal. The Tribunal vide order dated 20.6.2008 (Annexure A-3) partlyallowed the appeal upholding the order of the CIT(A). Hence, thepresent appeal by the revenue. 3.This Court vide order dated 27.8.2009 admitted the appealto consider question (i). Question No. (ii) was covered against therevenue by the judgment of this Court dated 22.4.2008 passed in ITRNo. 2 of 2000 and this fact was also not disputed by the learned counselfor the revenue and the said question was declined. Similarly, questionNo.(iii) was not considered for admission by this Court as it involved disputed question of fact and the learned counsel for the revenue wasnot able to show that the said question had not become final. 4.Learned counsel for the revenue has filed an applicationbearing CM No. 20509-CII of 2013 under Section 260A(7) of the Actread with Section 151 of the Code of Civil Procedure seeking permissionto re-frame the substantial questions of law and has sought to claim thefollowing two substantial questions of law:- 1.Whether the Ld. ITAT is right in law in holdingthe interest earned on FDRs as income derivedfrom export, in absence of any nexus betweenthe interest earned and the exports madeparticularly when the interest was earned on theFDRs and does not fall under the head 'Profitsand Gains from Business and Profession'?the interest earned on FDRs as income derivedfrom export, in absence of any nexus betweenthe interest earned and the exports madeparticularly when the interest was earned on theFDRs and does not fall under the head 'Profitsand Gains from Business and Profession'? 2.Whether the Ld. ITAT was right in concludingthat the interest income earned on FDR's iseligible for deduction under Section 80HHCafter netting with interest expenditure withoutgoing into the findings of the AO with regard tothe nature of the interest earned by theassessee being taxable under the head incomefrom other sources under section 56 of theIncome Tax Act, 1961? that the interest income earned on FDR's iseligible for deduction under Section 80HHCafter netting with interest expenditure withoutgoing into the findings of the AO with regard tothe nature of the interest earned by theassessee being taxable under the head incomefrom other sources under section 56 of theIncome Tax Act, 1961? 5.Learned counsel for the parties are not at variance in so faras consideration of the amended questions of law are concerned.Accordingly, CM No. 20509-CII of 2013 is allowed and instead of question No. (i), questions No.1 and 2, as noticed above, are to beconsidered. 6.It was urged on behalf of learned counsel for the revenuethat the following issues arise for consideration in this appeal:- i)Whether the interest on FDRs and the intereston refund of income tax are business activitiesof the assessee and was to be taken intoconsideration for the purpose of deductionunder Section 80HHC of the Act?on refund of income tax are business activitiesof the assessee and was to be taken intoconsideration for the purpose of deductionunder Section 80HHC of the Act? ii)Whether the netting of interest on FDR iseligible for the purposes of deduction underSection 80HHC of the Act? eligible for the purposes of deduction underSection 80HHC of the Act? 7.It was further contended that no definite finding has beenrecorded by the CIT(A) and also the Tribunal whether the interest onFDRs and interest on refund of income tax were related to the businessactivities of the assessee or not and, therefore, could be taken intoconsideration for the purpose of deduction under Section 80HHC of theAct. Equally, the issue with regard to netting of interest was also raisedby arguing that the same has also not been appropriately considered bythe CIT(A) as well as the Tribunal in view of various judgments of thisCourt. On the aforesaid premises, prayer was made to set aside theorders of the CIT(A) and the Tribunal and to remand the case to CIT(A)to decide afresh after affording opportunity of hearing to the parties. 7.It was further contended that no definite finding has beenrecorded by the CIT(A) and also the Tribunal whether the interest onFDRs and interest on refund of income tax were related to the businessactivities of the assessee or not and, therefore, could be taken intoconsideration for the purpose of deduction under Section 80HHC of theAct. Equally, the issue with regard to netting of interest was also raisedby arguing that the same has also not been appropriately considered bythe CIT(A) as well as the Tribunal in view of various judgments of thisCourt. On the aforesaid premises, prayer was made to set aside theorders of the CIT(A) and the Tribunal and to remand the case to CIT(A)to decide afresh after affording opportunity of hearing to the parties. 8.On the other hand, learned counsel for the respondent-assessee supported the orders passed by the CIT(A) and the Tribunal. 9.After hearing learned counsel for the parties, we find force insubmission made by learned counsel for the revenue. 10.A perusal of order of the CIT(A) and the Tribunal shows thatno definite finding has been recorded by them whether the interestincome earned by the assessee is derived from the business activity ornot. Similarly, the issue of netting of interest has not been considered inthe light of the various pronouncements of this Court. Thus, it isconsidered appropriate that the aforesaid issues of interest on FDRs andinterest on refund of income tax for determining the deduction underSection 80HHC of the Act and also netting of interest for the purposesof deduction under Section 80HHC of the Act are referred back to theCIT(A) to decide the same in accordance with law after hearing both theparties. 11.Accordingly, the issues, as noticed above, areremanded to the CIT(A) to decide the same afresh in accordance withlaw after hearing both the parties. The appeal stands disposed ofaccordingly. Needless to say anything observed hereinbefore shall notbe taken to be expression of opinion on the merits of the case. (AJAY KUMAR MITTAL) JUDGE December 3, 2015gbs (RAMENDRA JAIN) JUDGE