The Commissioner Of Income Tax, Ludhiana-Ii v. M/S Greatways Private Limited,G.t.road, Ludhiana

In the High Court for the States of Punjab and Haryana at Chandigarh… ITA No.581 of 2006 Date of decision:1.2.2008 The Commissioner of Income Tax, Ludhiana-II.. Appellant Versus M/s Greatways Private Limited,G.T.Road, Ludhiana Respondent Coram: Hon’ble Mr.Justice Satish Kumar MittalHon'ble Mr.Justice Rakesh Kumar Garg Present:Mr.Vivek Sethi, Advocate for Mr.Sanjeev Bansal, Advocatefor the appellant-revenue.Mr.Akshay Bhan, Advocatefor the respondent-assessee .. Rakesh Kumar Garg,J 1.This appeal has been preferred by the Revenue against the orderdated 25.5.2006 passed by the Income Tax Appellate Tribunal, ChandigarhBench 'B', Chandigarh in ITA No.596/CHD/2005 for the Assessment Year 2003-04 proposing following substantial questions of law:- 1.Whether on the facts and in law , the ITAT was correct inupholding that the Central Sales Tax and Sales Tax be notformed the part of total turnover while computing of deductionu/s 80 HHC ? 2.Whether on facts and in law, the Tribunal was right to upholdthe order of the CIT (A) that the premium on sale of exportquota, as incentive, which is not covered u/s 28(iiia), 28(iiib) and28(iiic) of the Income Tax Act, be treated as 'Business Income'instead of 'income from other sources' in computation ofdeduction u/s 80 HHC ? 3. Whether on the facts and in law, the ITAT was legally right indismissing revenue appeal on exclusion of 90 % of interest-income assessable under the head 'income from other sources' from the business profit?” 2.The brief facts of the case are that the assessee/respondent is amanufacturer and exporter of hosiery items. The return declaring total income atRs.49,49,827/- has been filed on 30.11.03. The return was processed u/s 143(1)on 26.3.04. Notice u/s 143(2) was issued and served on 1.7.04. In response tothe notices, the assessment proceedings were attended by the representative ofthe assessee from time to time and requisite information was also furnished. TheAssessing Officer found the following discrepancies in the return. a) The assessee has not included Sales Tax and Central SalesTax as part of total turnover.Tax as part of total turnover. b) The assessee has treated the interest income ofRs.59,03,694/- as business income and treated it for reducingRs.59,03,694/- as business income and treated it for reducing by 90 % while computing 'profit of the business' underexplanation (baa) below sub section (4B) of section 80 HHC. Itwas found by the Assessing Officer that the interest was ondeposits of surplus funds available with the assessee and theincome of such interest according to Assessing Officer isincome under the head other sources. c) While computing deduction under Section 80 HHC, theassessee has taken the negative figure of “the profit from exportof manufacturing business” as zero. 3.After receiving the explanation of the assessee on these points, theAssessing Officer vide his order dated 31.12.2004 finalized assessment underSection 143(4) of the Income Tax Act as under:- “ During the assessment proceedings u/s 143(3) of theIncome Tax Act, 1961, the Assessing Officer has noticed thatthe assessee has not included Sales Tax and CST in the totalturnover for the purposes of deduction u/s 80 HHC. TheAssessing officer finalized the assessment by including theSales Tax and Central Sales Tax at Rs.34331/- in the total turnover for computation of deduction u/s 80 HHC. The Assessing Officer held that the premium on sale ofexport quota is not treated as export incentive as it is notcovered in any of the sections 28(iiia) to 28(iiic) of the incomeTax Act,1961. The Assessing Officer treated the amount as 'anyother receipt of similar nature', while computing the profit of thebusiness as per explanation (baa) below section 80 HHC asthese receipts cannot be treated as export incentives. turnover for computation of deduction u/s 80 HHC. The Assessing Officer held that the premium on sale ofexport quota is not treated as export incentive as it is notcovered in any of the sections 28(iiia) to 28(iiic) of the incomeTax Act,1961. The Assessing Officer treated the amount as 'anyother receipt of similar nature', while computing the profit of thebusiness as per explanation (baa) below section 80 HHC asthese receipts cannot be treated as export incentives. The Assessing Officer observed that, in the computationof deduction u/s 80 HHC, while computing profit of the business,90 % of premium on sale of quota was reduced and thereafterdeduction was claimed on this amount as per proviso to section80 HHC(3) of the Income Tax Act, 1961. The Assessing Officerrejected the claim of the assessee and held that 90 % of thereceipts from sale of export quota will be reduced whilecomputing the profit of the business, but while computingdeduction as per proviso to Section80HHC(3) deduction on 90% of these receipts will not be allowed.” 4. Aggrieved by the order of the Assessing Officer, the respondent wentin appeal before the CIT(A), Ludhiana, who vide his order dated 30.3.2005 whilerelying upon his own decision in the instant case for the Assessment Year 2002-03 vide Appeal No.107-IT/CIT(A)-1/2003-04 decided the issue in favour of theassessee. 5. On the next ground of appeal regarding not considering premium onsale of export quota as incentive for computing deduction u/s 80 HHC, CIT(A)relying upon his own order as quoted in the above said order also decided theissue in favour of assessee. 6. The third ground of appeal regarding exclusion of 90 % of interestincome of Rs.47,05,138/- from the business profit and assessing under the head'income from other sources' CIT(A), relying on the decision in the sister concern of the assessee Company M/s Eveline International relevant to Assessment Year2002-03 adjudicated the matter in favour of the assessee. 7. Being not satisfied with the findings of the CIT(A), the Revenuepreferred appeal before the Income Tax Appellate Tribunal who vide their orderpassed on 25.5.2006 has dismissed the appeal partly by upholding the decisionof CIT(A)-I, Ludhiana on the following issues:- 1. The Tribunal relied upon the decision of High Court ofBombay in the case of CIT Vs. Sudarshan Chemical IndustriesLtd. (2000) 245 ITR 769 (Bom.), dismissed the ground of appealof Revenue and upheld the decision of CIT(A).Bombay in the case of CIT Vs. Sudarshan Chemical IndustriesLtd. (2000) 245 ITR 769 (Bom.), dismissed the ground of appealof Revenue and upheld the decision of CIT(A). 2. The Tribunal also dismissed the ground of appeal of theRevenue regarding treating the premium on sale of export quotaas incentives, relying upon the decision taken in the sisterconcern of the assessee company, M/s Eveline International(supra) relevant to Assessment Year 2002-03.Revenue regarding treating the premium on sale of export quotaas incentives, relying upon the decision taken in the sisterconcern of the assessee company, M/s Eveline International(supra) relevant to Assessment Year 2002-03. 3. The Tribunal dismissed the ground of appeal pertaining toexclusion of 90 % of interest income assessable under the headincome from other sources from the business profit, relying uponits own decision in the instant case vide ITA No.899/CHD/2004and in the case of M/s Eve Line International for the AssessmentYear 2002-03 in ITA No.898/CHD/2004.exclusion of 90 % of interest income assessable under the headincome from other sources from the business profit, relying uponits own decision in the instant case vide ITA No.899/CHD/2004and in the case of M/s Eve Line International for the AssessmentYear 2002-03 in ITA No.898/CHD/2004. 3. The Tribunal dismissed the ground of appeal pertaining toexclusion of 90 % of interest income assessable under the headincome from other sources from the business profit, relying uponits own decision in the instant case vide ITA No.899/CHD/2004and in the case of M/s Eve Line International for the AssessmentYear 2002-03 in ITA No.898/CHD/2004.exclusion of 90 % of interest income assessable under the headincome from other sources from the business profit, relying uponits own decision in the instant case vide ITA No.899/CHD/2004and in the case of M/s Eve Line International for the AssessmentYear 2002-03 in ITA No.898/CHD/2004. 8. Aggrieved against the order of the Tribunal, the Revenue has filedthe present appeal proposing the substantial questions of law as referred to inpara No. 1 of the judgment on the following grounds:- i) The Tribunal has erred in law and on facts in upholding thedecision of CIT(A), that the Central Sales Tax and Sales Taxshould not be included in total turnover of the assessee whilecomputing the deduction u/s 80 HHC whereas the AssessingOfficer was justified in including the CST and ST in totalTurnover for the purpose of computation of deduction u/s 80decision of CIT(A), that the Central Sales Tax and Sales Taxshould not be included in total turnover of the assessee whilecomputing the deduction u/s 80 HHC whereas the AssessingOfficer was justified in including the CST and ST in totalTurnover for the purpose of computation of deduction u/s 80 HHC. Department is already in appeal before Punjab andHaryana High Court against the order in the case of assesseecompany for the Assessment Year 2002-03. ii) The Tribunal erred in law and on facts in upholding the decision of the CIT(A), that the interest income is to be treated as“business income”, instead of 'income from other sources' forcomputation of deduction u/s 80 HHC as held by theAssessing Officer. The interest income is not derived fromexports so as to be eligible for deduction u/s 80 HHC.Department has already preferred an appeal u/s 260 A againstsuch order.“business income”, instead of 'income from other sources' forcomputation of deduction u/s 80 HHC as held by theAssessing Officer. The interest income is not derived fromexports so as to be eligible for deduction u/s 80 HHC.Department has already preferred an appeal u/s 260 A againstsuch order. iii) The Tribunal erred in law and on facts in dismissing the appealon the ground regarding exclusion of 90 % of interest incomeassessable under the head 'income from other sources' fromthe business profit, following its own decision in the instantcase.on the ground regarding exclusion of 90 % of interest incomeassessable under the head 'income from other sources' fromthe business profit, following its own decision in the instantcase. 9. Learned counsel for the parties have been heard and the record perused. 10.A perusal of the order dated 13.2.2007 would show that this Courthas already found that question No.1 as raised by the counsel for the appellantis covered against the Revenue by the order passed by this Court in the case ofC.I.T. Ludhiana Vs. M/s Vardhman Polytex Limited (I.T.A.No.293 of 2005)decided on 22.5.2006 and the notice of motion was issued to the respondentonly with regard to question No.2 and 3. 11.Learned counsel for the appellant has argued that for computationof deduction under section 80 HHC, interest income of the assessee is not to betreated as 'business income' instead of 'income from other sources' because theinterest income is not derived from exports so as to be eligible for deductionunder Section 80 HHC. In support of his argument, learned counsel has placedreliance upon a judgment of this Court passed in ITA No.94 of 2006 titled as Commissioner of Income tax-III, Ludhiana Versus M/s Malwa Cotton SpinningMills Limited, Ludhiana decided on 22.12.2006 and has also placed reliance onCommissioner of Income TaxVs. Sterling Foods-237 ITR 579. 11.Learned counsel for the appellant has argued that for computationof deduction under section 80 HHC, interest income of the assessee is not to betreated as 'business income' instead of 'income from other sources' because theinterest income is not derived from exports so as to be eligible for deductionunder Section 80 HHC. In support of his argument, learned counsel has placedreliance upon a judgment of this Court passed in ITA No.94 of 2006 titled as Commissioner of Income tax-III, Ludhiana Versus M/s Malwa Cotton SpinningMills Limited, Ludhiana decided on 22.12.2006 and has also placed reliance onCommissioner of Income TaxVs. Sterling Foods-237 ITR 579. 12.On the other hand, Mr. Akshay Bhan, learned counsel for therespondent has stated that the interest income received on FDRs amounting toRs.1198556/- given to Apparel Export Promotion Council is directly related tobusiness and, therefore, is to be treated as business income and the assesseeis entitled to claim deduction as such. However, we are unable to accept thecontention of Shri Akshay Bhan,learned counsel for the assessee. From thefacts and after going through the relevant provisions, we find that the secondquestion of law as raised by the learned counsel for the Revenue is fully coveredin favour of the Revenue by judgment of this Court in Malwa Cotton SpinningMills Limited's case (supra) and thus, this substantial question of law referred isanswered in favour of the Revenue and against the assessee. 13.Mr. Vivek Sethi, Advocate appearing on behalf of Mr. SanjeevBansal, Advocate counsel for the Revenue has very fairly conceded thatquestion No.3 as raised by him is also to be answered against the Revenue inview of the judgment of the Hon'ble Supreme Court of India in Hero Exports,G.T.Road, Ludhiana Vs. Commissioner of Income Tax(Central), Ludhiana-(2007) 213 CTR (SC) 291. Thus this question is answered against the Revenueand in favour of the assessee.14. Accordingly, the present appeal is partly allowed. (RAKESH KUMAR GARG) JUDGE February 1,2008 nk (SATISH KUMAR MITTAL) JUDGE