TaxTMI 
TaxTMI 
2013 (4) TMI 421
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.... Act amounting to Rs. 93.8 lakhs. In the scrutiny assessment, the assessed income was determined at Rs. 19,07,57,770/-. AO made disallowance section 14A in respect of interest free dividend income of Rs. 37,58,670/-, disallowance on account of interest amounting to Rs. 1,48,13,426/-, application of dividend stripping of provisions of section 94(7) of the Act, interest receipts earned out of the FDR and KDR, claim of deduction u/s 80-IB relating to new project set up at Daman to Rs. 1,27,211/-, re-computation of deduction u/s 80-HHC, DEPB and duty draw back etc. Aggrieved with the order of the AO, the assessee approached the first appellate authority. As a result, the assessee's appeal was partly allowed by the CIT (A). Therefore, both the parties filed the appeals before the Tribunal vide ITA No. I.T.A. NO.751/M/2008 and ITA No. 2436/M/2008. Appeal wise and ground wise adjudication of these cross appeals is given in the following paragraphs. Firstly, we shall take-up the revenue's appeal and the grounds raised in this appeal read as under: "i). On the facts and in the circumstances of the case and in law, the Ld CIT (A) erred in holding that the ratio of non-taxable income to tota....
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....een non-taxable income qua the gross receipts of the assessee. Aggrieved with the relief, the Revenue is in appeal vide ground no.1. Against the sustenance of the addition, the assessee is in appeal vide ground no.1 in its appeal. Thus, ground no.1 in both the appeals relates to the common issue and therefore, the same are being disposed of here. 4. Before us, Ld DR relied on the order of the AO and he is critical of the decision of the CIT(A) in restricting to only Rs 50,020. Per contra, Shr J.D. Mistry & Niraj Seth, Ld Counsels for the assessee mentioned that the assessee received only two cheques for depositing in the assessee's account. Therefore, the expenses relatable to these two cheques will not be at high as Rs. 3,75,867/- as disallowed by the AO or Rs. 50,020/- as decided by the CIT (A). As per the assessee's counsel, there are no other direct expenses except Rs. 21,223/- as informed by the assessee. 5. We have heard both the parties in the dispute. The undisputed facts are that the instant AY relates to the period prior to the amendment to section Rule 8D of the I T Rules, 1962. Reasonable basis is the mantra to be followed by the AO after rejecting the basis adopted b....
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....issioner in the order for assessment 2002-2003 as well as 2003-2004. After detailed discussion the disallowance made was deleted. Since, the facts are the same and in view of the decision of Hon'ble Supreme Court of India in the case of SA Builders it is held that the disallowance made is not justified and is accordingly deleted." 5 7. Before us, Ld Counsel brought to our notice an identical issue raised in appeal before the Tribunal vide ITA No.37/M/2007 for the assessment year 2003-2004 by the Revenue. Further, he brought to our notice the contents of para 16 and mentioned that the advances in question are the same and the parties involved are also the same. Factual matrix are also broadly comparable considering the discussion given in para 19 and 19.1. Assessee was given relief, confirming the order of the CIT (A). He mentioned that the order of the CIT (A) in this regard sustaining in view of the finding of the Hon'ble Supreme Court judgment in the case of SA Builders reported in 288 ITR 1. 8. On the other hand, Ld DR relied on the order of the AO. 9. We have heard both the parties, perused the orders of the Revenue Authorities as well as the contents of para 19 of the order....
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....nt available with the assessee on the first day of the accounting year and what is the amount has been given to its sister concern and thereafter what is the closing balance at the end of the year. Therefore, in our considered view, the contention of the Ld Counsel of the assessee that totality of the circumstances has to be taken into consideration and not on day to day basis utilization of the funds. Moreover, as stated above, the department could not prove that these funds were not given for the purpose of business. Therefore, in view of these facts and circumstances, we confirm the finds of the Ld CIT (A) on this issue." 10. Considering the above settled nature of the issue, we are of the opinion that the ground raised by the Revenue is required to be dismissed. Accordingly, ground no.(iii) of the Revenue's appeal is dismissed. 11. In continuation of the above, on the issue of taxability of interest income of Rs. 8,15,29,357/- under the head "income from other sources", Ld Counsel stated that this issue also stands covered by the order of the Tribunal in assessee's own case vide ITA No. 139/M/2007 for the AY 2003-2004 and para 8 and its sub- paras are relevant in this regard.....
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....the case of Tuticorn Alkali Chemicals and Chemicals and Fertilizers Ltd in 227 ITR 172 (SC) wherein it has benheld that interest earned on short term deposits out of surplus funds is assessable under the head income from other sources. Reliance was placed on the decision of Hon'ble Kerala High court in the case of K. Rajendranathan Nair in 265 ITR 35 (Ker) and various other decisions where it has been held that income from other sources cannot be considered for the purpose of deduction u/s 80-HHC. The decision relied upon by the Ld Counsel of the assessee in the case of Jatin & Co and in the case of Opera Clothing (supra) were found distinguishable. Accordingly, the action of the AO was confirmed by the CIT (A). 9. Contention raised before the Ld CIT (A) were reiterated by the Ld Counsel of the assessee before the Tribunal. It was further submitted that in a recent decision, the Hon'ble Bombay High Court in the case of Lok Holdings reported in 308 ITR 356 held that even on surplus funds, interest earned has to be treated as income from business. Alternatively, it was submitted that netting of interest has to be allowed as income on account of interest and expenditure on account of....
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....ent in the case of ACG Associated Capsules (P.) Ltd. vs. CIT 343 ITR 89 (SC). Considering the binding judgment of the Hon'ble Supreme Court, the AO is directed to give effect to the same while granting deduction u/s 80- IA in respect of the interest income of Rs. 8,15,29,357/-. Accordingly, for this limited purpose, relevant grounds are remitted to the files of the AO for necessary action. We order accordingly. 14. Ground no.(iv) of the Revenue's appeal relates to applicability of provisions of section 94(7) of the Act. In this regard, CIT (A) held that the AO erroneously applied the said provisions when the scheme involved is declaration of dividend on day-to-day basis. There is no dividend stripping in this case, where day-to-day investment of dividend is involved in the said transactions. The losses result on the basis of prevailing NAV on the date of purchase of the units and the date of withdrawal from the scheme will not attract the provisions of section 94(7) of the Act. CIT(A) granted relief to the assessee after giving detailed reasoning in the impugned order. We agree with the same, therefore, ground no.(iv) raised by the Revenue is dismissed. 15. Ground no.(v) in Reven....
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....f the Ld CIT (A). Accordingly, we confirm these findings of the Ld CIT (A) on this issue also." 17. On perusal of the above, it is evident that the Tribunal directed the AO to consider the sundry balances written back as profits of business of the assessee for the purpose of computation allowable deduction u/s 80-HHC of the Act. We find, no reason to deviate from the above, therefore, ground no.(v) of the Revenue's appeal is dismissed. 18. In the result, the Revenue's appeal is dismissed. 19. While dealing with the Revenue's appeal, we have so far adjudicated ground nos. 1 to 4. At the outset, in connection with ground nos. 8 to 11, which relate to recalculation of deduction u/s 80-HHC in respect of DEPB licenses amounting to Rs. 3,06,16,894/-, Ld Counsel mentioned that the said issue is covered in favour of the assessee by the judgment of the Hon'ble Supreme Court in the case of Topman Exports Ltd reported in 342 ITR 49. Considering the Apex Court judgment which was decided in favour of the assessee, we direct the Assessing Officer to grant relief to the assessee in this regard, complying with the above cited binding judgment of Supreme Court. Accordingly, ground nos. 8 to 11 r....
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....equest made. 2. Appellant's manufacturing activity requires consumption of water on a large scale and it did not have the facility of boring to provide adequate water facility. The Assessing Officer has also argued that the boring bill produced by the assessee is not in the name of the appellant but is in the name of Jindal Photo Industries and therefore cannot be relied upon. 3. According to Assessing Officer, appellant has no evidence towards any workers engaged in the manufacturing activity during the previous year under consideration. He has argued that the labour contractor bill produced by the assessee from M/s. Ruteja Enterprises dated 6th April, 2004 for which payment has been made on 13th May, 2004, both dates being after close of the previous year, is specifically specified to be for "loading and unloading". He has concluded that appellant did not have any labour to run its manufacturing activity. 4. The Assessing Officer has also argued that appellant has not incurred any expenses on freight and transport of raw materials as well as finished products. 5. Lastly, according to the Assessing Officer, appellant did not have drums in which the finished product manufacture....
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....ed to Excise Duty and Sales Tax and PCC are self-serving documents and they did not constitute clinching evidences. Regarding number of employees used in the manufacturing activity, the CIT (A) was of the opinion that the said employees were engaged only for loading and unloading activity and not for manufacturing process. Finally, CIT (A) concluded and agree with the view of the AO vide para 19 of his order which reads as under: "19. On consideration of the facts in favour of appellant and against appellant, I am of the considered opinion that manufacturing did not begin during the previous year under consideration. I am particularly guided by the fact that appellant does not have any direct evidence, a tool proof evidence, to establish manufacturing. In contrast, the evidence that the appellant has produced are either week or not reliable in terms of the contentions. I am also guided by the fact that the labour bill is specific for loading and unloading, and one of the key requirements for the claim of deduction is employment of labour in the manufacturing activity. This condition is not satisfied. On consideration of the totality of the facts, I am satisfied that this is not a ....
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.... sales and purchases of the unit at Daman unit. Further, at the same time Ld DR for the Revenue also filled additional evidences ie copies of the assessment orders, order of the CIT (A) for the AY 2005-2006, which had reference to the allegation relating to the number of employees in the light of the fresh findings of some inquiries done by the Assessing Officer related to AY 2005-2006. There are certain statements issued by the labour contractor Ruteja Enterprises. 27. We shall first decide the issue of admitting of additional evidences for adjudication of the issue in hand ie whether the manufacturing process has begun in the year under consideration or not. The additional evidences furnished by the assessee relates to (i) the genuineness of the sales and the other expenditure relating to electricity, diesel etc the confirmations issued by the purchasers of the manufacturing products (ii) the reconciliation statement dated 21.8.20009 for re-use of the drums without necessitating purchase of the drums, (iii) details o electricity consumption with supporting invoices for AY 2004-05 (pages 330-333 of the paper book) and transportation bills suggesting the sale to third parties (324....
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....ensively narrated the facts of the case and discussed the provisions of the AIR (Prevention and Control of Pollution) Act, 1981 and the Water (Prevention and Control of Pollution) Act, 1974 to prove that the said Acts do not have any adverse impact on commencement of business of the assessee. Ld Counsel also discussed various decisions for proving that the claim even in case of violation of any regulations, the claim of deduction cannot be denied. To elaborate, it is the claim of the assessee that the Air Pollution related Notification dated 9th June 2011 declaring the Daman and Diu as 'air pollution area', does not apply to the AY 2004-05 of the assessee. Regarding water Pollution also, it is the case of the assessee, being a non discharger of any industrial excretion, the assessee is not required to obtain any consent to establish and operate the unit. It was also submitted that the assessee is a case of 'green category' and requisite approval of the PCC was finally obtained on 12th March 2004. 29. From the above it is evident that (1) the assessee belongs to 'green category' and (2) the Notification dated 9th June 2011 does not apply to the AY 2004-05. Notwithstanding the above....
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....AO to prove the said person is having warrant of every activity went on in the premises of the assessee of every day of manufacturing process as claimed by him. It is the case of the Ld Counsel that (i) the said workers do not have to continuously work for full year; (ii) contract or contingent workers also qualify to meet the requirements of the provisions of section 80-IB(2)(iv) of the Act. Ld Counsel only relied on various binding judgments to support the above. In our opinion, the above arguments merits acceptance. However, these issues are covered by the additional evidences filed for the first time before us and they require the attention of the AO. Therefore, we decline to offer any comments at this point of time. 32. Regarding the discrepancy with regard to the invoice bearing the name of Jindal Photo Industries, it is the argument of the assessee's counsel that the same constitutes an inadvertent mistake. On perusal of the page 125 of the paper book and also the confirmation of the said "Om Borewell", we find force in the claim of the assessee. AO is directed to not to rely on this for denial of deduction. Similarly, the quantity of consumption of electricity along cannot....