TaxTMI 
TaxTMI 
2016 (11) TMI 746
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....e bank source whereof was export proceeds realized by the bank separately as income from other sources, which is bad in law and is against facts and circumstances of the case. v. The learned Commissioner of Income Tax has grossly erred in not netting the interest receipt/payment and then assessing the net result. vi. The appellant craves leave to add, alter, amend, amplify or delete any or all of the grounds of appeal before or at the time of hearing. 2. The facts in brief of the case as has been reproduced by the learned Commissioner of Income-tax (Appeals) in the impugned order are as under: "Briefly, facts of the case emerged from the appeal record; relevant for deciding this appeal are that the appellant firm is engaged in manufacturing and export of bed-spreads. For the relevant AY, the appellant firm filed its Return of income (ROI) showing income of Rs. 1,14,34,884/- after claiming deduction under section 80HHC. Originally, the assessment was completed u/s 143(3) vide order dated 14.01.2005 at income of Rs. 2,74,65,742/-, which later on was set aside and restored back, vide order dated 22.06.2007, to the AO by the Hon'ble ITAT to examine the issue of deductio....
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....f export business and, therefore, the receipt of interest was incidental and having direct nexus and inextricably linked with the export business. She further emphasized that it was not a case of simple parking of surplus funds with the bank having no relation with the export business. She further submitted that the Tribunal in the assessee's own case for assessment year 1998-99 accepted the direct nexus of interest received and paid and allowed netting of interest. In support of the submission, she relied on the following case laws: 1. Delhi Tribunal decision ITA No. 2913/Del/2015 in the case of Laxminarain Khaitan versus ACIT 2. Decision of the Hon'ble Supreme Court in the case of liberty footwear company versus CIT in appeal No. 5223 of 2008 3. Decision of the Hon'ble Supreme Court in the case of ACG associate capsules private limited versus CIT reported in 247 CTR 372 4. Decision of the Hon'ble Delhi High Court in the case of CIT versus Sahi exports house in ITA No. 106/2009. 8. On the other hand, learned Senior Departmental Representative relied on the order of the lower authorities and submitted that findings of the learned Commissioner of Incometax (Appeals) o....
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....Hon'ble Supreme Court in the case of Sterling Foods Vs. CIT, 237 ITR 579 and Liberty India Vs. Commissioner of Income Tax [2009] 317 ITR 218, held that there must be a direct nexus between the profit and gains and the industrial undertaking for application of the words "derived from", whereas in the instant case the nexus was not direct but only incidental. 13. In the case of Laxminarain Khaitan (supra), learned Commissioner of Income Tax (Appeals) observed that purpose of depositing the funds in the bank fixed deposit to obtain the FDR, was in consideration of which the assessee continue to enjoy various bank credit limits in the shape of packing credits and such interest income arose to the assessee from deployment of business funds, which could not be termed as investment simplicitor. The income earned was in the character as a Trader in the course of export business. The assessee being 100% exporter, income from deposits with banks and other parties was appearing in the character of business income. In support of the finding, the learned Commissioner of Income Tax (Appeals) relied on the decision of special bench in the case of Rajeev Enterprises, 78 TTJ 330. The learned Com....
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....ts are entitled to deduction which would include interest income also. The said decision of the Hon'ble Bombay High Court was also considered in the case of CIT vs. Shree Ram Honda Power Equipment Ltd. (supra) and discussion in this regard find place in para 18 of the said decision. Their Lordships have expressed that it was not clear from the narration of facts in the Punit Commercial Ltd.'s case that whether the interest earned was as a result of parking surplus funds in deposits and if it was so earned, then it will be difficult to accept the said view of Hon'ble Bombay High Court in view of decision of Kerala High Court in the case of K. Ravindranathan Nair vs. DCIT 262 ITR 20 (Ker) which was affirmed by Hon'ble Supreme Court so as to hold that such interest income was business income. Thus, their Lordships of Delhi High Court have recorded their dissent from the view taken by Hon'ble Bombay High Court. Both are the decisions of non-jurisdictional High Court. 19. It is observed from the decision of Hon'ble Bombay High Court in the case of Punit Commercial (supra) that the Assessing Officer in that case also treated the interest income not related to e....
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....gh Court in the case of CIT vs. Punit Commercial Ltd. (supra) has to be followed being favourable to the assessee. We decide the issue accordingly. 22. So far as it relates to netting, it is observed that netting under section 80HHC has even been upheld by Hon'ble Delhi High Court in the case of CIT vs. Shree Ram Honda Power Equipments Ltd. (supra) wherein their Lordships have approved the decision of Special Bench in the case of Lalson Enterprises (supra) for the proposition that netting was permissible. So on that account also we find no infirmity in the order of the Ld. CIT (A) wherein he has directed the Assessing Officer to allow the netting." 14. The Hon'ble Apex Court in the case of M/s. A.S.G. Associated Capsules Private Limited Vs. CIT (supra) concluded that "only 90% of receipts by way of brokerage, commission, interest, rent charges or any other receipt of a similar nature included in such profits computed under the head 'profits and gains of business' of assessee could be deducted under clause (1) of Explanation (baa) to Section 80HHC and not 90% of the quantum of any of the aforesaid receipts which are allowed as expenses and therefore not included in the pro....
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....ssioner of Income-Tax v. K. Ravindranathan Nair [(2007) 295 ITR 228 (SC)] in which the issue raised before this Court was entirely different from the issue raised in this case. In that case, the assessee owned a factory in which he processed cashew nuts grown in his farm and he exported the cashew nuts as an exporter. At the same time, the assessee processed cashew nuts which were supplied to him by exporters on job work basis and he collected processing charges for the same. He, however, did not include such processing charges collected on job work basis in his total turnover for the purpose of computing the deduction under Section 80HHC (3) of the Act and as a result this turnover of collection charges was left out in the computation of profits and gains of business of the assessee and as a result ninety per cent of the profits of the assessee arising out of the receipt of processing charges was not deducted under clauses (1) of the Explanation (baa) to Section 80HHC. This Court held that the processing charges was included in the gross total income from cashew business and hence in terms of Explanation (baa), ninety per cent of the gross total income arising from processing char....
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....ted Capsules Private Limited (supra). 16. In the case of Commissioner of Income Tax Vs. Sahi Export House, the question before the Hon'ble Delhi High Court was as under: "Whether ITAT was correct in law in allowing benefit of netting of interest to the assessee while computing deduction under section 80HHC of the Act ? " 17. The question is answered in favour of the assessee with following observations: "8. Thus, insofar as earning of interest on fixed deposit is concerned, the determinative test is as to whether such interest has "immediate nexus" with the export business. 9. In the present case, the interest is earned from certain fixed deposit receipts. These fixed deposit receipts were not, as a result of some surplus funds available to the assessee which was parked with the bank and the interest earned thereon. It has been found, as a fact, that the money was deposited in the bank and the fixed deposit receipt was taken by the assessee for the purposes of giving bank guarantees to enable the assessee to procure quota for export. Certain other fixed deposit receipts were of EEFC Account. Such receipts were deposited with the Apparel Export Promotion Council (AEPC....
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.... to be allowed as a deduction and only the balance can be excluded from the business profits." 12. Once this positions is accepted, as per the formulation of principle laid down in Shri Ram Honda Power Equip (supra) itself, netting has to be allowed by the adjustment of aforesaid interest received against the interest paid by the assessee to the bank on the credit facilities availed as is clear from the conclusion No.8 in the judgment." 18. Further, we find that that the Tribunal in the case of the assessee in ITA No. 809/Del/2002 for assessment year 1998-99 has decided identical issue in favour of the assessee. The relevant paragraph of the decision is reproduced as under: "3. During the course of hearing before me the ld. Authorized Representative of the assessee referred to page no. 8 of the paper book being certificate issued by Chief Manager of Vijaya Bank on 10.01.2002. According to the assessee this certificate had been furnished before the learned Commissioner of Income Tax (Appeals). As per the certificate while discounting the assessee's export bills a certain percentage was cut back and treated as deposit from the assessee by way of security. It is, therefore, a....