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TMI Blog2008 (5) TMI 357X X X X Extracts X X X X X X X X Extracts X X X X ..... facts of the case are that the AO noted that the following incomes earned by the assessee are not in the nature of housing finance: (i) Pre-EMI amount Rs. 7.89 lacs (ii) Discounting charges Rs. 52.92 lacs (iii) Interest on bank deposit + ICD Rs. 290.42 lacs (iv) Fees and other charges Rs. 202.34 lacs --------------- Rs. 553.57 lacs --------------- 17. He accordingly initiated the proceedings under s. 147 by issuing notice under s. 148 dt. 3rd Oct., 2002., The AO ultimately held that the aforesaid sum of Rs. 553.57 lacs is not the income derived by the assessee from its business of providing long-term finance for purchase/construction of residential house, though not eligible for computation of deduction under s. 36(1)(viii) has not been considered as eligible income and such deduction has been wrongly claimed and allowed in excess than what was admissible. The proportionate income not eligible for deduction under s. 36(1)(viii) was calculated at Rs. 47.02 lacs in the following manner: Total business income taken for calculation Rs. 295.82 lacs Gross business income taken for calculation Rs. 3,481.98 lacs of deduction Amount of income not eligible for deduction Rs. 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same are deposited by the assessee in the bank deposits or advances as inter-corporate deposits. The income derived by way of interest is the income from the business of housing finance as the immediate source of such income is the business of providing the long-term housing finance. Reliance was also placed on the following case law: - Rajeev Enterprises vs. AO (2003) 78 TTJ (Jp)(SB) 330; - Asstt. CIT vs. Gallium Equipment (P) Ltd. (2001) 73 TTJ (Del)(TM) 130 : (2001) 79 ITD 41 (Del)(TM); - Honda Siel Power Products Ltd. vs. Dy. CIT (2000) 69 TTJ (Del) 97 : (2001) 77 ITD 123 (Del). 6. The learned Departmental Representative, on the other hand, contended that the provisions of s. 36(1)(viii) are very clear. The assessee is entitled for the deduction only on the profits derived from the business of providing long-term finance for construction or purchase of houses in India for residential purposes. The discounting charges of Rs. 52.92 lacs earned by the assessee for providing discounting facilities to various customers, the immediate source of the amount, is the discounting facilities made available by the assessee company to the various parties and not the business of provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assigned to it in s. 617 of the Companies Act, 1956 (1 of 1956); (d) "infrastructure facility" shall have the meaning assigned to it in cl. (23G) of s. 10; (e) "long-term finance" means any loan or advance where the terms under which moneys are loaned or advanced provide for repayment along with interest thereof during a period of not less than five years;" The words "industrial or agricultural development or development of infrastructure facility in India" ending with the words "to such reserve account" were substituted by the Finance Act, 1995 w.e.f. 1st April, 1996. Prior to its substitution quoted portion is amended by the Finance Act, 1979 w.e.f. 1st April, 1980 and the Finance Act, 1985, w.e.f. 1st April, 1985, reads as under: "industrial or agricultural development in India or by a public company formed and registered in India with the main object of carrying on the business of providing long-term finance for construction or purchase of houses in India for residential purposes, an amount not exceeding forty per cent of the total income (computed before making any deduction under this clause and Chapter VI-A) carried to such reserve account." From the plain reading of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the deduction to 40 per cent only in respect of income derived from providing long-term finance for the activities specified in s. 36(1)(viii). Now, income arising from other business activities or from sources other than business will not be taken into account for computing deduction under s. 36(1)(viii)." From the reading of the said circular also it is clear that the intention of the Government is not to allow the deduction under s. 36(1)(viii) in respect of the income derived from activities other than specified under s. 36(1)(viii) and with that intention s. 36(1)(viii) was amended by the Finance Act, 1995 and accordingly the deduction under s. 36(1)(viii) was restricted to not exceeding 40 per cent only in respect of the income derived from providing long-term finance for the activities specified in s. 36(1)(viii). Notes on Clauses explaining the scope of amended s. 36(1)(viii) as appearing in (l995) 124 CTR (St) 204 : (1995) 212 ITR (St) 298 reads as under: "Clause 10 seeks to amend s. 36 of the IT Act relating to other deductions. Sub-cl. (a) seeks to amend cl. (viii) of sub-s. (1) of s. 36 which provides that an approved financial corporation engaged in providing long- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... activities specified in s. 36(1)(viii). It will thus be outside the purview of deduction, income arising from other business or from sources other than business. Development of infrastructure is "an important area requiring fiscal support for encouraging private sector participation. The Bill proposes to amend s. 36(1)(viii) of the IT Act to extend the benefit of deduction upto 40 per cent of the income credited to a special reserve account to approved financial corporations providing long-term finance for development of infrastructure facilities in India. The proposed amendments will take effect from 1st April, 1996, and will, accordingly, apply in relation to asst. yr. 1996-97 and subsequent years. (Clause 10)" 8. We have also gone through the case law as relied upon by the learned Authorised Representative. In the case of Rajeev Enterprises vs. AO, the question before the Special Bench was: "Whether, on the facts and circumstances of the case, the. earning of interest on its idle and surplus funds temporarily invested by the assessee constitutes business so as to be eligible for deduction under s. 80HHC of the IT Act or such income is to be treated as income from other sour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eipt of interest are two sides of the same coin. They cannot be looked at differently and given different treatment for purposes of taxation. We are, therefore, of the view that as expenditure of interest has been treated part of business, the receipt has also to be held 'business receipt'. Having held that interest is business receipt, there is no need to examine whether it would fall under the residuary head of 'Income from other sources'. The above receipt of income was liable to be included in the business profit and taken for computation of rebate under s. 80HHC of the IT Act." Ultimately it was held that the interest income will be the income from business. This judgment, in our opinion, will not help the assessee as the deduction under s. 80HHC has to be computed in the manner laid down under s. 80HHC on the basis of the profit derived from the business. Sec. 80HHC as was applicable during the year lays down that the profit derived from the export of the goods or merchandise shall be the amount which bears to the profits of the assessee as computed under the head "Profits and gains of business or profession", the same proportion as the export turnover bears to the total tur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scope of industrial undertaking; phrase "industrial undertaking" is the name given to combined business activities being carried out by the assessee. If the FDR were essential part of the business activities, the earning of the interest on such FDRs was having a direct nexus and such interest was in connection with the industrial undertaking of the assessee and the interest is to be treated as derived from the said undertaking and the assessee is entitled to claim deduction under s. 80-I of the Act. This case also, in our opinion, will not assist the assessee as the language of s. 80-I(1) is different from the language of s. 36(1)(iii). The deduction under s. 80-I is available on the profits and gains derived from an industrial undertaking. The "profits and gains" is wider term than "profits derived from a particular business activity". The intention of the legislature is very clear while bringing the amendment in s. 36(1)(viii) by the Finance Act, 1995 that the deduction under s. 36(1)(viii) was only limited to the profits derived from the business of providing long-term finance for construction or purchase of houses. 10. We have also gone through the case law as relied upon by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction or purchase of residential houses. The Hon'ble Supreme Court has held in the case of CIT vs. Sterling Foods that the words "derived from' used in s. 80HH would meet the direct nexus between the profits and gains of an industrial undertaking. It has been pointed out by the Hon'ble Supreme Court that for availing the deduction, an industrial undertaking should be the immediate source of the profits and that mere commercial connection between the two was just not sufficient. In view of the principle laid down by the Hon'ble Supreme Court in the case of CIT vs. Sterling Foods, the immediate source of this income on which the assessee has claimed deduction under s. 36(1)(viii) must be providing long-term finance for construction or purchase of houses in India for residential purposes. 12. In view of the aforesaid discussion, the ground taken by the assessee stands dismis5ed. Therefore, appeal filed by the assessee is dismissed. ITA No. 2867/Ahd/2007: By the Revenue: 13. In this appeal filed by the Revenue, the only issue relates to cancellation of penalty of Rs. 4,85,097 levied by the AO under s. 271(1)(c) of the Act. The brief facts of the case are that the AO held the followi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me has been shown as income from long-term housing:- (i) Pre-EMI amount Rs. 7.89 lacs (ii) Discounting charges Rs. 52.92 lacs (iii) Interest on bank deposit + ICD Rs. 290.42 lacs (iv) Fees and other charges Rs. 202.34 lacs --------------- Rs. 553.57 lacs --------------- 4.1 Taking the above income as income from long-term housing finance, the appellant has computed deduction under s. 36(1)(viii) at Rs. 155.75 lakhs. The AO in the order under s. 143(3) r/w s. 147 has restricted the above claim to Rs. 84,24,228. For doing so, he has relied on the statement filed by the appellant with original return of income where above items of income were shown as income from long-term housing finance. The AO has not relied on any other documents collected in course of reassessment proceedings. In fact, the assessment was reopened on the basis of the above statement. This means, the appellant has disclosed all material facts necessary for computation of income. It has neither filed inaccurate particulars nor suppressed any material fact. The fact that the claim of appellant was rejected by the AO by holding a different view will not amount to concealment of income. This is a case where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es that the amount added or disallowed in computing the total income of an assessee shall be deemed to be the income in respect of which particulars have been concealed. This deeming provision for concealment is not absolute one. The presumption under Expln. 1 is rebuttable and not conclusive. The assessee can submit the explanation as the onus shifted on the assessee to prove that he has not concealed the particulars of the income. The assessee in this case has duly submitted the explanation. No cogent material or evidence was brought to our knowledge which may prove that the Revenue has detected the concealment or the explanation submitted by the assessee was false one. Even there is no material which may prove that the assessee was not able to substantiate its explanation. Merely the addition has been made in the assessment on estimate basis; in our opinion the assessee cannot be entrusted (saddled) with the penalty by simply invoking Expln. 1. The assessee in this case, we feel, has duly discharged its onus and has rebutted the presumption available to the Revenue under Expln. 1 to s. 271 (1)(c). 17. In the case of National Textiles vs. CIT (2000) 164 CTR (Guj) 209 : (2001) 24 ..... 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