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TMI Blog2012 (7) TMI 38X X X X Extracts X X X X X X X X Extracts X X X X ..... ion made by the AO u/s 145A of the Act – In favor of assessee - ITA No.4789/Mum/2009, ITA No.5103/Mum/2009, ITA No.4790/Mum/2009, ITA No.5104/Mum/2009 - - - Dated:- 11-1-2012 - D K Agarwal, Pramod Kumar, JJ. For Appellants: Shri Rajan Vora Nikhil Tiwari For Respondent: Shri C G K Nair ORDER Per: D K Agarwal: These two cross-appeals by the assessee and Revenue are directed against the two separate orders dated 16.6.2009 passed by the ld.CIT(A) for the assessment years 2005-06 and 2006-07. Since facts are identical and issues involved are common, all these appeals are disposed of by this common order for the sake of convenience. ITA No.4789/Mum/2009(AY:2005-06) (By assessee) 2. Briefly stated facts of the case are that the assessee company is engaged in the business of manufacturing and sale of electrical cables, filed return declaring total income at Rs.Nil. However, the assessment was also completed at Rs.Nil after making an addition u/s 145 of Rs.11,08,904/-, treating the interest income of Rs.4,08,096/- as an income from other sources and after set off of brought forward losses for assessment years 2000-01 and 2002-03 of Rs.2,22,48,968/-, vide order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which were made out of borrowed funds, therefore, earning of interest is inextricably linked with and has direct nexus, therefore, the interest on borrowed funds be reduced from the interest income while determining the income, the income from other sources. 8. On the other hand, the ld. DR while relying on the orders of the AO and the ld. CIT(A) also relied on the decision of the Hon ble Jurisdictional High Court in the case of CIT V/s Dresser Rand India (P.) Ltd.(2011) 330 ITR 453 (Bom) for the proposition that the interest on deposit is not eligible for deduction u/s 80IB of the Act. 9. We have carefully considered the submissions of the rival parties and perused the material available on record. We find that the facts are not in dispute inasmuch as it is also not in dispute that the FDRs were made out of borrowed funds. According to the AO since borrowal is for the purpose of assessee s manufacturing activity, therefore, there is no nexus between the borrowing activity and the interest generation. Per contra, the claim of the assessee is that the since the FDRs were made out of borrowed funds, interest on borrowed funds be reduced from the interest income while determini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i) Raw Materials Rs.16,47,383/- ii) Work in progress Rs.36,50,663/- iii) Finished goods Rs. 56,29,701/- Rs. 1,09,27,747/- Total Rs.14,30,55,450/- Less: Opening Stock (i) Raw Material Rs.7,23,259/- (ii) Work in progress Rs.20,54,813/- ii) Finished goods Rs. 60,33,055/- Rs. 88,11,127/- Rs.13,42,44,323/- Less: Purchases i) Raw materials Rs.13,31,35,419/- Rs.11,08,904/- The AO allowed an opportunity to the assessee to explain as to why such sum of Rs.11,08,904/-be not added to the profits of the business. The assessee furnished a written explanation which the AO has incorporated at pages 5 to 7 of the assessment order. In the written explanation it was interalia stated that the excise duty payable comes to Rs.56,29,702/- which has been paid by the assessee before the due date of the filing of the return u/s 139(1) of the Act, therefore, no addition is called for. How ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the assessee while reiterating the same submissions as submitted before the AO and the ld. CIT(A) refers to item (vii) of Schedule- P of Notes to Accounts of audit report appearing at page 41 of the assessee s paper book which reads as under : (vii) Excise Duty a) Company is not providing for excise duty on uncleared excisable stock of finished goods at the end of the year. (b) Excise Duty paid on eligible capital goods has been included in the cost. Cenvat Credit availed on such eligible capital goods is credited to a separate reserve called Cenvat Credit Reserve (on capital goods). Depreciation relating to Excise Duty component of the cost of capital goods is recouped from the Cenvat Credit Reserve (on capital goods). He further submits that the assessee is consistently following the same system of accounting and there is no change in the system of accounting in this year. He, further submits that in the assessment year 2001- 02, the AO on the similar facts has allowed the deduction of excise duty u/s 43B vide internal page 4 of the assessment order for the assessment year 2001-02 appearing at pages 64-67 of the assessee s paper book. He further submits that i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lt and even at this stage the ld. DR has not pointed out any mistake in the said adjustments made by the Assessee. The ld. CIT(A) after considering the same held that the assessee is entitled to the claim of deduction u/s 43B for Rs.56,29,702/- provided the AO is satisfied on the production of the evidence by the appellant. We further find that the AO in the order giving effect to the order of the ld. CIT(A) after verification has allowed the same vide order dated 20.7.2009. 19. In Hawkins Cookers Ltd.(supra) it has been held vide paragraphs 5.6 of the order as under : 5.6 In the case under consideration, the contention of the assessee is that the assessee has given effect to the s. 145A in accordance with above discussion. The learned Authorized Representative in support of that filed a chart and demonstrated accordingly. Such detailed working is also given in tax audit report as required in cl. 12(b) of Form 3CD. But above submissions of learned Authorized Representative and deduction under s. 43B in accordance with above discussion are subject to verification therefore, we send the matter back to the file of the AO for limited purpose to verify the facts of the case of ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wed. Since assessee fulfilled all the conditions, even if an amount is to be considered as addition to the closing stock, the same is allowable as deduction under section 43B. The CIT(A) allowed only partial CENVAT credit whereas the assessee has discharged the full amount both by CENVAT as well as by way of PLA account. We are not sure why the CIT(A) gave partial credit as the order is not a speaking order. Since the A.O. and the CIT(A) had ignored the submissions placed on record about the discharge of tax liability and the allowance thereon under the provisions of section 43B, we are of the view that there is no need to restore the matter to the file of the A.O. as suggested by the learned D.R. Therefore, on the basis of the evidence placed on record, we have examined the issue and found that assessee satisfies the conditions. Accordingly the A.O. is directed to allow the balance amount of Rs.8,09.935/- sustained by the CIT(A). 21. In Kaiser Industries Ltd. (supra) it has been held by the Tribunal in paragraph 5.3 of the order as under : 5.3 The question is-whether, adjustment of MODVAT credit towards central excise liability amounts to actual payment? The Special Bench ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act. The grounds taken by the Revenue are therefore rejected. ITA No.4790/Mum/2009(AY: 2006-07) (by assessee) 23. Ground Nos.1 to 1.3 are against the confirmation of treatment of interest income of Rs.4,30,717/-as income from other sources and in not al lowing the deduction u/s 80IB of the Act. 24. At the time of hearing, both the parties have agreed that the facts of the present issue are similar to the facts of the ground Nos.1 to 1.3 raised in the appeal for the assessment year 2005-06, therefore, plea taken by them in that appeal may be considered while deciding the grounds taken by the assessee. 25. After hearing the rival parties and perusing the material available on record and keeping in view of our findings recorded in the assessee s appeal for the assessment year 2005-06 in the paragraph 9 of this order, we hold that the assessee is entitled to the deduction of interest paid by the assessee against the interest income assessed by the AO u/s 57 of the Act. We hold and order accordingly. The grounds taken by the assessee are, therefore, partly allowed. 26. Ground No.2 is against the direction of the ld. CIT(A) to restrict the relief allowed to the extent ..... X X X X Extracts X X X X X X X X Extracts X X X X
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