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TMI Blog2013 (3) TMI 122X X X X Extracts X X X X X X X X Extracts X X X X ..... rores had been paid. However, it was also noted by him that the assessee had given loans/deposits to certain parties on which no interest was charged. The details are given below:- Name of party Assessment Year 2002-03 (Amt. in Rs.) Assessment Year 2003-04 (Amt. in Rs.) Rosy Konodia 25,00,000.00 25,00,000.00 Shrinkhala Securitie 37,50,000.00 Nil Total 62,50,000.00 25,00,000.00 2.1.1 The assessee explained that loans to Shrinkhala Securities had been given in connection with some business which did not materialize. The assessee, however, could not give details of business. In relation to Rosy Konodia, no reasons were given for giving loan. AO, therefore, concluded that the loans/deposits had not been advanced for the purpose of business. Accordingly he disallowed the notional interest @ 18% in relation to said parties which came to Rs.11,25,000/- and Rs.4,50,000/- respectively for assessment year 2002-03 and 2003-04. In appeal, CIT(A) confirmed the disallowance on the ground that there was no evidence to show that loans/deposits had been given for the purpose of business. Aggrieved by the said decision assessee is in appeal before the Tribunal. 2.1.2 Before us, the ld. AR for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ars. In appeal, CIT(A) agreed with the AO that the impugned items of income were not income derived from industrial undertaking and therefore, confirmed disallowance made by AO aggrieved by which assessee is in appeal before the Tribunal. 2.2.2 Before us, the ld. AR for the assessee submitted that the issue was covered by the decision of the Tribunal in assessee's own case in assessment year 2001-02 in ITA No.6550/M/06 and therefore, the issue may be decided in the light of the decision of the Tribunal in that year. The ld. DR placed reliance on the orders of the authorities below. 2.2.3 We have perused the records and considered the rival contentions carefully. The dispute is regarding allowability of deduction under section 80IB in relation to items of income such as excise duty rebate claim, sales tax set off, house rent received and interest income. We find that the same issue has already been considered by the Tribunal in assessee's own case for assessment year 2001-02 in ITA No.6550/M/06 in which the Tribunal in the order dated 24.8.2011 noted that the Hon'ble Supreme Court in case of Liberty India Ltd. (317 ITR 218) had held that section 80IB did not cover profit other tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtain parties had not been realized within a specified period nor permission of RBI had been obtained for extension of time. The details were as under :- Name Assessment year 2002-03 (in Rs.) Assessment year 2003-04 (in Rs.) Kampala Pharmaceuticals 38,00,286 2,67,650 Olla Medicine Product Ltd. 2,22,644 nil Phyto Riker Pharmaceutical 1,44,260 nil 2.4.1 The AO, therefore, excluded the above sale proceeds from export turnover and total turnover while computing deduction under section 80HHC. In appeal CIT(A) confirmed the order of AO aggrieved by which assessee is in appeal before the Tribunal. 2.4.2 Before us, the ld. AR for the assessee submitted that the assessee had made application to RBI in time for extension of time and export proceeds had been received within the extended time period which had also been confirmed by RBI vide letter dated 19.10.2005 which was not available at the time of passing of order by AO. It was pointed out that the said position had been brought to the notice of the CIT(A) in the written submissions made to him which is available at page 37 of the paper book. It was accordingly requested that the AO may be requested to include the said proceeds in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds and considered the rival contentions carefully. The dispute is regarding set off of loss from trading activities against profit from manufacturing activities while computing deduction under section 80HHC. The ld. AR for the assessee submitted that the trading activities were local and separate and therefore, should not be considered while computing deduction under section 80HHC. The ld. AR however could not produce any evidence to show that separate accounts had been maintained for trading activities nor any separate audited accounts in respect of these activities had been produced either before lower authorities or before us. Therefore, the trading and manufacturing activities have to be taken together and loss from trading activities has to be set off against profit from manufacturing activity and only net profit shall be eligible for deduction under section 80 HHC. The position is settled by the judgment of Hon'ble Supreme Court in the case of IPCA Laboratories Ltd. (266 ITR 521) in which it has been held that the profits/loss from both manufacturing and trading activities has to be considered and only net profit/loss will be eligible for deduction under section 80HHC and tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns and therefore, these will not be covered under the provisions of Explanation (baa) and therefore, 90% of these receipts are not required to be excluded as per Explanation (baa). The Tribunal also held that rent and interest were covered by Explanation (baa) and 90% of these receipts are required to be deducted from profit of business. The Tribunal also held that 90% of gross interest and rent and not net interest and rent will be reduced from profits of the business in view of the judgment of Hon'ble Bombay High Court in case of Asian Star Co. Ltd. (326 ITR 56). Respectfully following the said decision, we hold that 90% of gross interest and gross rent will be reduced from profits of business and there will be no deduction on account of sales tax set off and excise duty rebate. The ground raised by the assessee is thus partly allowed. 2.7 The next dispute is regarding applicability of provisions of section 80IA (9). The AO noted that in terms of the said provisions, where any amount of profit or gain of industrial undertaking was claimed and allowed as deduction under section 80IA, the deduction to the extent of such profit/gain shall not be allowed under any other provisions o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s which had been omitted to be considered by the accountant and also got unnoticed by the auditors. It was accordingly urged that penalty should be deleted. The ld. DR on the other hand placed reliance on the orders of authorities below. 3.3 We have perused the records and considered the matter carefully. The dispute is regarding levy of penalty under section 271(1)(c) in relation to disallowance of claim of depreciation on electrical fittings. Till 2002-03, there was no specific provision for depreciation on electrical fittings and therefore these were being considered under the residual head of plant and machinery entitled for depreciation @ 25%. From assessment year 2003-04, electrical fittings were made part of furniture and fittings entitled for depreciation at a lower rate of 15%. The case of the assessee is that this was a transitional year and therefore, claim was made at the old rate due to bonafide mistake by the accountant which had also gone unnoticed by the auditors. Considering the smallness of the amount and this being the first year of amended provisions, in our view the claim of depreciation at a higher rate has to be considered due to bonafide mistake. The ..... X X X X Extracts X X X X X X X X Extracts X X X X
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