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TMI Blog2013 (4) TMI 421X X X X Extracts X X X X X X X X Extracts X X X X ..... DR that the funds available should be taken on day to day basis and not on the basis of closing balance at the end of the year is not well. It has to be taken into consideration that what is the amount 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, confirm the finds of the CIT (A) on this issue. Taxability of interest income - income from other sources v/s business income - computation of deduction u/s 80-HHC - Held that:- The funds were required for business purposes and as per pre-conditions of the Bank margin money was deposited in the shape of FDRs for availing overdraft facility and therefore, it has direct nexus with business activity and accordingly, it has to be treated as income from business and since there is a direct nexus between the earning of interest and expenditure of interest then netting of interest has also to be allowed in view of the decision of the Special Bench in the case Lalsons Enterprises [2004 (2) TMI 294 - ITAT DELHI-E]. Therefore, these grounds of the assessee are allowed and the AO is direc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Notification dated 9th June 2011 does not apply to the AY 2004-05. Notwithstanding the above, it is noticed that the assessee finally obtained requisite approvals of PCC to establish or operate the unit during the year itself. So long as, the approvals are obtained before the end of the year, the delay noticed, being a procedural incursion, should not be used to deny the benefits of the beneficial provisions of section 80-IB. As requisite approvals are finally obtained and the State Government has not charged the assessee with any violations of any provisions under Air and Water Acts. Objections on the SSI-Registration issue - Held that:- The assessee is provisionally registered before setting up of factory and start of commercial production, which is a sufficient compliance and there is no breach of any law. Employees number engaged in the manufacturing unit of the assessee - Held that:- As it is the case of the assessee that the said workers do not have to continuously work for full year, contract or contingent workers also qualify to meet the requirements of the provisions of section 80-IB(2)(iv) merits acceptance but are covered by the additional evidences filed fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thol based products etc. Assessee filed its return of income declaring the income of Rs. 17.8 Cr (rounded off to nearest lakhs) after claiming deduction u/s 80-HHC of the Act amounting to Rs. 22.91 Cr, deduction u/s 80-IB of the Act amounting to Rs. 1,21,211/- and finally the deduction u/s 80-G the 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 the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .12.1991, Assessing Officer disallowed 10% of the tax free income and added sum of Rs. 3,75,867/- as expenditure attributable to earning of tax free interest and dividend income. During the first appellate proceedings, the disallowances is restricted to 50,020/- based on the principle of proportion between 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/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 83,42,438/-. CIT (A) deleted the same as per the discussion given in para 5 of his order which reads as under: "I have perused the facts of the case and I find that the facts in the present appeal are identical to the facts in the earlier years. The issue was analysed in great details by the Appellate Commissioner 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO was not justified. 19.1. The contentions of the Ld DR that the funds available should be taken on day to day basis and not on the basis of closing balance at the end of the year; in our view, is not well founded on the facts of the present case. It has to be taken into consideration that what is the amount 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that in this case it has been held that interest earned on the amounts kept aside for import of machinery and invested in short term corporate deposits were assessable as business income. 8.3. The CIT (A) after considering the submissions and other material on record found that the decision of the Supreme Court in 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l (supra). Accordingly, ground no.(iv) of the assessee's appeal is allowed. 13. Further, referring to ground nos. 12 to 14 of the assessee's appeal, Ld Counsel mentioned that these grounds are connected to the above ground of the revenue's appeal and the issues have to be decided, considering the Hon'ble Supreme Court judgment 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 purc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ected to consider the amount of sundry balances written back as profit of the assessee for the purpose of computing deduction u/s 80-HHC. 20.4 The findings of the Ld CIT (A) neither could be controverted nor any other material was brought on record to establish otherwise. Therefore, we see no reason to interfere with the findings of 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13 and the 14 of the impugned order which read as under: "13. Assessing Officer has also relied upon circumstantial evidence to establish that manufacturing was not commenced during the previous year under consideration. These are enumerated below: 1. Copy of the permanent SSI certificate has not been filed by appellant despite specific request 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 ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee reiterated the similar submissions and paras 16 to 20 of the impugned order are relevant in this regard. As per the same, regarding the approvals from PCC, CIT (A) believed that assessee is not allowed to commence the manufacturing activity till "order of commencement to operate" was issued. The documentation furnished by the assessee related 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 relia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in the interest of justice and decide the same on merits. These papers relate to confirmation from the sales parties ie Quest International India Limited, Colgate Palmolive (I) Limited, details of transport charges, details of electricity bills, details of diesel and duty drawback credit, DEPB rates and many other papers to prove the bona fides of 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 is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing heard to the assessee. While passing a speaking order, AO shall also consider our prima facie opinions given below on various specific arguments raised by the Ld Counsels of the parties. 28. On the issue relating to no possibility of commencement of manufacture without the approvals by the PCC, during the proceedings before us, Ld Counsel has extensively 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sts etc. Regarding the role of Rituja Enterprises, Ld Counsel further mentioned that every allegation as made by the AO as well as the CIT (A), even after considering the findings of survey enquiries during the time of making assessment for the AY 2005-2006. Ld Counsel was also critical about the statement u/s 131 taken from the contractor and challenged 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oducts sold to Colgate Palmolive (I) Ltd and Quest International India Limited. These third parties filed confirmations confirming the supply of the products and they assume very importance for coming to the conclusion relating to the manufacturing ability of the assessee in this year under consideration. In the factual matrix of the case where the AO has not brought any adverse material to suggest that the stock sold are outsourced and not manufactured in assessee's unit, the third party confirmation assume great significance. Unless, the contents of these confirmation are met by the AO, the claim of the assessee cannot be denied merely based on fringe issues ie electricity consumption, packing material, employees etc. How can we ignore so much of documentation filed before us suggesting the set up/ commencement of manufacturing activity in this year?. In our opinion, AO needs to weigh between the uncontroverted fact of sale of the product qua the fringe issues cited above before coming to the conclusion when comes to the applicability of the beneficial provisions such as section 80IB of the Act. 35. Therefore, AO is directed to make use of the additional evidences filed by both ..... X X X X Extracts X X X X X X X X Extracts X X X X
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