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TMI Blog2012 (5) TMI 666X X X X Extracts X X X X X X X X Extracts X X X X ..... ia claiming the deduction u/s.80HHC. The return was proceeded u/s.143(1)(a). There was no regular assessment under the provisions of the Act. Thereafter, a notice was issued u/s.148 on the ground that the assessee incurred loss and hence was not entitled to deduction u/s.80HHC. The A.O. has recorded the reasons which are reproduced as under :- Name of the case M/s Ratan silk Mills A.Y. 2002-03 Pan AACPR 7220D Reasons for reopening of assessment u/s.148 of the I.T. Act :- Assessee has filed return of income for the aforesaid A.Y. on 30.10.00 declaring income at `.62,595/-. The return was processed u/s. 143(1)(a)/ accepted u/s.143(1) on Assessee is a During the year, assessee has shown net profit of `.17,90,133/- and received amount of `.28,17,955/- towards export incentives. If the export incentives are not taken into account, the assessee has incurred loss i.e. negative profit. Assessee has claimed deduction u/s. 80HHC amounting `.50,75,805/-. As the assessee has incurred loss, he is not entitled for deduction claimed u/s.80HHC as per Supreme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment has been made and it is noticed by the A.O. that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return, it shall be deemed to be a case where income chargeable to tax has escaped assessment. Present is a case in which the deduction claimed by the assessee u/s.80HHC has been allowed at a higher level in contravention to these two judgments. In such circumstances, no fault can be found with the A.O. in forming the view that the income chargeable to tax escaped assessment within the meaning of section 147. 7. As regards, the contention of the learned AR that there was no fresh material in the hands of the A.O. for initiating the assessment proceedings, we find that this contention is bereft of any force for the reason that these two judgments were rendered after the processing of return by the A.O. u/s.143(1)(a). The Hon ble Supreme Court in ITO VS. Saradbhai M. Lakhani Anr (2000) 243 ITR 1 (SC) has held that a subsequent decision of superior appellate authority constitutes `Information' and reassessment on that basis is valid. It is pertinent to note that the Hon ble Supreme Court in the case of A.L.A Firm VS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e total disallowances of interest of `.23,81,097/- made by the AO. Briefly stated the facts of this ground are that the assessee paid interest on loans to various financial institutions. During the course of the assessment proceedings it was noticed by the A.O. that the account of M/s. Modern Textile Rayon Silk Mills Pvt. Ltd. (hereinafter called MTRS) had opening balance of `.1.46 crore. The A.O. noted that the assessee made certain purchases from this party and the closing balance was at `.2.00 crore. In the opinion of the A.O., the assessee diverted its interest bearing funds in making the payment to MTRS, a sister concern of the assessee. Accordingly, the A.O. held that the interest on borrowings was not allowable u/s.36(1)(iii) to this extent. This has resulted into an addition of `.23.81 lakhs. 10. The learned CIT(A) accepted the assessee s stand in particular that the assessee was dealing in such types of commodities which were not usually available in the market. MTRS supplied the goods to the assessee on the condition of 100% advance. He observed that the appellant, therefore, is understandably under obligation to keep the advance amount with MTRS . He however, held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he interest free funds were utilised to make such advance. From the very prescription of section 36(1)(iii), it is discernible that the amount of interest paid in respect of capital borrowed, for the purpose of business or profession, is allowed as deduction. So long as the purpose of utilisation of the capital borrowed is towards business, no disallowance can be made. As admittedly, the advances were made by the assessee to its sister concern for effecting purchases, in our considered opinion, the learned CIT(A) cannot be held to be justified in restricting the addition on account of disallowance of any interest. In the result, this ground of the assessee is allowed and that of the Revenue is dismissed. 13. Ground no.2 of the assessee s appeal is against the sustenance of additions of motor car expenses. The facts apropos this ground are that the assessee claimed deduction in respect of motor car expenses to the tune of `.8,28,597/-. The A.O. observed that the assessee had used 9 motor cars, out of which 5 were in the names of persons other than the assessee firm or its partners. Considering the nature of the business of the assessee firm, the A.O. also found the use of 9 motor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... motor cars were not registered in the name of the assessee. For the reasons discussed in respect of ground no. 2, we hold that the sustenance of the disallowance of depreciation on that ground cannot be sustained. However, considering the mandate of section 38(2), we sustain disallowance of depreciation @ 10% on account of personal use by the partners in respect of all the motor cars. In so far as the interest part of `.1,57,319/- towards loan on motor car is concerned, in our considered opinion, the same is deductible in view of the fact that the cars were purchased by the assessee firm and were standing in its balance sheet. Further in view of the fact that the said cars were used by the assessee for the business purpose, there can be no question of disallowance of interest for the purchase of such cars. To sum up, we sustain the disallowance on motor cars at the rate of 10% towards personal use by the partners. This ground is partly allowed. 16. Ground no. 4 is against the sustenance of disallowance of `.40,706/- being 50% out of Sales Promotion expenses disallowed by the A.O. The assessee claimed deduction for `.4,07,058/- on account of sales promotion expenses. The A.O. ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome from other sources , is thus incorrect. The entire income was offered as the business income and the same has been assessed accordingly, as is evident from the computation of total income made by the A.O. on the last page of the assessment order. There is no reference to any income under the head Income from other sources . The other reasons for which the order of the learned CIT(A) cannot be upheld is about the amount of depreciation. It was contented before the ld. first appellate authority as well as us that the depreciation in question related only to the idle machinery. On the other hand, it can be seen from the Schedule of assets of the assessee (a copy of which is available at page 1 of the paper book) that the depreciation of `.29.90 lakh is in relation of all the assets including machinery, furniture and fixture etc. There is nothing like any segregation of assets into idle and working assets. When the facts are seen in this light, it becomes apparent that the amount of depreciation for the current year has to be allowed u/s.32 against under the head Profit and gains of business or profession . The contention of the learned AR that section 57 will govern the dedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ground on the motor car loan is allowed. 4. Ground no.4 about the sustenance of disallowance at 10% of sales promotion expenses is not allowed. 5. Ground no.5 of the assessee s appeal about the sustenance of disallowance at 10% of total travelling expenses is not allowed. 6. Ground no. 1 of the Revenue s appeal is about the reduction of the amount of depreciation from the profits of the business for the purpose of computation of deduction u/s.80HHC is allowed. 7. Ground no.2 is about the direction of treating the sample sales as export sales, is dismissed. 8. Ground no.3 about restricting the disallowance of interest on loan at 50% which is dismissed. 25. In the result, both the appeals are partly allowed. Assessment Year 2004-05 26. Both the sides are in agreement that the facts and circumstances of the appeals for this year are also mutatis mutandis similar to those for the immediately preceding year except for few new grounds. In fact, no separate arguments were advanced by the either side in respect of the similar grounds for this year. Following the view taken in the A.Ys. 2002-03 and 2003-04, we hold as under :- 27. Ground no. 1 o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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