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TMI Blog2019 (11) TMI 877X X X X Extracts X X X X X X X X Extracts X X X X ..... t be brought to tax under any of the specific heads of income in the provisions preceding Section 56 in chapter IV of the Income Tax Act, 1961. An income received in the ordinary course of business is an integral part of the regular income of the assessee. Since there is no infirmity in the calculations made by the Assessing Officer while computing the deductions in view of the above decisions cited on behalf of the assessee, the view of the Commissioner of Income Tax that the Assessing Officer committed an error while passing the respective Assessment Orders which resulted in loss of revenue prejudicial to interest of revenue cannot be sustained. Assessing Officer to compute deduction under Section 80 HHC in the order of the Commissioner of Income Tax is without any basis. We are therefore of the view that the Commissioner of Income Tax erred in invoking the revisional powers under Section 263 of the Income Tax Act, 1961 in the facts of the present cases.- Decided in favour of assessee - T.C.A.Nos.1212 & 1213 of 2009 - - - Dated:- 1-11-2019 - Dr. Vineet Kothari, Acting Chief Justice And Mr. Justice C. Saravanan For the Appellant : Mr.M.Swaminath ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... culminated in an Assessment Order dated 28.3.2006 under section 143 (3) for the Assessment Year 1998-99. 6.As per the said order, the respondent assessee was liable to pay a sum of ₹ 4,85,19,047/- as deferential tax. The said order also enclosed a copy of computation of deduction under Section 80-HHC of the Act which reads as under:- Computation of deduction u/s 80-HHC 1. Adjusted profit as per computation 30,61,70,735 Less: 90% of Duty Drawback as in Order dt.22.1.2003 5,56,64,924 25,05,05,811 Less: Profits from Trading Goods 46,95,267 Adjusted profit of the business 24,58,10,544 2. Adjusted Export Turnover 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 705,29,99,833 Adjusted Total Turnover: Total Turnover 705,29,99,833 Less: Turnover of Trading goods 41675572 Less: Turnover of Trading goods 701,13,24,261 Revised Total Turnover Adjusted Export Turnover: 1352147543 Adjusted Profit of Business Business Profit computed 49,79,55,825 Less: 90% of the following: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Manufactured Goods: Adj. Profit from business x Adj. ETO ------------------------------------------------- Adj. TTO i.e 455897696 x 1352147543 ----------------------------------- = 8,79,20,759 7011324261 8,79,20,759 Total u/s 80 HCC eligible = ₹ 77,33,896 + 8,79,20,759 = 9,56,54,655 Allowable deduction @ 50% for the AY 2003-2004 = ₹ 4,78,27,328 9.The Commissioner of Income Tax- I invoked the jurisdiction vested under Section 263 of the Income Tax Act, 1961 by construing that the respective assessment orders passed under Section 143(3) dated 28.03.2006 were erroneous and prejudicial to interest of the revenue. 10. By two separate orders dated 31.03.2008, for the respective Assessment Orders dated 28.03.2006 for the two assessment years it was held that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ause (baa) of Explanation to sec. 80HHC for the purpose of deduction under sec.80HHC. Later on the Hon'ble High Court has held in the case of Dollar Apparals (supra) that 100% of the interest income has to be reduced for the purpose of deduction under sec.80HHC. However, we find that this judgment was rendered on 21st February 2007 whereas the Assessment Order under SEC. 143(3) of the Act was passed on 28th March 2006. We further find that the Assessing officer has diligently followed the decision of the Hon'ble Jurisdictional High Court in the case of V. Chinnapandi (supra) and reduced 90% of the Interest income from business profits for the purpose of deduction under sec. 80HHC of the Act. At best, the Assessing Officer has followed one of courses legally available and no fault can be found with his order. In fact, the Hon'ble Supreme Court in the case of Malabar Industries Co.Ltd., (supra) has held as under : A bare reading of section 263 of the Income - tax Act, 1961, makes it clear that the prerequisite for the exercise of jurisdiction by the Commissioner suo motu under it, is that the order of the Income-tax Officer is erroneous ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore that of the Assessing Officer. 16.Heard learned counsel Mr Swaminathan, Senior Standing Counsel for Income Tax for the appellant revenue and Mr. Surya Narayanan for M/s. King and Patridge for the respondent assessee. 17.The learned counsel for the appellant submits that the interest was to be treated as income from other sources and as such when the assessing officer had not done so, it amounted to an order which was erroneous. He further submitted that the decision of the Court in CIT vs V.Chinnapandi (282 ITR 389) has no application to the facts of the present case. 18.The learned counsel for the appellant relied upon the following decisions:- i. Gerard Perira vs Income Tax Officer , 2016 SCC OnLine Mad 23008. ii. Dollar Apparels vs Income Tax Officer, 2007 SCC OnLine Mad 1112. iii. Commissioner of Income Tax vs Cosmos International, 2008 SCC OnLine Del 1455. 19.Per contra, the learned counsel for the respondent- assessee stated that the impugned orders were well reasoned and require no interference and prays for dismissal of the present appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 20. Section 80-HHC had a head note. That head note said deduction in respect of profits retained for export business . The said head note was inserted by the Finance Act, 1985 w.e.f. 1-4-1986. Under the original section as inserted by the Finance Act, 1983, the head note stated deduction in respect of export turnover . Therefore, the very basis shifted from export turnover to retention of profits for export business . 21. Under Section 80-HHC(1) of the IT Act it was inter alia provided that in computing the total income a deduction of the profits derived by the assessee from the export of goods shall be made. That, that the words profits derived from exports in the said sub-section was substituted for the words whole of income by the Direct Tax Laws (Amendment) Act, 1989 w.e.f. 1-4-1989. The expression derived from in the said sub-section is narrower than the expression attributable to , therefore, it is only profits derived from exports which become the basis for working out the said formula in Section 80-HHC(3) of the Act. Similarly, by the Finance Act, 1991 w.e.f. 1-4-1992, fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lause ( baa ) of the said Explanation. That, profit incentives and items like rent, commission, brokerage, charges, etc. though formed part of gross total income had to be excluded as they were independent incomes which had no element of export turnover. That, the said items distorted the figure of export profits. 24. One point still remains for consideration. On behalf of the assessees it has been vehemently urged that the abovementioned processing charges, earned by the assessees by processing raw cashew nuts for third parties, had no nexus with the export business and, therefore, such charges were not includible in the total turnover. It was also further argued that export incentives were admissible only in respect of profits on export sales. In this connection, it was submitted that the assessees earned processing charges from an activity which had no connection with exports. According to the assessees, no export turnover arose from processing of raw material by the assessees for third parties and, therefore, the said receipts did not constitute an element of total turnover. Therefore, according to assessees, the AO had erred in i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... receipt may not constitute sale proceeds from exports. That, every receipt is not income under the IT Act and every income may not be attributable to exports. This was the reason for this Court to hold that indirect taxes like excise duty which are recovered by the taxpayers for and on behalf of the Government, shall not be included in the total turnover in the above formula (see CIT v. Lakshmi Machine Works [(2007) 11 SCC 126 : (2007) 6 Scale 168] ). 27. In the present case, the processing charges were included in the gross total income from cashew business. That, even according to the assessee the said charges constituted an important component of gross total income from cashew business. This is not disputed. Therefore, in terms of Clause ( baa ), 90% of the independent income had to be deducted from gross total income to arrive at business profits to which the fraction had to be applied. Since, the processing charges constituted independent income similar to rent, commission, etc., which formed part of the gross total income, the same had to be reduced by 90% as contemplated in Clause ( baa ) to arrive at business profits. Therefore, the said pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax under the head Profits and gains of business or Profession . Thus, Interest Income earned in the ordinary course of business is excluded from Section 56 of the Act. An interest income earned by the Assessee or received by the Assessee during the year in question, in the ordinary and regular course of business is an integral part of business income itself. Like hundreds of business decisions taken by the Assessee in its business, the deposit of money with the bank either under compulsion like maintaining the margin money with the Bank or for opening of foreign letter of credit or for obtaining the loan itself or cash credit facility or the voluntary deposits made by it of the surplus funds, which would otherwise be lying idle, the Assessee, in its own business or commercial prudence, makes a deposit in Bank and incidentally earns an interest through it or interest from staff loans or custorners on the belated payments and such interest income is nothing but its regular business income. 24. Section 56 of the Act, providing for Income from Other Sources . cannot be applied at all to such interest income. The income from Business need not be directly related only ..... X X X X Extracts X X X X X X X X Extracts X X X X
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