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2008 (7) TMI 1065 - AT - Income TaxInterpretation of Statutes - Deduction u/s 80HHC - Net expenditure was claimed as interest expenditure - Calculation of deduction u/s 80HHC - excluding the receipts from DEPB - Rejection of books of account u/s 145(3) - Trading addition - estimation of income - reducing the GP rate to 21.26 per cent as against 24 per cent - Disallowance of a sum out of interest. Interpretation of Statutes - Deduction u/s 80HHC - Net expenditure was claimed as interest expenditure - HELD THAT:- On identical issues, this Bench has been taking the consistent decisions where the income earned as interest on FDRs has to he treated as income from other sources and not income from business and the interest expenditure has been held to be allowable u/s 37(1)/36(1)(iii) of the Act. No netting in such cases can be done - there are no infirmity in the order of the ld CIT (A) who has rightly confirmed the action of the AO in treating the interest income as income from other sources and no netting has been allowed. Thus, ground No. 1 of the assessee is dismissed. Calculation of deduction u/s 80HHC - excluding the receipts from DEPB - HELD THAT:- In the present case, the intent of the legislature is clear and we find no ambiguity with respect to the taxability of the profit on the transfer of DEPB and the authorities below need not call the aid of other rule of construction of statutes. If this is done, this will tantamount to straining the statute which is not permitted in view of the decisions of Hon'ble Supreme Court of India in the case of State of Punjab v. Jalandhar Vegetables [1965 (11) TMI 101 - SUPREME COURT] and Innamuri Gopalam v. State of AP[1963 (4) TMI 18 - SUPREME COURT] - Moreover, the revenue cannot adopt different ways of taxing one receipt, i.e., if the assessee utilizes the said entitlements for imports, no tax is levied on the part of profit which has resulted from the savings in the import duty whereas if it is not utilized and sold in the market, the same is taxed. Therefore, such cost cannot become the part of the profit. Essentially it has to be reduced from the sale consideration - DEPB entitlements are given to supplement the input cost of exports which is a fixed percentage of the export which differs from the different products. It is this imputed or attributed cost which is to be set off against DEPB receipts to arrive at the sums taxable u/s 28(iiid) of the Act. Therefore, it is only the profit on the transfer of DEPB Scheme which has to be treated as income u/s 28(iiid) of the Act. On identical issue, the reliance has rightly been placed by the ld AR on the following decisions in Glenmark Laboratories Ltd. v. Dy. CIT[2007 (12) TMI 236 - ITAT BOMBAY-K] - Therefore, theAO is directed to allow the claim of the assessee. The order of the ld CIT(A) is reversed on this issue. Thus, ground No. 2. of the assessee is allowed. Rejection of books of account u/s 145(3) - Trading addition - estimation of income - reducing the GP rate to 21.26 per cent as against 24 per cent - HELD THAT:- Assessee did not produce the stock register for the reasons best known to him. No defect has been pointed out by the auditor cannot help the assessee and therefore, the results declared by the assessee cannot be considered as accurate. We find no infirmity in the order of the ld CIT (A) who has rightly upheld the applicability of Section 145(3) - We uphold the views of the ld CIT (A) that the comparable cases relied upon by the AO cannot be the basis for estimation of income since the said cases are the manufacture of garments whereas the assessee is manufacturer of made ups. Moreover, the AO has not brought on record whether the said cases are at all comparable with the present case or not. No material has been provided to the assessee with regard to the said comparable cases - The results of the assessee have been accepted for the AY's 2001-02 and 2002-03 under the assessments u/s 143(3) of the Act which have to be kept into consideration though each year is an independent year in the Income-tax proceedings. Therefore, past results of the assessee are the best guide. The assessee has declared GP rate of 20.46 per cent in the immediately preceding year whereas during the impugned year, the assessee has declared better GP rate of 20.75 per cent - In view of decision in the case of CIT v. Gotan Lime Khanij Udhyog [2001 (7) TMI 19 - RAJASTHAN HIGH COURT], even if the rejection of books of account have been upheld, in the circumstances of the present case, no addition is called for. The ld CIT (A) has not given any basis for making the application of GP rate of 21.26 per cent and has ignored the past results declared by the assessee. Therefore, the order of the ld CIT (A) for sustaining the addition is reversed - Thus, ground for Rejection of books of account u/s 145(3) is dismissed and ground for confirming the trading addition of the assessee is allowed and solitary ground for reducing the GP rate of the revenue is dismissed. Rejection of books of account - trading addition - HELD THAT:- In the present case, We find the explanation of the assessee as convincing for fall in GP and therefore, no addition can be made even if the books of account are rejected in view of decision in the case of CIT v. Gotan Lime Khanjit Udyog (supra). Therefore, the order of the ld CIT (A) for sustaining the trading addition is reversed. Thus, ground No. 1 of. the assessee is dismissed and ground No. 2 of the assessee is allowed. Disallowance of a sum out of interest - loan is diverted by the assessee by way of investment and advancement of loans to various persons which are not connected with his business activities - HELD THAT:- The vital fact has been ignored by both the authorities below. The assessee is having the surplus capital and any investment made out of own capital of the assessee, cannot be a subject for disallowance of interest paid to the banks. The cases relied upon by the authorities below are no help to the Revenue as submitted by the learned Authorised Representative. The cases relied upon by Mr. Rajeev Sogani in the case of Radico Khaitan Ltd.[2004 (9) TMI 37 - ALLAHABAD HIGH COURT], Prem Heavy Engineering Works (P) Ltd. [2005 (4) TMI 603 - ALLAHABAD HIGH COURT], Britannia Industries Ltd. [2005 (6) TMI 19 - CALCUTTA HIGH COURT], support our views and therefore, no disallowance on account of interest can be made. Therefore, the disallowance confirmed by the ld CIT (A) is directed to be deleted. Thus, ground No. 4 of the assessee is allowed. Appeal allowed in part.
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