TMI Blog2002 (9) TMI 864X X X X Extracts X X X X X X X X Extracts X X X X ..... he view that all the expenses totalling to ₹ 2,02,098 are in the nature of entertainment. The learned CIT(A) confirmed the findings of the Assessing Officer on the basis that the assessee did not furnish any details before him regarding the sales promotion expenses. 3. The learned counsel for the assessee filed before us, the details of sales promotion expenses (compilation page-1). The learned counsel contended that out of the total amount of ₹ 2,02,098, the assessee has itself disallowed an amount of ₹ 7,670 separately. Out of the remaining amount of ₹ 1,94,428, he contended that 5096 should be considered as has been spent on staff and that amount should not be considered as has been spent on entertainment. The learned DR placed his reliance on the findings of the tax authorities. 4. We have carefully considered the submissions made by the rival parties. The Tribunal is consistently following that 2596 of the amount should be considered as has been spent on staff members and the remaining amount should be taken into account for determining the disallowance under section 37(2) of the Act. The Assessing Officer, is therefore, directed to consider 2596 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t limit and Bank guarantee at ₹ 5,37,805. Therefore, according to him, the Assessing Officer has wrongly calculated the deduction at 90% of ₹ 5,37,805 because the net interest earned by the assessee was NIL. He argued that only if the net interest earned is more than the interest paid, the question of 90% deduction would arise. He further argued that the interest was received on the various fixed deposits made by the assessee with the banks. These fixed deposits have been placed with the bank for obtaining various facilities. As interest paid by the assessee is higher than the interest received, no addition was required to be made. The learned counsel relied on the following court cases to support his contention that interest from fixed deposits kept in the bank out of business necessity is to be treated as business income and not income from other sources: (i) CIT v. Paramount Premises (P.) Ltd. (1991) 190 ITR 259(Bom.) (ii) CIT v. Nagpur Engineering Co. Ltd. (2000) 245 ITR 806(Bom.) (iii) Sealink Construction Co. (P.) Ltd. [IT Appeal No. 4433 (Mum.) of 2000, dated 5-12-2001] (iv) Neha Transmission [IT Appeal No. 4877 (Mum.) of 1999, dated 6-7-2001 (Mum. Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction under section 80HHC has to be computed under the head Profits and gains of business or profes sion by deducting ninety per cent of the receipts mentioned in clauses (iiia) and (iiib) of section 28 along with receipts by way of brokerage, commission, interest, rent, charges or any other receipt of similar nature including in such profits. Clause (baa) under the Explanation below sub section (4A) of section 80HHC has not made any distinction of the income earned from business and from other sources. Therefore, even if the receipts mentioned in clause (bad) under the Explanation are of business nature or the income earned from the business operations carried on by the assessee, 90% of that income has to be deducted which is included in the profits determined under the head Profits and gains of business of profession . Therefore, the contention of the learned counsel that interest is a business income has no relevance so far as the provisions of clause (baa) under the Explanation are concerned. Whether the income is from business or from other sources, the deduction of 90% has to be made from the profits computed for the purpose of deduction under section 80HHC. 9. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the profits so determined and thereby has allowed 10% expenditure for earning these receipts. Now, if the contention of the learned counsel is accepted as correct, the purpose of deduction at 90% would become redundant. If only net income was to be considered, there was no purpose for allowing further deduction of 10%. Net income means that the expenditure for earning that income has already been allowed. This is quite contradictory to the language of clause (baa) where the provisions of allowing 10% has already been made. This makes it abundantly clear that only gross receipts have to be taken into consideration for the purpose of clause (baa) because the provisions for allowing 1096 expenditure on such receipts is in-built in clause (baa) itself. 11. It would also be relevant to mention over hear that the assessee has borrowed funds for the purpose of its business and not only to invest for the purpose of earning interest. The total turnover of the assessee during the year under consideration is ₹ 9,92,29,794 whereas the turnover of the interest earned is only ₹ 5,47,805. Thus, the funds borrowed have been mainly invested for earning the business profits. Theref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowing 10% expenditure on such receipts would also become futile. Therefore, we are of the considered view that the principle of netting the interest would defeat the very purpose of the legislation and would reduce the provision to futility. We, therefore, uphold the findings of the tax authorities for taking into consideration the gross income from interest for the calculation of deduction under section 80HHC. 13. In the case of Nanji Topanbhai ; Co. v. Asstt. CIT (2000) 243 ITR 192and Abad Enterprises v. CIT (2002) 253 ITR 319, the Kerala High Court held that where the assessee exporter had offered a fixed deposit in bank as security for a loan transaction connected with his export business, the interest earned on such deposit cannot be treated as income from export business for the purpose of allowing deduction under section 80HHC. Similarly, the Kerala High Court in the case of CIT v. Jose Thomas (2002) 253 ITR 553 held that Interest from bank deposits and SBI Magnum are not allowable as deduction under section 80HHC by treating them as business income on the ground that the deposits had been offered as security for availing packing credit facility and had therefore, got ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TO v. Bajaj Auto Ltd. (1984) 81 ITD 296(Bom.) The learned DR placed his reliance on the findings of the tax authorities. 16. We have heard the rival parties. We have also gone through the court cases relied upon by the learned counsel. In the case of Reform Flour Mills (P.) Ltd. v. CIT 1978] 114 ITR 227(Cal.), the High Court held that Section 145(1) does not postulate any agreement or contract regarding the method of accounting to be employed by a tax payer. This section also does not lay any embargo on him to alter his method of accounting. An assessee can change the method of accounting unilaterally in respect of a source of income. Similarly, in the case of Snow White Food Products Co. Ltd. v. CIT (1983) 141 ITR 847(Cal.), the Court held that The change in the method of accounting need not have the approval of the Income- tax authorities nor need it be supported by cogent reasons showing the bona fides by the assessee. The Bombay Tribunal in the case of Bajaj Auto Ltd. (supra), relied upon by the learned counsel for the assessee has held that the assessee can change the method of accounting of duty drawback and cash incentive from Government from mercantile to cash basis ..... X X X X Extracts X X X X X X X X Extracts X X X X
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