TMI Blog2005 (4) TMI 242X X X X Extracts X X X X X X X X Extracts X X X X ..... earned counsel for the assessee that this ground is of general nature and needs no separate adjudication. Accordingly, the same is rejected. 3. Ground No. 2 of the assessee's appeal reads as under:- In law and in the facts and circumstances of the Appellant's case, the learned CIT(A) has grossly erred in confirming disallowance of Consultation Fees Rs. 2,95,000/- under section 40A(12) of Income-tax Act. 3.1 The facts of the case are that the assessee made the payment of professional charges of Rs. 3,05,000/- as under:- Fee to G K Chokshi Co. Rs. 2,75,000/- Fee to K C Patel Rs. 25,000/- Fee to R D Shah Co. Rs. 5,000/- Rs. 3,05,000 /- 3.2 It was the claim of the assessee that the above payments were partly for income-tax matters and partly for other services which are not covered by section 40A(12). The assessee had worked out the disallowance under section 40A(12) at Rs. 88,750/- which was disallowed by the assessee itself while preparing computation of its income. However, the Assessing Officer considered the entire payments of Rs. 3,05,000/- to be covered within ambit of section 40A(12). He, therefore, allowed only a sum of Rs. 10,000/- as provided in section 40A(12) and d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the purview of section 40A(12). Deduction permissible under section 40A(12) is only Rs. 10,000/-. Therefore, the adjudication of this ground would depend upon the nature of services rendered by M/s. G K Chokshi Co. CAs, Shri K C Patel and R D Shah Co. The Assessing Officer has considered entire services to be within the ambit of section 40A(12) while it is contended by the assessee that only part of the services were within the ambit of section 40A(12). The Assessing Officer as well as the CIT(A) has not discussed the exact nature of services being rendered by above persons. The assessee has not produced before us the bills issued by above professionals. In view of above, we set aside the orders of the authorities below and restore the matter back to the file of the Assessing Officer. We direct him to examine the nature of fees paid by the assessee to the above persons and thereafter re-adjudicate the matter as per provisions of section 40A(12). Needless to mention that the Assessing Officer will allow an adequate opportunity of being heard to the assessee. 4. Ground No. 3 of the assessee's appeal reads as under:- In law and in the facts and circumstances of the Appellant' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ical, the order of the Tribunal for assessment year 1991-92 should be followed. 4.4 We have carefully considered the arguments of both the parties and perused the material placed before us. The learned counsel has heavily relied upon the decision of the Hon'ble Calcutta High Court in the case of Asiatic Oxygen Ltd. The facts in that case were that the assessee incurred expenditure in the preparation of a feasibility report in connection with a project to produce raw materials required by him and claimed it as a revenue expenditure. The Income-tax Officer allowed the expenditure in the draft assessment order but the Inspecting Assistant Commissioner in the proceedings under section 144B disallowed it and added the amount to the income of the assessee. The Tribunal upheld the addition. On a reference: Held, (i) that, in this case, in the draft assessment order, the amount claimed as expenditure was not disallowed by the Income-tax Officer. Therefore, the question of disallowance of the amount in question could not have been covered by the objection raised by the assessee, the direction given by the Inspecting Assistant Commissioner to enhance the assessment was not lawful. Thus, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T v. Sterling Foods [1999] 237 ITR 579 (SC) and in the case of Pandian Chemicals Ltd. v. CIT [2003] 262 ITR 278 (SC). In the case of Sterling Foods their Lordships held as under:- There must be, for the application of the words 'derived from', a direct nexus between the profits and gains and the industrial undertaking. In the instant case, the nexus was not direct but only incidental. The industrial undertaking exported processed sea foods. By reason of such export, the Export Promotion Scheme applied. Thereunder, the assessee was entitled to import entitlements, which it could sell. The sale consideration therefrom could not be held to constitute a profit and gain derived from the assessee's industrial undertaking. The receipts from the sale of import entitlements could not be included in the income of the assessee for the purpose of computing the relief under section 80HH of the Income-tax Act, 1961. In the case of Pandian Chemicals Ltd., their Lordships held as under:- It is clear that the words 'derived from' in section 80HH must be understood as something which has direct or immediate nexus with an industrial undertaking. Although electricity may be require ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sport rent income. The Revenue's ground against the direction of the CIT(A) to exclude only the net income shall be dealt with separately while disposing of the Revenue's appeal. Subject to this remark, we uphold the order of the CIT(A) disallowing the claim of section 80-I with regard to transport rent income. 6.4 The Assessing Officer has also held that the profit on sale of raw material amounting to Rs. 7,585/- is not the profit and gain derived from the Industrial Undertaking. The learned counsel for the assessee could not justify how the profit on sale of raw material has direct or immediate nexus with the Industrial Undertaking. Therefore, we uphold the order of the lower authorities in this respect and hold that the profit on sale of raw material is not the profit derived from the Industrial Undertaking for the purpose of section 80-I. Accordingly, ground No. 5 of the assessee's appeal is rejected. 7. Ground No. 6 of the assessee's appeal reads as under:- 6. In law and in the facts and circumstances of the Appellant's case, the learned CIT(A) has grossly erred in rejecting the Appellant's ground that the whole of interest expenses of Rs. 85,64,785/- s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 2116 and 4936/Ahd/94 and others, in para 10 held as under:- 10. The next ground of appeal is regarding deduction under sections 80HH and 80-I in respect of Mandali Unit. The authorities below refused relief to the assessee on the ground that no production was effected during the year under consideration. After hearing both the sides, we find that while deciding the issue of depreciation, we have already decided that the assessee has started manufacturing activity during the year. Therefore, the claim of deduction under selection 80HH and 80-I has to be allowed for the reasons mentioned in earlier paragraphs. This ground of appeal is allowed. That the disallowance of deduction under section 80HH for the year under consideration was only consequential to the disallowance made by the Revenue in assessment years 1990-91 and 1991-92. Since the Tribunal in the above two years has already allowed the deduction under sections 80HH and 80-I to the assessee, we direct the Assessing Officer to allow deduction under section 80HH in the year under consideration also. Accordingly, ground No. 8 of the assessee's appeal is rejected. 10. Ground No. 9 of the assessee's appeal reads as unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of general nature and which was not pressed at the time of hearing. Accordingly, the same is rejected. ITA No. 5131/Ahd/95 - Revenue's Appeal:- 14. In this appeal by the Revenue, the following grounds are raised:- 1. The ld. CIT(A) has erred in law and on facts in- (i) deleting the disallowance made under Rule 6B (ii) deleting the disallowance out of interest (iii) deleting the disallowance made under section 40A(2)(b) (iv) directing to allow deduction under section 80-I as guide line laid down in the order (v) directing to allow deduction under sections 80HH and 80 separately (vi) deleting the addition on account of withdrawal from IDA A/c under section 32AB(6). 15. With regard to the disallowance under rule 6B, it was pointed out by the learned counsel for the assessee that this issue is covered in favour of the assessee by the decision of the Tribunal in assessee's own case for assessment years 1990-91 and 1991-92. He also submitted that a specific statement was made before the Assessing Officer that the presentation articles did not bear the logo of the assessee company and therefore, it does not have any evidentiary value. 15.1 The learned DR fairly accepted that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e deposited during the year under consideration. He also pointed out that the above income is net returned income after various deductions under section 80-I and depreciation, etc., and therefore, cash income is even more. That the withdrawal for income-tax is much less than the above income deposited in the bank account. The above statement made by the learned counsel is not controverted before us. Since the assessee has deposited its entire income in the same bank account from where the withdrawal for payment of income-tax is made, therefore, we accept the assessee's claim that the withdrawal for payment of tax was out of the income generated during the year under consideration and not out of the borrowed funds. Accordingly, we uphold the order of the CIT(A) on this point and reject the Revenue's ground. 17. The next ground of Revenue's appeal is against the deletion of the disallowance made under section 40A(2)(b). The facts of the case are that during the year under consideration, the assessee company claimed an expenditure of Rs. 40 lakhs for payment to Nirma Management Services as service charges. In assessment year 1991-92, the assessee paid service charges of Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or family, or any relative of such director, partner or member; (v) a company, firm, association of persons or Hindu undivided family of which a director, partner or member, as the case may be, has a substantial interest in the business or profession of the assessee; or any director, partner or member of such company, firm, association or family or any relative of such director, partner or member; (vi) any person who carries on a business or profession,- (A) where the assessee being an individual, or any relative of such assessee, has a substantial interest in the business or profession of that person; or (B) where the assessee being a company, firm, association of persons or Hindu undivided family, or any director of such company, partner of such firm or member of the association or family, or any relative of such director, partner or member, has a substantial interest in the business or profession of that person. Explanation.-For the purposes of this sub-section, a person shall be deemed to have a substantial interest in a business or profession, if,- (a) in a case where the business or profession is carried on by a company, such person is, at any time during the previous year, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of service charges from Rs. 13 lakhs last year to Rs. 40 lakhs in the year under consideration. After examining above facts, he will re-adjudicate the matter in accordance with law. Needless to mention that the Assessing Officer will allow adequate opportunity of being heard to the assessee. 18. The next ground of Revenue's appeal is against the direction of the CIT(A) to allow deduction under section 80-I on certain incomes. The facts of the case are that the assessee is entitled to deduction under section 80-I in its Vatva Industrial Undertaking and also Mandali Unit, The Assessing Officer while computing the deduction under section 80-I excluded certain incomes. The CIT(A) directed the Assessing Officer to include the following items in the profit of the Industrial Undertaking while computing the deduction under section 80-I:- Vatva Industrial Undertaking: (a) Late payment interest received from debtors Rs. 1,25,23,324/- (b) Insurance Refund Rs. 75,951/- (c) Transport rent income Rs. 19,03,000/- (d) Sale of Bardana Rs. 22,40,750/- (e) Sale of Waste material Rs. 16,25,646/- Mandali Unit: (a) Late payment interest received from Debtors Rs. 53,67,140/- (b) Bardana Sale Rs. 49, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 80-I but the interest received from the customers on belated payment to be eligible for deduction under section 80-I. The learned counsel has further contended that the Tribunal is bound to follow the solidary decision of any other High Court when there is no decision of the jurisdictional High Court. In support of this contention, he has relied upon the decision of the Hon'ble Jurisdictional High Court in the case of CIT v. Maganlal Mohanlal Panchal (HUF) [1994] 210 ITR 580 (Guj.). 18.4 We have carefully considered the arguments of both the sides and perused the material placed before us. While disposing of Ground No. 5 of assessee's appeal, we have discussed at length that for the purpose of 80-I, the income which has direct or immediate nexus with the Industrial Undertaking only is eligible for computing deduction as provided in that section. This conclusion is reached on the basis of the decision of the Hon'ble Apex Court in the cases of Sterling Foods and Pandian Chemicals Ltd. Therefore, the limited issue which needs examination is whether the interest from debtors for late payment of sale consideration has direct or immediate nexus with the Industrial Und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterest is debt owed by the customer which is a degree away from the Industrial Undertaking. The sale consideration has a direct nexus with the Industrial Undertaking but not the interest which is payable on the above sale consideration if it is not paid within the stipulated time. 18.6 We find that in the case of Pandian Chemicals Ltd.'s, the Hon'ble Apex Court has applied the decision of Privy Council in the case of CIT v. Raja Bahadur Kamakhaya Narayan Singh [1948] 16 ITR 325. In that case the dispute was whether the interest on the arrears of rent can be said to be agricultural income. It was contended by the assessee that the interest has its origin in the tenancy of the agricultural land because if there had been no tenency, there would have been no arrears of rent and if there had been no arrears of rent, there would have been no interest. However, the Privy Council did not accept the assessee's contention and held that- ... the interest clearly is not rent. Rent is a technical conception, its leading characteristic being that it is a payment in money or in kind by one person to another in respect of the grant of a right to use land. Interest payable by statute o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon'ble Privy Council denied the assessee's claim and it was stated that in the genealogical tree, the interest is received from rent and the land appears in the second degree. Identical is the situation herein. The immediate and effective source of interest is the sale proceeds which remained unpaid for a stipulated credit period. The industrial undertaking comes in the second degree. Therefore, the above decision of the Hon'ble Privy Council would be squarely applicable with regard to interest on the arrears of sale proceeds. In the case of Sterling Food, the assessee was engaged in processing of prawns and other sea food, which was exported. On the export of such processed seafood, the assessee received import entitlement, which was sold by it. However, the Hon'ble Apex Court held that the sale proceeds of the import entitlement is not the income derived from the Industrial Undertaking, even though the import entitlement was received by the assessee on the export of goods produced by the assessee in the industrial undertaking. In the case of Pandian Chemicals Ltd., the assessee was required to deposit the money with the Electricity Board for supply of electricit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the impugned order of the Tribunal. 18.9 The question therefore is what is the effect of dismissal of a Tax Appeal by the High Court holding that no substantial question of law arises? Section 260A prescribes the provision for an. appeal to the High Court. Sub-sections (1) to (5) of section 260A read as under:- 260A. (1) An appeal shall lie to the High Court from every order passed in appeal by the Appellate Tribunal, if the High Court is satisfied that the case involves a substantial question of law. (2) [The Chief Commissioner or the Commissioner or an assessee aggrieved by any order passed by the Appellate Tribunal may file an appeal to the High Court and such appeal under this sub-section shall be-] (a) filed within one hundred and twenty days from the date on which the order appealed against is [received by the assessee or the Chief Commissioner or Commissioner] (b) 50[***] (c) in the form of a memorandum of appeal precisely stating therein the substantial question of law involved. (3) Where the High Court is satisfied that a substancial question of law is involved in any case, it shall formulate that question. (4) The appeal shall be heard only on the question so formulated, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aw, which is pre-requisite for assuming the jurisdiction of the High Court. If there is no substantial question of law, in the opinion of the High Court, then by virtue of provision of sub-section (1) of section 260A, there lies no appeal. Therefore, when the High Court dismisses an appeal stating that no substantial question of law arises it only mean that the High Court has declined to entertain/admit the appeal in the absence of any substantial question of law. There is no decision on merits by the Jurisdictional High Court on the issues raised by the parties. 18.10 In the case of K. Kacharadas Patel Specific Family Trust, the Hon'ble Jurisdictional High Court in IT Reference Nos. 59 and 59A of 1993, upheld the order of the Tribunal allowing deduction under section 80-I on the amount relating to excess recovery on account of advertisement expenditure. In this case, the Hon'ble Jurisdictional High Court held as under: 9. As can be seen from the impugned order of the Tribunal, the Tribunal has taken into consideration terms of the agreement entered into by the assessee with the consignee distributors and recorded a finding to the effect that the recoveries made from consig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that interest from debtors, does not have either direct or immediate nexus with the Industrial Undertaking. Therefore, we hold that the interest on the delayed payment of sale proceeds cannot be said to be the income derived from the Industrial Undertaking. We therefore, reverse the order of the CIT(A) on this point and restore that of the Assessing Officer. 19. Regarding Insurance Refund: At the time of hearing before us, both the parties fairly agreed that in fact the finding of the CIT(A) is that the assessee is not entitled to deduction under section 80-I on the Insurance Refund. However, the CIT(A) has found that the actual expenditure incurred by the assessee on the repairs of the trucks was much more than the Insurance Refund and therefore he directed the Assessing Officer not to exclude the Insurance Refund from the profit and gains of business. 19.1 After considering the arguments of both the parties, we entirely agree with the reasoning of the CIT(A). The vehicles of the assessee met with an accident and therefore the claim was made with the Insurance Authorities. The assessee received certain Insurance claim and has also incurred expenditure on the repairs of vehicles. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e detailed discussion in para 18 above, we reverse finding of the CIT(A) for allowing deduction under section 80-I in respect of late payment interest received from the debtors in Mandali Unit. However, for the detailed discussion in para 22 above, we uphold the finding of the CIT(A) for allowing deduction under section 80-I in respect of sale of Bardana and Waste material in Mandali Unit. 24. The next ground of Revenue's appeal is against the deletion of an addition of Rs. 1,30,80,000/- made by the Assessing Officer on account of withdrawal from Investment Deposit Account under section 32AB(6). The facts of the case are that the assessee was claiming deduction under section 32AB of the Act by depositing amounts in the Investment Deposit Account with IDBI as per the provisions of section 32AB(1)(a). The balance of the assessee in the Investment Deposit Account as on 1-4-1991 was Rs. 565 lakhs. Out of the same, amount of Rs. 42.35 lakhs was withdrawn by the assessee on 11-4-1991 and amount of Rs. 88.48 lakhs was withdrawn by the assessee on 14-11-1991. Out of the withdrawal of Rs. 42.35 lakhs, amount of Rs. 30 lakhs was used by the assessee for repayment of term loan against lan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n violation of section 32AB(4). The assessee cannot enlarge the scope of section 32AB(1) just by depositing the same in the Deposit Account. He further submitted that section 32AB replaced section 32A and even section 32A which had provided certain exemptions for purchase of new plant and machinery, the expenditure on purchase of road transport vehicle was not entitled to deduction. He contended that the assessee purchased road transport vehicle by borrowing the money from the bank, deposited the money in Deposit Account with Development Bank and claimed deduction under section 32AB, thereafter withdrew the money from the Deposit Account of the Development Bank and repaid the loans to the State Bank/Kalupur Commercial Co-op Bank Ltd. Thus, in fact the amount has been utilised for purchase of road transport vehicle for which deduction under section 32AB is not permissible. He therefore submitted that the Assessing Officer rightly made the addition as per section 32AB(6). 26. The learned counsel for the assessee submitted that there is separate requirement for claiming deduction under section 32AB and for utilization of the withdrawal from the Deposit Account under section 32AB. If t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the computation of the income of any partner, or as the case may be, any member of such firm, association of persons or body of individuals:] 42 [Provided further that no such deduction shall be allowed in relation to the assessment year commencing on the 1st day of April, 1991, or any subsequent assessment year.] (4) No deduction under sub-section (1) shall be allowed in respect of any amount utilised for the purchase of- (a) any machinery or plant to be installed in any office premises or residential accommodation, including any accommodation in the nature of a guest-house; (b) any office appliances (not being computers); (c) any road transport vehicles; (d) any machinery or plant, the whole of the actual cost of which is allowed as a deduction (whether by way of depreciation or otherwise) in computing the income chargeable under the head 'profits and gains of business or profession' of any one previous year; 51[(e) any new machinery or plant to be installed in an industrial undertaking, other than a small-scale industrial undertaking, as defined in section 80HHA, for the purposes of business of construction, manufacture or production of any article or thing specified in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;D': Provided that no such application shall be granted unless the depositor has, for a minimum period of one year prior to the date of such withdrawal, in this account a minimum balance of an amount which is not less than the amount to be withdrawn. (b) On receipt of the request for withdrawal, the deposit office shall, as soon as may be, pay the amount to the depositor through a credit to the designated account. (c) The amount credited to the designated account under clause (b) shall be utilised by the depositor within fifteen working days from the date of such credit for the purpose for which the amount has been withdrawn; [and the amount or any part thereof which has not been so utilised shall be refunded to the Development Bank] and on such refund, the amount or part thereof, as the case may be, shall be treated as a fresh deposit in the account for the purposes of withdrawal under clause (a) of sub-paragraph (2) of paragraph 9 above. 29. From the above, it is clear that section 32AB(1) is applicable in the case of an assessee whose total income includes the income chargeable to tax under the head 'Profits and gains of business or profession'. Out of such business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he amount withdrawn from the Deposit Account amounting to Rs. 1,30,80,000/- under section 32AB(6). 30. The CIT(A) has allowed the relief following his own order in the case of Norma Detergents Ltd. for assessment year 1992-93. We find that the Revenue carried the matter to the Tribunal in the case of Norma Detergents Ltd. and the Tribunal vide order dated 7-10-1999 in ITA No. 4995/A/95 and ITA No. 4843/A/95 upheld the order of the CIT(A). The Revenue has canvassed that the above decision of the Tribunal need reconsideration. However, for the detailed discussion in para 29 above, we agree with the finding of the Tribunal in the case of Norma Detergents Ltd. and hold that since the amount withdrawn from the Deposit Account with the Development Bank has been utilised for the repayment of term loan as provided in clause 9(1)(ii) of the Scheme, the CIT(A) rightly deleted the addition. Accordingly, ground No. 1(vi) of the Revenue's appeal is rejected. 31. Ground No. 10 of the assessee's appeal, which is reproduced in para 11 above, was only an alternate ground, and it was stated by the learned counsel for the assessee that this ground would survive only if ground No. 1(vi) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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