ITA No. 7 of 2004 -1- IN THE HIGH COURT OF PUNJAB & HARYANA AT CHANDIGARH. ITA No. 7 of 2004 Date of Decision: 9.9.2010 Commissioner of Income-Tax-I, Ludhiana ...Appellant Versus M/s. Punjab Wool Combers Ltd., Ludhiana ...Respondent CORAM: HON’BLE MR. JUSTICE ADARSH KUMAR GOEL HON’BLE MR. JUSTICE AJAY KUMAR MITTAL --- PRESENT: Mr. Rajesh Katoch, Advocate for the appellant-Revenue --- AJAY KUMAR MITTAL, J. This appeal under Section 260A of the Income-tax Act, 1961 (for short “the Act’”) has been filed by the Revenue against the order dated 14.1.2003, passed by the Income Tax Appellate Tribunal, Chandigarh Bench ‘A’, Chandigarh (in short “the Tribunal”) in Income- tax Appeal No. 1058/CHANDI/96, in respect of assessment year 1993- 94. In brief the facts of the case are that the assessee- respondent filed return of income for the assessment year 1993-94 declaring net income at Rs. 2,70,87,060/-. The return was processed under Section 143(1)(a) on 25.8.1994. The assessing officer made ITA No. 7 of 2004 -2- assessment under Section 143(3) of the Act on total income of Rs. 2,83,16,390/-, vide order dated 7.3.1996, Annexure A-1, by disallowing the following: i- Disallowance of Rs. 2,00,000/- out of interest paid. ii- Disallowance on premium on redemption of debenture. iii- Disallowance of Rs. 10873/- on a/c of telephone expenses provided at the residence of the Director. iv- Disallowance u/s 80-I at Rs.6,88,017/- v- While computing the deduction u/s 80HHC the AO included CST & ST in the total turnover amounting to Rs. 19,32,295/-. This resulted reduction of deduction u/s 80HHC. The order of the assessing officer aforesaid was confirmed by the Commissioner of Income-tax (Appeals) (Central), Ludhiana {in short “CIT(A)”} vide order dated 24.7.1996 (Annexure A-II). The assessee carried appeal before the Tribunal. The Tribunal vide order dated 14.1.2003, Annexure A-III disposed of the appeal. The Tribunal deleted the addition of Rs. Two lacs on account of disallowance of interest in the absence of there being any finding recorded by the assessing officer in that behalf besides the addition of Rs. 10873/- on account of telephone expenses; confirmed the finding of the CIT(A) that the assessee should only be allowed deduction in respect of premium payable on redemption of debenture on proportionate basis. The Tribunal directed the assessing officer to adjust profits to the extent of . 0261% as was allowed by the Tribunal in the assessment year 1992-93. It was further directed that in case the difference was more than . ITA No. 7 of 2004 -3- 0261% the relief to the assessee under Section 80-I should be reduced by the difference in excess of 0.0261%. The Tribunal further directed that the item like CST and ST etc. were not to be included in the total turnover while giving deduction under Section 80HHC and also directed the assessing officer to re-compute the deduction u/s 80HHC of the Act. This is how the Revenue has preferred this appeal challenging the order of the Tribunal on the grounds enumerated in the grounds of appeal and pleading that the following substantial questions of law arise in this appeal for determination by this Court: i- Whether on the facts and the circumstances of the case, the Hon’ble Income-tax Appellate Tribunal was justified in reversing the order of the Commissioner of Income-tax (Appeals) in which CIT(A) upheld the action of the Assessing Officer regarding disallowance of interest of Rs. 2 lacs? ii- Whether on the facts and the circumstances of the case, the Hon’ble Income Tax Appellate Tribunal was justified in directing the Assessing Officer to allow relief/proportionate deduction of premium payable on redemption of debenture? iii- Whether on the facts and the circumstances of the case, the Hon’ble Income Tax Appellate Tribunal was not justified in restricting the deduction u/s 80-I from Rs. 6,88,017/- to Nil claimed by the assessee in the light of the provisions of sub-sections 8 and 9 of Section 80-I? iv- Whether on the facts and the circumstances of the case, ITA No. 7 of 2004 -4- the Hon’ble Income-tax Appellate Tribunal was not justified in directing the A.O. that item like CST and ST are not to be included in the total turn-over while giving deduction u/s 80HHC? We have heard learned counsel for the appellant-Revenue and have gone through the record. Reg. Question (i) The Tribunal recorded the following finding while allowing the claim of the assessee:- “2.1 We have heard the rival submissions and perused the material on record. We find force in the submissions of the assessee. The case of the assessee is duly covered by the decision of Karnataka High Court in the case of CIT v. Sridev Enterprises reported in 59 Taxman 439 in which the Hon'ble High Court has held that no addition has been made in the earlier years. The opening balance could not be considered in the year in question for the purpose of computation of disallowance. The facts of the assessee are duly covered by the aforesaid decision because in the earlier years when the money was advanced by the assessee, the AO did not make any disallowance and no finding has been recorded by the AO that the money so advanced by the assessee to these parties was for non-business purposes. In the absence of findings ITA No. 7 of 2004 -5- by the AO for the a.y. in which the money was advanced, we feel that no disallowance can be made during the year and accordingly we allow this ground of appeal of the assessee. Thus first ground of appeal filed by the assessee is allowed.” Finding has not been shown to be erroneous or perverse in any manner. Hence, the question is not a substantial question of law. Reg. Question (ii) The Tribunal relied upon decision of the Apex Court in Madras Industrial Investment Corporation Ltd. v. Commissioner of Income Tax, (1997) 225 ITR 802 (SC) holding that proportionate deduction of premium payable on redemption of debentures is admissible during the year. Nothing could be shown that this judgment is not applicable to the facts of the present case. Accordingly, it is held that this is also not a substantial question of law. Reg. Question (iii) The Tribunal while adjudicating the issue regarding disallowance in terms of provisions of Section 80I(8) and (9) had relied upon its earlier decision in the case of the assessee relating to assessment year 1990-91 and 1992-93. In ITR No. 168 of 1996 relating to assessment year 1990-91, similar question has been answered against the revenue. In view thereof, question No.(iii) proposed by the revenue is answered against the revenue. Reg. Question (iv) Learned counsel for the revenue very fairly accepted that the aforesaid question stands concluded against the revenue by ITA No. 7 of 2004 -6- judgment of Division Bench of this Court reported in Commissioner of Income Tax v. Avery Cycle Industries Ltd., (2008) 298 ITR 239 (P&H), wherein it has been held that for computation of special deduction under Section 80HHC of the Act, Sales Tax and Central Sales Tax are to be excluded from total turnover. Accordingly, the proposed question (iv) is also answered against the revenue. Consequently, the appeal is dismissed. (AJAY KUMAR MITTAL) JUDGE (ADARSH KUMAR GOEL) September 09, 2010 JUDGE rkmalik/gbs