THE ACIT CEN CIR RG-29, MUMBAI V. M/S. YASH RAJ FILMS PVT. LTD, MUMBAI

ITA 1041/MUM/2008

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 8169 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-02-2011
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 13-01-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 12-02-2008
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: R P SHAH; D J THAKKAR
• Assessee Lawyers: A K NAYAR
• Keywords: Business income; Opportunity of being heard
• Section: 6; 56; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH G, MUMBAI BEFORE SHRI PRAMOD KUMAR, A.M. AND SHRI V. DURGA RA O, J.M. ITA NO. 1041/MUM/2008 ASSESSMENT YEARS: 2003-04 ASSTT. COMMISSIONER OF INCOME TAX, APPELLANT CENTRAL CIRCLE, RANGE 29, ROOM NO. 411, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 20. VS. M/S YASH RAJ FILMS PVT. LTD., RESPONDENT 17, VIKAS PARK, JALPANKHI CHS LTD., JUHU, MUMBAI 400 049 (PAN AAACY1176E) APPELLANT BY : MR. D.J. THAKKAR & MR. R.P. SHAH RESPONDENT BY : MR. A.K. NAYAR ORDER PER V. DURGA RAO, J.M.: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER OF CIT(A)-XVII, MUMBAI, FOR THE ASSESSMENT YEAR 2003-0 4 WHEREIN THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE CIT(A) ERRED IN NOT TAKING INTO ACCOUNT THE DEF INITION OF EXPORT TURNOVER GIVEN UNDER SUBCLAUSE A OF CLAUSE UNDER EX PLANATION TO SUBSECTION 6 OF S. 80HHF. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE CIT(A) HAS NOT APPRECIATED THE FACT THAT WHEN T HE TOTAL TURNOVER DOES NOT INCLUDE DUTY DRAW BACK, THE SAME CANNOT BE INCLUDED IN TOTAL TURNOVER AND AS A CONSEQUENCE CAN NOT FORM PART OF PROFITS OF THE BUSINESS. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE CIT(A) ERRED IN TAKING THE VIEW THAT INTEREST I NCOME HAS TO BE TREATED AS PART OF BUSINESS INCOME. ITA NO. 1041/MUM/2008 M/S YASH RAJ FILMS PVT. LTD. 2 2. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT TH E ASSESSEE HAD CLAIMED DEDUCTION U/S 80 HHF OF RS. 47,29,694/-. ON VERIFICATION OF THE CLAIM OF THE ASSESSEE, THE AO NOTICED THAT DEDU CTION CLAIMED U/S 80 HHF IS NOT IN CONSONANCE WITH THE PROVISIONS OF THE I.T. AT. THE AO WAS OF THE VIEW THAT THE CLAIM OF THE ASSESSEE WAS FOUND TO BE ERRONEOUS AND EXCESSIVE AS THE ASSESSEE WHILE COMPU TING PROFITS OF THE BUSINESS FAILED TO EXCLUDE RECEIPTS, NAMELY I) ROYALTY, II) AD CELL INCOME, III) DUTY DRAW BACK, AND IV) MISCELLANEOUS RECEIPTS, AS PROVIDED UNDER THE EXPLANATION (F) TO THE SECTION 8 0 HHF. MOREOVER, THE INCOME FROM UNITS AMOUNTING TO RS. 16,90,709/- WAS ALSO WRONGLY INCLUDED IN THE BUSINESS INCOME AS THE INCOME FROM THE UNIT IS CHARGEABLE TO TAX UNDER THE HEAD INCOME FROM OTHER SOURCES. ON BEING ASKED TO EXPLAIN WHY THE SAID RECEIPTS SHOULD NOT BE REDUCED BY 90% WHILE COMPUTING PROFITS OF THE BUSINESS AND A LSO WHY THE INCOME FROM UNIT SHOULD NOT BE TREATED AS INCOME F ROM OTHER SOURCES U/S 56 OF THE ACT, THE EXPLAINED THAT THESE ITEMS O F RECEIPTS HAVE COME OUT OF DIRECT BUSINESS ACTIVITY OF THE COMPANY OR THROUGH RELATED ACTIVITIES WHICH WOULD NOT HAVE HAPPENED HAS NOT TH E SAID BUSINESS ACTIVITY OF THE COMPANY TAKEN PLACE. IN OTHER WORDS , THEY ARE ALL INCOME ARISING THROUGH THE BUSINESS ACTIVITY OF THE COMPANY AND HENCE, THE SAME SHOULD NOT BE DEDUCTED FROM THE TOT AL BUSINESS PROFIT WHILE ALLOWING DEDUCTION U/S 80 HHF. HOWEVER, THE AO AFTER CONSIDERING THE EXPLANATION OF THE ASSESSEE REDUCED 90% OF THE ROYALTY INCOME, AD-CELL INCOME AND INCOME FROM DUTY DRAW BACK FROM THE BUSINESS INCOME IN TERMS OF EXPLANATION (F) TO SECTION 80 HHF OF THE ACT. 3. AGGRIEVED, THE ASSESSSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). THE LEARNED CIT(A) HELD THAT THE RECEIPTS ARE NOT OF THE NATURE OF THE RECEIPTS REFERRED TO IN EXPLANATION (F) TO S ECTION 80 HHC OF THE ACT AND OBSERVED THAT THE AO HAD MISTAKENLY REDUCED 90% OF THE DUTY DRAW BACK ALSO UNDER THE SAID EXPLANATION WHEN THER E IS NO PROVISION ITA NO. 1041/MUM/2008 M/S YASH RAJ FILMS PVT. LTD. 3 FOR THE SAME UNDER SECTION 80HHF. AGGRIEVED, THE RE VENUE CARRIED THE MATTER IN APPEAL BEFORE THE TRIBUNAL. 3. BEFORE US, THE LEARNED DR HAS SUBMITTED THAT TH E CIT(A) HAS FAILED TO APPRECIATE THE FACTS OF THE CASE WHEN THE TOTAL TURNOVER DOES INCLUDE DUTY DRAW BACK, THE SAME CANNOT BE INCLUDED IN TOTAL TURNOVER AND AS A CONSEQUENCE CANNOT FROM PART OF P ROFITS OF THE BUSINESS. IN SUPPORT OF HIS SUBMISSION, THE LEARNED DR HAS RELIED UPON THE JUDGMENT OF THE HONBLE SUPREME COURT IN T HE CASE OF LIBERTY INDIA VS. CIT (SLP (C) NO.5827/07) VIDE JUD GMENT DATED 31 ST AUGUST, 2009. 4. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE A SSESSEE HAS RELIED UPON THE ORDER OF THE CIT(A) IN SUPPORT OF A SSESSEES CASE.THE LEARNED COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT EXPLANATION (BAA) TO SECTION 80 HHC, 90% OF DUTY DRAW BACK IS REQUIRE D TO BE EXCLUDED FROM BUSINESS INCOME BUT THERE IS NO SUCH PROVISION UNDER EXPLANATION (F) TO SECTION 80 HHF. 5. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF THE PARTIES AND PERUSED THE RECORD. THE ONLY ISSUE INVOLVED IN THI S APPEAL IS WHETHER THE DUTY DRAW BACK HAS TO BE EXCLUDED OR INCLUDED I N THE BUSINESS INCOME OF THE ASSESSEE WHILE COMPUTING PROFITS OF B USINESS U/S 80HHFOF THE ACT. ACCORDING TO THE AO, THE DUTY DRA W BACK IS NOT ELIGIBLE FOR THE INCLUSION IN THE BUSINESS INCOME A S PER EXPLANATION (F) TO 80HHF WHEREAS ACCORDING TO CIT(A) THE SAME IS EL IGIBLE FOR INCLUSION IN THE BUSINESS INCOME. AS PER EXPLANANTI ON (J) TO SECTION 80 HHF, TOTAL TURNOVER SHALL NOT INCLUDE A) ANY SU M REFERRED TO IN CLAUSES (IIIA), (IIIB) AND (IIIC) OF SECTION 28. AS PER SECTION 28 (IIIC) ANY DUTY OF CUSTOMS, OR EXCISE REPAID OR REPAYABLE AS D RAW BACK TO ANY PERSON AGAINST EXPORTS UNDER THE CUSTOMS AND CENTRA L EXCISE DUTY DRAW BACK RULES, 1971. IN VIEW OF THE EXPLANATION (J) TO SECTION 80 HHF, WE, THEREFORE, SET ASIDE THE ORDER PASSED BY T HE CIT(A) AND REMIT ITA NO. 1041/MUM/2008 M/S YASH RAJ FILMS PVT. LTD. 4 THE MATTER BACK TO THE AO WITH A DIRECTION TO CONSI DER THE FACTS AND DECIDE THE ISSUE IN THE LIGHT OF THE EXPLANATION (J ) TO SECTION 80 HHF OF THE ACT, AFTER GIVING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 6. AS REGARDS INTEREST INCOME IS CONCERNED, THE AS SESSEE HAS REDUCED 90% OF INCOME OF RS. 4801321 WHILE ARRIVING AT THE PROFITS OF THE BUSINESS. HOWEVER, AO HELD THAT THE INTEREST IN COME IN THE HANDS OF THE CHARGEABLE UNDER THE HEAD INCOME FROM OTHER SOURCES AS THE ASSESSEE IS NOT ENGAGED IN THE BUSINESS OF FINANCE OR MONEY LENDING BUT IS ENGAGED IN THE BUSINESS OF PRODUCTION AND DI STRIBUTION OF FILMS. THE AO WHILE DECIDING THE ISSUE FOLLOWED THE ORDER OF CIT(A) FOR AY 2002-03. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). THE CIT(A) FOLLOWING THE CIT VS. INDO SWISS JEWELS LTD., 284 ITR 389 (BOM.) HAS HELD THAT INTEREST INCOME OF RS. 48,01,3 21/- WAS BUSINESS INCOME AND THE ASSESSEE HAS RIGHTLY EXCLUDED 90% FR OM THE BUSINESS INCOME AND CALCULATED THE DEDUCTION U/S 80 HHF INTE RMS OF EXPLANATION (F) TO THE SAID SECTION. 7. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE ORD ERS OF THE AUTHORITIES BELOW. WE FIND THAT THE FACTS RELATING TO INTEREST INCOME ARE NOT CLEAR FROM THE ORDERS OF THE REVENUE AUTHOR ITIES AND, IN OUR OPINION, THE ISSUE NEEDS TO BE REMITTED BACK TO THE AO TO DECIDE THE SAME AFRESH. ACCORDINGLY, WE SET ASIDE THE ORDER PA SSED BY THE CIT(A) AND REMIT THE MATTER BACK TO THE FILE OF THE AO WIT H A DIRECTION TO DECIDE THE ISSUE AFRESH IN ACCORDANCE WITH LAW AND KEEPING IN MIND THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CA SE OF CIT VS. K. RAVINDRANATHAN NAYAR, 295 ITR 228 (SC). NEEDLESS TO SAY, THE AO SHALL PROVIDE REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. ITA NO. 1041/MUM/2008 M/S YASH RAJ FILMS PVT. LTD. 5 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS TREA TED AS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON THIS 25 TH DAY OF FEBRUARY, 2011. SD/- SD/- (PRAMOD KUMAR) (V. DURG A RAO) ACCOUNTANT MEMBER JUDI CIAL MEMBER MUMBAI, DATED: 25 TH FEBRUARY 2011 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) CONCERNED. 4) THE CIT CONCERNED. 5) THE DEPARTMENTAL REPRESENTATIVE, G BENCH, I.T .A.T., MUMBAI. BY ORDER //TRUE COPY// ASST. REGISTRAR, I.T.A.T., MUMBAI. KV