M/S. SUNJEWELS INDIA PVT. LTD, MUMBAI V. THE ACIT RG 8(3),

ITA 1148/MUM/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 1301 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 4 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-06-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: J
• Next Hearing Date: 09-06-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 15-02-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: L K AGRAWAL
• Assessee Lawyers: SANJUKTA CHOW DHURY; PROMOD KUMAR PARIDA
• Keywords: Competent authority
• Section: 80HHC; 234B; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'J' BENCH, MUMBAI BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO. 1148/MUM/2008 (ASSESSMENT YEAR: 2004-05) M/S. SUNJEWELS INDIA PVT. LTD. ACIT, RANGE 8(3) G-16, GEM & JEWELLARY COMPLEX-II AAYAKAR BHAVAN, M. K. ROAD SEEPZ, ANDHERI (E) VS. MUMBAI 400020 MUMBAI 400096 PAN - AAACS 7405 C APPELLANT RESPONDENT APPELLANT BY: SHRI PROMOD KUMAR PARIDA & MS. SANJUKTA CHOWDHURY RESPONDENT BY: SHRI L.K. AGRAWAL O R D E R PER B. RAMAKOTAIAH, A.M. THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER OF THE CIT(A) XXIX, MUMBAI DATED 11.12.007 FOR A.Y. 2004-05. 2. ASSESSEE HAS RAISED GROUNDS WITH REFERENCE TO: (I) DISALLOWANCE OF DEDUCTION UNDER SECTION 80HHC, AND (II) LEVY OF PEN AL INTEREST UNDER SECTION 234B AND 234C. 3. THE ISSUE IN DISALLOWANCE OF DEDUCTION UNDER SECTIO N 80HHC WAS WITH REFERENCE TO EXCLUSION OF RECEIPT ON ACCOUNT OF JOB WORK CHARGES FROM THE COMPUTATION OF 80HHC CLAIM AND FURTHER EXCLUSION OF AN AMOUNT OF RS.35,06,958/-, WHICH WAS NOT BROUGHT INTO CONVERTI BLE FOREIGN EXCHANGE WITHIN THE ALLOWABLE TIME. THE A.O. HAD NOTICED THA T THE ASSESSEE HAD RECEIVED AN AMOUNT OF RS.1,20,35,124/- AS LABOUR CH ARGES AND INCLUDED THE SAME FOR COMPUTATION OF DEDUCTION UNDER SECTION 80H HC. THE A.O. CONSIDERED THAT THIS INCOME IS TO BE RECORDED AS OT HER INCOME AS IT WAS NOT RELATED TO THE EXPORT ACTIVITY OF THE ASSESSEE AND THEREFORE 90% OF THE SAME SHOULD BE REDUCED FROM THE PROFIT OF THE BUSINESS A S PER THE PROVISIONS OF EXPLANATION (BAA) OF SECTION 80HHC. ACCORDINGLY HE EXCLUDED 90% OF THE JOB ITA NO. 1148/MUM/2008 M/S. SUNJEWELS INDIA PVT. LTD. 2 WORK CHARGES WHILE ADJUSTING THE PROFIT OF THE BUSI NESS. THE ASSESSEE CONTENDED BEFORE THE CIT(A) THAT THE ASSESSEE HAS A N EXPORT UNIT IN SEZ AND ACCORDING TO THE SEZ ACT SERVICE CHARGES RECEIVED F ROM OTHER SEZ UNIT IS ALSO DEEMED TO BE EXPORT AND ACCORDINGLY THE LABOUR CHARGES SHOULD NOT HAVE BEEN EXCLUDED FROM THE ELIGIBLE PROFIT WHILE C OMPUTING DEDUCTION UNDER SECTION 80HHC. THE CIT(A) CONSIDERED THE DECISION O F THE HON'BLE SUPREME COURT IN THE CASE OF K. RAVINDRANATHAN NAIR 165 TAX MAN 282/295 ITR 228 AND REJECTED THE GROUNDS WITHOUT ANY ELABORATE DISC USSION. 4. BEFORE US THE LEARNED COUNSEL SUBMITTED THAT THE AS SESSEE IS HAVING A UNIT IN SPECIAL ECONOMIC ZONE AND ACCORDING TO THE ACT OF THE SPECIAL ECONOMIC ZONE 2005 THE EXPORT MEANS SUPPLYING GOODS , OR PROVIDING SERVICES, FROM ONE UNIT TO ANOTHER UNIT OR DEVELOPE R, IN THE SAME OR DIFFERENT SPECIAL ECONOMIC ZONE. HIS ARGUMENT WAS THAT SINCE THE SEZ ACT 2005 ALLOWS SUPPLY OF GOODS OR SERVICES AS PART OF EXPOR T, THE SAME DEFINITION HAS TO BE CONSIDERED FOR THE PURPOSE OF LABOUR CHARGES RECEIVED AND THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF K. RAVI NDRANATHAN NAIR VS. CIT IS NOT APPLICABLE TO ASSESSEES CASE. HE HAS REFERR ED TO THE SEZ ACT PLACED ON RECORD AND THE SUBMISSION MADE BEFORE THE CIT(A) IN THIS REGARD. 5. WE HAVE CONSIDERED THE ISSUE. FIRST OF ALL THERE IS NO EVIDENCE OF NATURE OF THE RECEIPT OF LABOUR CHARGES, WHETHER T HEY ARE RECEIVED AS PART OF SERVICES TO OTHER UNITS IN THE SEZ OR NOT. FURTHER THE ASSESSEE IS RELYING ON THE SEZ ACT OF 2005 TO CONTEND THAT PROVIDING SERVI CES TO OTHER UNIT IS ALSO PART OF EXPORT WHEREAS THE ASSESSMENT YEAR INVOLVED IS A.Y. 2004-05 AND THE YEAR HAS ENDED ON 31.03.2004. HOW THE SEZ ACT 2005 IS APPLICABLE TO THE FACTS OF THE CASE HAS NOT BEEN EXPLAINED. MOREOVER, THIS ISSUE IS NO LONGER RES INTEGRA AS THE HON'BLE SUPREME COURT IN THE CASE OF K. RAV INDRANATHAN NAIR VS. CIT HAS CONSIDERED ISSUE OF PROCESSING CHA RGES RECEIVED AND HELD AS UNDER: - PROCESSING CHARGES, WHICH ARE PART OF GROSS TOTAL INCOME, FORM AN ITEM OF INDEPENDENT INCOME LIKE RENT, COMMISSION, BROKER AGE, ETC., AND, THEREFORE, 90 PER CENT, OF THE PROCESSING CHARGES H AS ALSO TO BE REDUCED FROM THE GROSS TOTAL INCOME TO ARRIVE AT THE BUSINE SS PROFITS AND, THEREFORE, IT HAS ALSO TO BE INCLUDED IN THE TOTAL TURNOVER IN THE FORMULA ITA NO. 1148/MUM/2008 M/S. SUNJEWELS INDIA PVT. LTD. 3 FOR ARRIVING AT THE BUSINESS PROFITS IN TERMS OF CL AUSE (BAA) OF THE EXPLANATION TO SECTION 80HHC (3). 6. AS NOTICED FROM THE COMPUTATION MADE BY THE A.O., H E HAS ONLY EXCLUDED 90% OF THE JOB WORK CHARGES BUT HAVE NOT I NCLUDED THE SAME AS PART OF TURNOVER, WHICH IS ALSO CONSIDERED BY THE H ON'BLE SUPREME COURT IN THE ABOVE SAID JUDGEMENT. SINCE THAT ISSUE WAS NOT BEFORE US AND NEITHER THE REVENUE HAS CONTENDED, WE REFRAIN FROM GIVING A NY DIRECTION ON THIS ISSUE OF INCLUSION IN TOTAL TURNOVER BUT SUFFICE TO SAY THAT THE A.O. IS CORRECT IN EXCLUDING 90% OF THE LABOUR CHARGES FROM THE COM PUTATION UNDER EXPLANATION (BAA) OF SECTION 80HHC. THE SAME PRINCI PLES WERE ALSO FOLLOWED BY THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CAS E OF ASEAN STAR CO. LTD. IN ITA NO. 200 OF 2004 DATED 18.09.2010 AND DRESSER RA ND INDIA P LTD 323 ITR 429 (BOM). IN VIEW OF THIS THE GROUND NOS. 1 (A ),(B),(C)REJECTED. 7. GROUND NO. 1(D) PERTAINS TO THE ISSUE OF GRANTING D EDUCTION UNDER SECTION 80HHC OF AN AMOUNT OF RS.35,06,958/- WHICH WAS EXCLUDED BY THE A.O. AS THE SAME WAS NOT RECEIVED IN CONVERTIBLE FO REIGN EXCHANGE WITHIN 6 MONTHS FROM THE END OF THE PERIOD. IT WAS THE SUBMI SSION OF THE ASSESSEE BEFORE THE CIT(A) THAT THE PERIOD HAS BEEN EXTENDED TO ONE YEAR FROM THE END OF THE FINANCIAL YEAR AND THE ASSESSEE WAS HOPEFUL OF BRINGING THE ENTIRE OUTSTANDING AMOUNT BY 31.03.2005. THE ASSESSEE ALSO RELIED ON THE RBI CIRCULAR NO. AP (DIR SERIES) CIRCULAR NO. 91 DATED 01.04.2003 WHEREIN IT WAS CATEGORICALLY BEEN MENTIONED THAT UNITS SITUATED I N SPECIAL ECONOMIC ZONES HAVE BEEN PERMITTED TO REALISE AND REPATRIATE TO IN DIA THE FULL VALUE OF GOODS OR SOFTWARE WITHIN A PERIOD OF TWELVE MONTHS OR EXT ENDED PERIOD.. THE ASSESSEE ALSO ENCLOSED A COPY OF THE LETTER DATED 2 8.05.2007 FROM ING VYSYA BANK CERTIFYING THAT THE ASSESSEE HAS RECEIVED AND BROUGHT TO INDIA A SUM OF RS.35,06,958/-, WHICH WAS OUTSTANDING AS ON 30.09.2 004. THE CIT(A), HOWEVER, REJECTED ASSESSEES CONTENTION STATING THA T THERE IS NO PROVISION FOR EXTENDING THE TIME LIMIT AND ACCORDINGLY THE CONTEN TIONS CANNOT BE ACCEPTED. 8. THE LEARNED COUNSEL REFERRED TO THE COPY OF THE CIR CULAR DATED 15.06.2009 GIVEN BY THE RBI WITH REFERENCE TO THE T IME LIMIT FOR THE SEZ ITA NO. 1148/MUM/2008 M/S. SUNJEWELS INDIA PVT. LTD. 4 UNITS AND ALSO CERTIFICATE FROM ING VYSYA BANK DATE D 28.05.2007 THAT THE EXPORT REALIZATION OUTSTANDING AS ON 31.03.1994 HAS BEEN REALISED AFTER 30.09.2004. IT WAS HIS SUBMISSION THAT AS PER PROVI SIONS OF 80HHC(2)(A) THE RBI WAS THE COMPETENT AUTHORITY AND THE RBI HAS EXT ENDED THE TIME LIMIT AND THE ASSESSEE HAS TO GET THE DEDUCTION. 9. THE LEARNED D.R. RELIED ON THE ORDERS OF THE A.O. A ND THE CIT(A). 10. WE HAVE CONSIDERED THE ISSUE. THE PROVISIONS OF 80 HHC(2)(A) ARE AS UNDER: - 80HHC. . (2)(A) THIS SECTION APPLIES TO ALL GOODS OR MERCHA NDISE, OTHER THAN THOSE SPECIFIED IN CLAUSE (B), IF THE SALE PROCEEDS OF SU CH GOODS OR MERCHANDISE EXPORTED OUT OF INDIA ARE 7 [RECEIVED IN, OR BROUGHT INTO, INDIA] BY THE ASSESSEE [(OTHER THAN THE SUPPORTING MANUFACTURER)] IN CONVERTIBLE FOREIGN EXCHANGE [, WITHIN A PERIOD OF SIX MONTHS FROM THE END OF THE PREVIOUS YEAR OR, [WITHIN SUCH FURTHER PERIOD AS THE COMPETE NT AUTHORITY MAY ALLOW IN THIS BEHALF].] [EXPLANATION.FOR THE PURPOSES OF THIS CLAUSE, THE EXPRESSION COMPETENT AUTHORITY MEANS THE RESERVE BANK OF IND IA OR SUCH OTHER AUTHORITY AS IS AUTHORISED UNDER ANY LAW FOR THE TI ME BEING IN FORCE FOR REGULATING PAYMENTS AND DEALINGS IN FOREIGN EXCHANG E.] 11. AS SEEN FROM THE ABOVE, EVENTHOUGH THE FIRST CONDIT ION IS THAT THE CONVERTIBLE FOREIGN EXCHANGE IS TO BE RECEIVED WITH IN A PERIOD OF SIX MONTHS FROM THE END OF THE PREVIOUS YEAR, THERE IS A RELAX ATION IN RECEIVING WITHIN SUCH FURTHER PERIOD AS THE COMPETENT AUTHORITY MAY ALLOW IN THIS BEHALF . FOR THE PURPOSE OF THIS CLAUSE THE EXPLANATION PROVIDES THAT THE EXPRESSION COMPETENT AUTHORITY MEANS THE RESERVE BANK OF IND IA OR SUCH OTHER AUTHORITIES AS AUTHORISED UNDER THE LAW FOR THE TIM E BEING IN FORCE FOR REGULATING THE PAYMENTS AND DEALINGS IN FOREIGN EXC HANGE. AT PRESENT RBI IS THE ONLY COMPETENT AUTHORITY. THE PROVISIONS WIT H REFERENCE TO PERMISSION BY THE CHIEF COMMISSIONER OR COMMISSIONE R HAS BEEN AMENDED W.E.F. 01.06.1999 AND ACCORDINGLY FOR THE R ELEVANT ASSESSMENT YEAR ONLY THE RBI IS THE COMPETENT AUTHORITY FOR EX TENDING SUCH PERIOD. AS SEEN FROM THE CIRCULAR ISSUED BY THE RBI AND CLARIF ICATION ISSUED UNDER THE FEMA ACT, THE UNITS IN SEZ WERE PERMITTED TO REALIS E THE AMOUNTS SUBSEQUENTLY ALSO AS UNDER FEMA THERE IS NO TIME LI MIT PRESCRIBED FOR ITA NO. 1148/MUM/2008 M/S. SUNJEWELS INDIA PVT. LTD. 5 REALISING EXPORT MADE BY UNITS IN SEZ. THE CIRCULAR ISSUED BY THE RBI DATED 1 ST APRIL 2003 ALSO SPECIFIES THAT THERE IS NO TIME LI MIT FOR REALIZATION OF EXPORTS MADE BY THE UNITS IN SEZ. THE ING VYSYA BANK HAS GIVEN A CERTIFICATE DATED 28.05.2005 FILED BEFORE THE CIT(A ) THAT AN AMOUNT OF RS.22,60,381/- WAS RECEIVED AS ON THAT DATE AND A C OPY OF THE CERTIFICATE DATED 28 TH MAY 2007 PLACED IN THE PAPER BOOK CERTIFYING THAT THE ENTIRE EXPORT REALIZATION WAS RECEIVED SUBSEQUENTLY. SINCE THESE ISSUES WERE NOT EXAMINED BY THE A.O., PARTICULARLY ABOUT REALIZATIO N OF THE AMOUNTS SUBSEQUENTLY, WE ARE OF THE OPINION THAT THIS ISSUE CAN BE RE-EXAMINED BY THE A.O. AFRESH. NOT ONLY THAT THE PROVISIONS OF SE CTION 155(13) ALSO PERMIT ALLOWANCE OF DEDUCTION UNDER SECTION 80HHC AND THE ASSESSEE CAN AS WELL APPROACH UNDER SECTION 154 FOR GETTING DEDUCTION UN DER SECTION 80HHC, IF THE AMOUNTS HAVE BEEN RECEIVED IN CONVERTIBLE FOREI GN EXCHANGE SUBSEQUENTLY. IN VIEW OF THE SPECIFIC PROVISIONS OF SECTION 155(13) AS WELL AS THE FACT THAT THE ASSESSEE HAS REALISED SUBSEQUE NTLY, WE ARE OF THE OPINION THAT THE ASSESSEE IS ENTITLED FOR DEDUCTION ON THE ABOVE AMOUNTS AND THE AO AND CIT(A) HAVE REJECTED THE CLAIM WITHO UT CONSIDERING THE PROVISIONS OF THE IT ACT. SINCE THE RECEIPTS OF THE AMOUNTS HAVE NOT BEEN EXAMINED BY THE A.O., THE ISSUE IS RESTORED TO THE FILE OF THE A.O. TO EXAMINE AND ALLOW THE DEDUCTION AS PER THE PROVISIO NS OF THE ACT. GROUND 1(D) IS ALLOWED. 12. GROUND NO. 2 PERTAINS TO LEVY OF INTEREST UNDER SEC TIONS 234B AND 234C, WHICH ARE CONSEQUENTIAL IN NATURE. ACCORDINGL Y NO SPECIFIC ADJUDICATION IS REQUIRED. 13. IN THE RESULT, APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 25 TH JUNE 2010. SD/- SD/- (N.V. VASUDEVAN) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 25 TH JUNE 2010 ITA NO. 1148/MUM/2008 M/S. SUNJEWELS INDIA PVT. LTD. 6 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) XXIX, MUMBAI 4. THE CIT VIII, MUMBAI CITY 5. THE DR, J BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.