ACIT, Kollam V. Sri.O.Kochummen, Trivandrum

ITA 120/COCH/2013

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 68964 (ITAT-COCHIN)
• Duration Of Justice: 6 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-09-2013
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 18-07-2013
• Assessment Year: 2004-2005
• Appeal Filed On: 04-03-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: S VIJAYAPRABHA
• Assessee Lawyers: A S NARAYANAMOORTHY
• Keywords: Unexplained cash credit; Business income
• Section: 68; 28; 143(3); 80HHC

Judgement Text

ITA NO. 120/ COCH/ 201 3 1 IN THE INCOME TAX APELALTER TIBUNAL COCHIN BENCH , COCHIN BEFORE S/SH RI N.R.S. GANESAN, JM & B. R. BASKARAN, AM ITA NO. 120 /COCH/ 201 3 (ASST YEAR 2004 - 05 ) THE ASST COMMR OF INCOME TAX CIRCLE I, KOLLAM VS SHRI O KOCHUMMEN M/S BEENA CASHEW CO KADAMPANADU P O PATHANAMTHITTA ( APPELLANT) (RESPONDENT) PAN NO. AAAPO7807K ASSESSEE BY SRI A S NARAYANAMOORTHY REVENUE BY SMT S VIJAYAPRABHA, JR DR DATE OF HEARING 18 TH JULY 2013 DATE OF PRONOUNCEMENT 13 TH , SEPT 2013 OR D ER PER B.R. BASKARAN, AM: THE A PPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 10.12.2012 PASSED BY THE LD CIT(A), TRIVANDRUM AND IT RELATES TO THE AY 2004 - 05. THE SHORT DISPUTE URGED IN THIS APPEAL FOR ADJUDICATION IS WHETHER THE LD CIT(A) WA S JUSTIFIED IN HOLDING THAT THE ADDITIONS MADE BY THE AO RELATING TO UNEXPLAINED CASH CREDITS, SUSPENSE CREDITS, NEGATIVE CASH BALANCE ETC , CAN BE TREATED AS PROFIT S DERIVED FROM EXPORT FOR THE PURPOSE OF ALLOWING DEDUCTION U /S 80HHC OF THE ACT. 2 THE FACTS RELATING TO THE ISS UE ARE STATED IN BRIEF . THE ASSESSMENT IN THE HANDS OF HE ASSESSEE WAS COMPLETED U/S 143(3) OF THE ACT INITIALLY. DURING THE COURSE OF ASSE SSMENT PROCEEDINGS, THE AO NOTICED UNEXPLAINED CASH CREDITS, SUSPENSE CREDITS, NEGATIVE CASH BALANCE ETC., WHICH AGG REGATED TO RS.60,59,912/ - . SINCE THE SAID CREDITS AND NEGATIVE CASH BALANCES ITA NO. 120/ COCH/ 201 3 2 WERE NOT EXPLAINED TO THE SATISFACTION OF THE AO , HE ASSESSED T HE ABOVE SAID AMOUNT UNDER THE HEAD INCOME FROM OTHER SOURCES . THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE CIT(A) AND LATER TO THE TRIBUNAL. THE ITAT, VIDE ITS ORDER DATED 6.3.2009 , HELD THAT THE ABOVE SAID INCOME HAS TO BE CONSIDERED AS BUSINESS INCOME OF THE ASSESSEE , SINCE THE ASSESSEES ONLY SOURCE OF INCOME WAS THE BUSINESS CARRIED ON BY HIM. IT IS PERT INENT TO NOTE THAT THE ASSESSEE WAS ALLOWED DEDUCTION U/S 80HHC OF THE ACT WHILE COMPUTING THE TOTAL INCOME IN RESPECT OF PROFIT S DERIVED FROM EXPORT. THE AO GAVE EFFECT TO THE ORDER PASSED BY THE TRIBUNAL AND TREATED THE AMOUNT OF RS. 60,59,912/ - AS BUS INESS INCOME OF THE ASSESSEE. HOWEVER, WHILE COMPUTING THE DEDUCTION U/S 80HHC OF THE ACT, THE AO DID NOT TAKE THE ABOVE SAID AMOUNT FOR CONSIDERATION, ON THE GROUND THAT THE SAID INCOME DOES NOT REPRESENT PROFIT S DERIVED FROM EXPORT . AGGRIEVED, THE AS SESSEE CHALLENGED THE ORDER OF THE AO BY FILING APPEAL BEFORE L D CIT(A) . THE FIRST APPELLATE AUTHORITY , HOWEVER, ACCEPTED THE CLAIM OF THE ASSESSEE AND DIRECTED THE AO TO INCLUDE THE ABOVE SAID AMOUNT IN WORKING OUT THE PROFIT AND GAIN OF BUSINESS OR PROF ESSION FOR THE PURPOSE OF COMPUTING DEDUCTION U/S 80HHC OF THE ACT . AGGRIEVED BY THE SAID ORDER OF LD C IT(A), THE REVENUE HAS FILED THIS APPEAL BEFORE US. 3 THE L D DR SUBMITTED THAT THE UNEXPLAINED INCOME OF RS.60,59,912/ - ASSESSED BY THE AO WAS IN THE NATURE OF UNEXPLAINED CASH CREDITS, SUSPENSE CREDITS, NEGATIVE CASH BALANCE ETC. HENCE, IT DOES NOT HAVE ANY CONNECTION WITH THE ACTIVITY OF EXPORT AND HENCE, IT CANNOT BE TREATED AS PROFIT DERIVED FROM EXPORT. THE TRIBUNAL HAS HELD THAT THE ABOVE SAID A MOUNT HAS TO BE ASSESSED AS INCOME FROM BUSINESS. HOWEVER, FOR THE PURPOSE OF COMPUTING DEDUCTION U/S 80HHC OF THE ACT, ONLY THOSE ITEMS OF INCOME WHICH ARE DERIVED FROM EXPORT ACTIVITY ARE REQUIRED TO BE CONSIDERED. ACCORDINGLY, THE LD DR SUBMITTED THA T THE AO WAS JUSTIFIED IN REJECTING THE CLAIM OF DEDUCTION U/S 80HHC OF THE ACT IN RESPECT OF THIS AMOUNT . ITA NO. 120/ COCH/ 201 3 3 3.1 ON THE CONTRARY, THE LD AR SUBMITTED THAT THE DEDUCTION U /S 80HHC WAS ALLOWED TO THE ASSESSEE BY DETERMININ G PROFITS OF BUSINESS AS PER THE DEFINITION GIVEN IN EXPLANATION (BAA) BELOW SUB.SEC. (4C) OF SEC. 80HHC OF THE ACT. HE SUBMITTED THAT THE SAID EXPL ANATION PROVIDES THAT THE PROFIT S OF BUSINESS HAS TO BE COMPUTED BY REDUCING 90% OF SUM REFERRED TO IN CLAUSE III (A), III (B) , III (C), III ( D) AND III (E) OF SEC. 28 OR OF ANY RECEIPTS BY WAY OF BROKERAGE, COMMISSION, INTEREST, RENT CHARGES OR ANY OTHER RECEIPT S OF SIMILAR NATURE INCLUDED IN SUCH PROFITS. THE LD AR SUBMITTED THAT THE UNEXPLAINED INCOME OF RS.60,59,912/ - ASSESSED BY THE AO DOES NOT FALL IN ANY OF THE CATEGORIES OF EXCLUSION LISTED OUT IN THE ABOVE SAID DEFINITION OF THE EXPRESSION PROFITS OF BUSINESS . THE LD A.R SUBMITTED THAT THE TRIBUNAL HAS ALREADY HELD THAT THE ABOVE SAID SUM IS ASSESSABLE UNDER THE INCOME FROM BUSINE SS FOR THE REASON THAT THE ONLY SOURCE OF INCOME FOR THE ASSESSEE IS THE BUSINESS ACTIVITY CARRIED ON BY THE ASSESSEE. ACCORDINGLY, THE LD AR SUBMITTED THAT THE IMPUGNED INCOME IS ALSO ELIGIBLE FOR DEDUCTION U/S 80HHC OF THE ACT AND IN THIS REGARD, HE PL ACED RELIANCE ON THE FOLLOWING CASE LAW : I) ITO VS KENARAM SAHA & SUBHAS SAHA (116 ITD 1 (KOL) (SB)) II) EXTRUSION PROCESS P LTD VS ITO 303 ITR (AT) 267 (MUM) III) CIT VS BAWA SKIN CO 294 ITR 537 (P&H) IV) DCIT VS. M/S DIVINE INTERNATIONAL (ITA NO. 1995 (DEL) 2011 AND ITA NO.1493(DEL)2011 DATED 30 - 09 - 2011. 4. WE HAVE HEARD THE RIVAL CONTENTIONS AND CAREFULLY PERUSED THE RECORD. IT IS AN ADMITTED FACT THAT THE CO - ORDINATE BENCH OF TRIBUNAL HAS ALREADY HELD THAT THE UNEXPLAINED INCOME OF RS.60,59,912 / - SHOULD BE ASSESSED UNDER THE HEAD INCOME FROM BUSINESS , AS THE ONLY SOURCE OF INCOME OF THE ASSESSEE WAS THE BUSINESS CARRIED ON BY HIM. HENCE, THE CONTENTION OF THE ASSESSEE IS THAT THE IMPUGNED INCOME, HAVING BEEN CONSIDERED AS PART OF BUSINESS IN COME, SHOULD NOT HAVE BEEN IGNORED FOR THE PURPOSE OF COMPUTING DEDUCTION U/S 80HHC OF THE ACT. ITA NO. 120/ COCH/ 201 3 4 HOWEVER, THE CONTENTION OF THE DEPARTMENT IS THAT THE IMPUGNED INCOME, HAVING BEEN ASSESSED AS THE INCOME OF THE ASSESSEE UNDER DEEMING FICTION, CANNOT BE CONS IDERED AS PROFITS DERIVED FROM EXPORT AND HENCE NOT ELIGIBLE FOR DEDUCTION U/S 80HHC OF THE ACT. 5. THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT THE ABOVE SAID AMOUNT OF RS.60,59,912/ - WAS TREATED AS THE UNEXPLAINED INCOME OF THE ASSESSEE UNDER THE DEEMING PROVISIONS OF SEC. 68 OF THE ACT. THE LD CIT(A) HAS TAKEN THE VIEW THAT THE AO DOES NOT HAVE DISCRETION TO EXCLUDE THE SAME, AS HE IS REQUIRED TO COMPUTE THE AMOUNT OF PROFITS OF BUSINESS AS PER THE DEFINITION GIVEN IN EXPLANATION (BAA) OF THE ACT. THE RELEVANT OBSERVATIONS OF LD CIT(A) ARE EXTRACTED BELOW, FOR THE SAKE OF CONVENIENCE: - FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/S 80HHC, THE PROFIT DERIVED FROM EXPORT IS REQUIRED TO BE WORKED OUT AS PER SUB - SECTION 3 OF SECTION 80HH C, WHICH GIVES METHOD OF WORKING OUT THE SAME ON THE BASIS OF PROFITS OF BUSINESS. THE MEANING OF PROFITS OF BUSINESS HAS BEEN GIVEN IN EXPLANATION (BAA) OF THE SECTION 80HHC AS PROFITS COMPUTED UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OF PROFESS ION AS REDUCED BY SPECIFIED ITEMS. THERE IS NO DISCRETION IN THE HANDS OF A.O TO NOT TO WORK OUT (SIC) PROFIT OF BUSINESS OTHERWISE THAN THE SAID EXPLANATION. THEREFORE, THE A.O BY NOT INCLUDING THE SAID AMOUNT OF RS.60,59,912/ - IN WORKING OUT PROFITS OR GAINS OF BUSINESS OR PROFESSION MADE AN ERROR APPARENT FROM RECORD IN HIS ORDER DATED 11.8.2009 PASSED TO GIVE EFFECT TO THE SAID ORDER OF ITAT. 6. WE HAVE GONE THROUGH THE PROVISIONS OF SEC. 80HHC OF THE ACT. IN OUR VIEW, THE LD CIT(A) WAS RIG HT IN HOLDING THAT THE PROFITS OF BUSINESS HAS TO BE COMPUTED AS PER EXPLANATION (BAA) OF SEC. 80HHC OF THE ACT. THE SAID VIEW IS ALSO GETS STRENGTH WITH THE VIEW EXPRESSED BY THE KOLKATTA SPECIAL BENCH OF TRIBUNAL IN THE CASE OF ITO VS. KENARAM SAHA & SUBHASH SAHA (SUPRA). THERE SHOULD NOT BE ANY DISPUTE THAT THE DEDUCTION U/S 80HHC OF THE ACT IS ALLOWED IN RESPECT OF PROFITS DERIVED FROM EXPORT. HENCE, IN ORDER TO ASCERTAIN THE PROFITS DERIVED FROM EXPORT, EXPLANATION (BAA) OF THE ACT PROVIDES A M ETHODOLOGY FOR EXCLUSION OF THOSE INCOMES , WHICH CANNOT BE CONSIDERED AS PROFITS DERIVED FROM EXPORT. ITA NO. 120/ COCH/ 201 3 5 7. THE CONTENTION OF THE ASSESSEE IS THAT THE IMPUGNED INCOME WAS CONSIDERED AS BUSINESS INCOME OF THE ASSESSEE BY THE TRIBUNAL , ONLY FOR THE REASO N THAT THE ASSESSEE DID NOT HAVE ANY OTHER SOURCE OF INCOME. ACCORDINGLY, IT WAS CONTENDED THAT THE SAME IS NOT REQUIRED TO BE EXCLUDED EVEN WHILE COMPUTING PROFITS OF BUSINESS AS PER EXPLANATION (BAA) OF SEC. 80HHC OF THE ACT. IN THIS REGARD, HE PLACE D RELIANCE ON CERTAIN CASE LAW. WE HAVE CAREFULLY CONSIDERED THOSE CASE LAW S . 8. IN THE CASE OF M/S DIVINE INTERNATIONAL (SUPRA), WE NOTICE THE AO HAS ASSESSED UNPROVED TRADE CREDITORS BALANCE U/S 68 OF THE ACT. IN PARAGRAPH 15, THE TRIBUNAL HAS S PECIFICALLY OBSERVED THAT ALL THE CREDITORS WERE TRADE CREDITORS RELATED TO THE PURCHASES ACCOUNTED FOR BY THE ASSESSEE. THUS, IT IS SEE N THAT THERE IS A LINK BETWEEN THE ADDITION MADE U/S 68 AND THE PURCHASES MADE BY THE ASSESSEE, I.E., THE BUSINESS ACTI VITY OF THE ASSESSEE. IN THE CASE OF EXTRUSION PROCESS (P) LTD (SUPRA), THE REFUND OF EXCISE DUTY WAS CONSIDERED FOR THE PURPOSE OF DEDUCTION U/S 80HHC OF THE ACT. THERE SHOULD NOT BE ANY DISPUTE THAT THE PAYMENT/REFUND OF EXCISE DUTY IS ALSO CONNECTED WITH THE BUSINESS ACTIVITY OF THE ASSESSEE. IN THE CASE OF BAWA SKIN CO. (SUPRA), THE AO REJECTED THE BOOK RESULTS OF THE ASSESSEE THEREIN FOR THE REASON THAT THE ASSESSEE FAILED TO FURNISH THE DETAILS CALLED FOR BY HIM. AFTER REJECTION, THE AO ADDED A SUM OF RS.2,50,000/ - TO THE TRADING ACCOUNT OF THE ASSESSEE. THUS, IN THIS CASE ALSO, THE ABOVE SAID ADDITION WAS HAVING CONNECTION WITH THE TRADING ACTIVITIES OF THE ASSESSEE. 9. THUS, IT IS SEEN THAT THE ADDITIONS MADE IN ALL THE THREE CASES , RELI ED ON BY THE ASSESSEE , WERE RELATED TO THE BUSINESS ACTIVITIES CARRIED ON BY THE ASSESSEE, MEANING THEREBY, THERE WAS NO DOUBT THAT THE SAID ADDITIONS FORMED PART OF NORMAL BUSINESS RECEIPTS. HOWEVER, IN THE ITA NO. 120/ COCH/ 201 3 6 INSTANT CASE, THE ADDITION OF RS.60,59,912/ - RE PRESENTED UNEXPLAINED CASH CREDITS, SUSPENSE CREDITS, NEGATIVE CASH BALANCE ETC. IT HAS BEEN TREATED AS THE INCOME OF THE ASSESSEE U/S 68 OF THE ACT ONLY FOR THE REASON THAT THE ASSESSEE COULD NOT GIVE SATISFACTORY EXPLANATION IN RESPECT OF THOSE CREDITS /NEGATIVE CASH BALANCE. THUS, IT IS SEEN THAT THESE RECEIPTS DO NOT HAVE CONNECTION WITH THE NORMAL BUSINESS ACTIVITIES OF THE ASSESSEE , BUT TREATED AS INCOME UNDER THE DEEMING PROVISIONS OF THE ACT . WE NOTICE THAT THE TRIBUNAL HAS HELD THAT TH E SAID AD DITION HAS TO BE CONSIDERED AS BUSINESS INCOME OF THE ASSESSEE SINCE THE ONLY SOURCE OF INCOME OF THE ASSESSEE IS THE BUSINESS CARRIED ON BY HIM. WE NOTICE THAT THE CO - ORDINATE BENCH DID NOT GIVE ANY FINDING ABOUT ITS SOURCE, I.E., WHETHER IT IS DERIVED F ROM EXPORT BUSINESS OR OTHERWISE. SINCE WE HAVE HELD THAT THE IMPUGNED INCOME DOES NOT HAVE CONNECTION WITH THE BUSINESS ACTIVITIES OF THE ASSESSEE, IN OUR VIEW, THE SAME HAS TO BE TREATED AS A SEPARATE SOURCE OF INCOME, IN WHICH CASE, THE DEDUCTION U/S 8 0HHC OF THE ACT HAS TO BE COMPUTED BY EXCLUDING 90% OF THE SAME FROM THE PROFITS OF BUSINESS AS PROVIDED IN EXPLANATION (BAA) OF THE ACT. WE ORDER ACCORDINGLY. IN VIEW OF THE ABOVE, WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND RESTORE THE MATT ER TO THE FILE OF THE AO WITH THE DIRECTION TO COMPUTE THE DEDUCTION ELIGIBLE U/S 80HHC OF THE ACT IN ACCORDANCE WITH THE DISCUSSION MADE ABOVE. 10. IN THE RESULT, THE APPEAL FILED BY REVENUE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 13 TH , DAY OF SEPT 2013. SD/ - SD/ - (N.R.S. GANESAN ( B.R. BASKARAN JUDICIAL MEMBER ACCOUNTANT MEMBER COCHIN: DATED 13 TH , SEPT 2013 RAJ* ITA NO. 120/ COCH/ 201 3 7 COPY TO: 1 APPELLANT - THE ASST COMMR OF INCOME TAX - CIRCLE I, KOLLAM 2 RESPONDENT - SHRI O KOCHUMMEN - M/S BEENA CASHEW CO - KADAMPANADU P O PATHANAMTHITTA 3 CIT(A) 4 CIT , KOLLAM 5 DR 6 GUARD FILE BY ORDER ASSISTANT REGISTRAR ITAT, COCHIN