The ACIT,Vapi Circle, Vapi V. M/s. K.M. Enterprises, SILVASSA

ITA 1293/AHD/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 1401 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 1 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-06-2016
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 08-06-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 06-05-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Depreciation; Additional evidence; Question of law; Competent authority
• Section: 80HHC; 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH (BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER & SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER) ITA. NO: 1293/AHD/2013 (ASSESSMENT YEAR: 2009-10) ASSTT. COMMISSIONER OF INCOME TAX, VAPI CIRCLE, VAPI V/S M/S. K.M. ENTERPRISES, PLOT NO. 1/B, NANJI INDUSTRIAL ESTATE, KHARADPADA, SILVASSA-396230 (APPELLANT) (RESPONDENT) PAN: AADFK3790J APPELLANT BY : SHRI KAMLESH MAKWANA, SR. D.R. RESPONDENT BY : NONE ( )/ ORDER DATE OF HEARING : 08 -06-201 6 DATE OF PRONOUNCEMENT : 09 -06-2016 PER N.K. BILLAIYA, ACCOUNTANT MEMBER: 1. THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF LD. CIT(A), VALSAD DATED 27.02.2013 PERTAINING TO A.Y. 2009-10. 2. THE SUBSTANTIVE GRIEVANCE OF THE REVENUE READS AS U NDER:- ITA NO. 1293 /AHD/2013 . A.Y.2009-10 2 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) HAS ERRED IN ALLOWING THE EXCHANGE RATE DIFFERENCE AMOU NTING TO RS. 31,68,717/- TO BE INCLUDED IN PROFITS ELIGIBLE FOR DEDUCTION U/S. 80I B OF THE ACT. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) HAS ERRED IN ALLOWING THE DEPRECIATION ON PLANT AMOUNTI NG TO RS. 20,32,557/-. 3. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT THE A SSESSEE FIRM IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF PRINTED FLEXIBLE PACKAGING. IN THE RETURN OF INCOME FOR THE YEAR UND ER CONSIDERATION, THE ASSESSEE HAS CLAIMED DEDUCTION U/S. 80IB OF THE ACT. 4. WHILE SCRUTINIZING THE RETURN OF INCOME, THE A.O. F OUND THAT THE ASSESSEE HAS CLAIMED DEDUCTION U/S. 80IB OF THE ACT IN RESPECT OF EXCHANGE RATE DIFFERENCE AMOUNTING TO RS. 31,68,717 /-. WHEN SOUGHT EXPLANATION, THE ASSESSEE HEAVILY RELIED UPON THE D ECISION OF THE HONBLE HIGH COURT OF GUJARAT IN THE CASE OF AMBA I MPEX 282 ITR 144. HOWEVER, THE CLAIM OF THE ASSESSEE DID NOT FIND ANY FAVOUR WITH THE A.O. WHO WAS OF THE OPINION THAT THE PRINCIPLES LAI D DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF STERLING FOOD 237 ITR 579 SQUARELY APPLY ON THE FACTS OF THE CASE AND ACCORDI NGLY EXCLUDED THE EXCHANGE GAIN DIFFERENCE AS NOT ELIGIBLE FOR DEDUCT ION U/S. 80IB OF THE ACT. 5. THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT( A) AND REITERATED ITS CLAIM OF DEDUCTION U/S. 80IB OF THE ACT. ONCE A GAIN, RELYING UPON THE DECISION OF THE HONBLE HIGH COURT OF GUJARAT ( SUPRA), THE LD. CIT(A) WAS CONVINCED WITH THE CLAIM OF THE ASSESSEE AND DIRECTED THE A.O. TO ALLOW THE DEDUCTION U/S. 80IB OF THE ACT. A GGRIEVED BY THIS, THE REVENUE IS BEFORE US. ITA NO. 1293 /AHD/2013 . A.Y.2009-10 3 6. THE LD. D.R. STRONGLY RELIED UPON THE FINDINGS OF T HE A.O. NONE APPEARED ON BEHALF OF THE ASSESSEE; THEREFORE, WE D ECIDED TO PROCEED EX PARTE. 7. WE HAVE HEARD THE LD. DEPARTMENTAL REPRESENTATIVE A T LENGTH AND HAVE CAREFULLY PERUSED THE ORDERS OF THE AUTHORITIE S BELOW. WE FIND THAT THE LD. CIT(A) HAS ALLOWED THE CLAIM OF DEDUCT ION U/S. 80IB OF THE ACT, HEAVILY RELYING UPON THE DECISION OF THE HONB LE GUJARAT HIGH COURT IN THE CASE OF AMBA IMPEX (SUPRA). 8. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE DEC ISION OF THE HONBLE GUJARAT HIGH COURT (SUPRA). THE HONBLE GUJ ARAT HIGH COURT WAS SEIZED WITH THE FOLLOWING SUBSTANTIAL QUESTION OF LAW. WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE INCOME-TAX APPELLATE TRIBUNAL WAS RIGHT IN LAW IN HOLDING THAT THE EXCHANGE RATE DIFFERENCE PERTAINING TO EXPORTS MADE IN EARLIER YEARS WOULD B E PROFITS OF BUSINESS WITHIN THE MEANING OF SECTION 80HHC OF THE INCOME-TAX ACT, 1961? 9. IN OUR UNDERSTANDING OF THE FACTS OF THE CASE BEFOR E THE HONBLE HIGH COURT WERE IN RESPECT OF EXPORT SALES MADE BY THE A SSESSEE AND ON SALES REALIZATION THERE WAS A GAIN BECAUSE OF EXCHA NGE RATE FLUCTUATION WHICH WAS CLAIMED AS ELIGIBLE FOR DEDUCTION U/S. 80 HHC OF THE ACT. AS IS EVIDENT FROM THE AFOREMENTIONED SUBSTANTIVE QUES TION OF LAW, THE ISSUE WAS TO DECIDE WHETHER EXCHANGE RATE DIFFERENC E PERTAINING TO EXPORTS MADE IN EARLIER YEARS WOULD BE PROFITS OF B USINESS WITHIN THE MEANING OF SECTION 80HHC OF THE ACT. THE RELEVANT F INDINGS OF THE HONBLE HIGH COURT READ AS UNDER:- THE ENTIRE CASE OF THE REVENUE IS BUILT ON THE FAC T THAT THE AMOUNT HAS BEEN RECEIVED IN A YEAR SUBSEQUENT TO THE YEAR OF E XPORTS. AS CAN BE SEEN FROM THE ASSESSMENT ORDER IT TALKS OF EXPORT REALIZ ATION FOR EXPORTS MADE ITA NO. 1293 /AHD/2013 . A.Y.2009-10 4 UP TO MARCH 31, 2000. THERE IS NOTHING TO INDICATE, AND NONE OF THE AUTHORITIES HAVE APPLIED THEIR MIND, AS TO WHETHER THE SUM OF RS. 13,18,068/- IS RELATABLE TO EXPORTS MADE DURING ONL Y ONE FINANCIAL YEAR OR MORE THAN ONE FINANCIAL YEAR PRECEDING MARCH 31, 20 00. THIS WOULD HAVE A MATERIAL BEARING, TAKING INTO CONSIDERATION THE P ROVISIONS OF SUB-SECTION (2) OF SECTION 80HHC OF THE ACT AS WAS APPLICABLE D URING THE YEAR UNDER CONSIDERATION. UNDER SUB-SECTION (2) OF SECTION 80HHC OF THE ACT, SALE PROCEEDS OF GOODS OR MERCHANDISE EXPORTED OUT OF INDIA AND RECE IVED IN CONVERTIBLE FOREIGN EXCHANGE BECOME ENTITLED TO THE DEDUCTION S UBJECT TO FULFILLMENT OF OTHER REQUISITE CONDITIONS. CLAUSE (A) OF SUB-SECTI ON (2) OF SECTION 80HHC OF THE ACT PROVIDES THAT SUCH SALE PROCEEDS HAVE TO BE RECEIVED IN CON- VERTIBLE FOREIGN EXCHANGE WITHIN A PERIOD OF SIX MO NTHS FROM THE END OF THE PREVIOUS YEAR OR, WITHIN SUCH FURTHER PERIOD AS THE COMPETENT AUTHORITY MAY ALLOW IN THIS BEHALF. THUS, A PLAIN READING OF THE PROVISION MAKES IT CLEAR THAT ONCE THE COMPETENT AUTHORITY HAS EXTENDE D THE TIME, IN A CASE WHERE IT IS NECESSARY, OR, WHERE THE SALE PROCEEDS HAVE BEEN RECEIVED WITHIN A PERIOD OF SIX MONTHS FROM THE END OF THE P REVIOUS YEAR, SUCH SALE PROCEEDS ARE DIRECTLY RELATABLE TO THE EXPORTS MADE AND NO FURTHER INQUIRY IS NECESSARY. THEREFORE, THE ENTIRE CONTROVERSY AS TO WHETHER SUCH RECEIPT AMOUNTS TO 'ANY OTHER RECEIPT' STIPULATED IN EXPLAN ATION (BAA)(1) NEED NOT BE TAKEN UP FOR CONSIDERATION. ONCE THE LEGISLATURE HAS PROVIDED FOR TREAT- ING A RECEIPT WITHIN A PERIOD OF SIX MONTHS AFTER T HE END OF THE PREVIOUS YEAR, OR WITHIN FURTHER EXTENDED PERIOD, AS SALE PR OCEEDS RELATABLE EXPORTS, IT WOULD NOT BE OPEN TO THE REVENUE TO RAISE SUCH A CONTROVERSY. THE LEGISLATURE IN ITS WISDOM HAS TAKEN INTO CONSIDERAT ION THE FACT THAT IN THE CASE OF EXPORTS MADE, SALE PROCEEDS ARE NOT NECESSA RILY REALIZABLE IMMEDIATELY WITHIN THE ACCOUNTING PERIOD IN WHICH E XPORTS HAVE BEEN MADE. AS A COROLLARY, BY THE TIME SUCH SALE PROCEED S ARE RECEIVED WITHIN THE PRESCRIBED TIME, BY VIRTUE OF EXCHANGE RATE DIF FERENCE, THERE MIGHT BE A SITUATION WHERE A LARGER AMOUNT IS RECEIVED THAN THE AMOUNT AS REFLECTED ITA NO. 1293 /AHD/2013 . A.Y.2009-10 5 IN THE SHIPPING BILL. HENCE, MERELY BECAUSE AN AMOU NT IS RECEIVED IN A YEAR SUBSEQUENT TO THE YEAR OF EXPORT BY WAY OF EXC HANGE RATE DIFFERENCE, IT DOES NOT NECESSARILY ALWAYS FOLLOW THAT THE SAME IS NOT RELATABLE TO THE EXPORTS MADE. 9. AS CAN BE SEEN FROM THE IMPUGNED ORDER OF THE TR IBUNAL AS WELL AS THE ORDERS OF THE COMMISSIONER (APPEALS) AND THE ASSESS ING OFFICER, NONE OF THE AUTHORITIES HAVE APPROACHED THE ISSUE IN THE LI GHT OF THE PROVISIONS OF SUB-SECTION (2) OF SECTION 80HHC OF THE ACT. NO EVI DENCE IS AVAILABLE ON RECORD TO ESTABLISH FULFILLMENT OR OTHERWISE, OF TH E CONDITIONS STIPULATED BY SUB-SECTION (2) OF SECTION 80HHC OF THE ACT. IN THE SE CIRCUMSTANCES, IT WOULD NOT BE FAIR AND JUST FOR EITHER SIDE TO RESOL VE THE CONTROVERSY IN THE ABSENCE OF THE RELEVANT FACTS AND EVIDENCE BEING AV AILABLE ON RECORD. 10. IN THE LIGHT OF WHAT IS STATED HEREINBEFORE, TH E QUESTION IS LEFT UNANSWERED AND THE APPEAL IS RESTORED TO THE FILE O F THE TRIBUNAL ONLY IN RELATION TO THE ISSUE RELATABLE TO DEDUCTION UNDER SECTION 80HHC OF THE ACT WITHOUT EXPRESSING ANY FINAL OPINION ON THE MERITS OF THE MATTER. THE TRI- BUNAL SHALL, AFTER HEARING BOTH THE SIDES, DECIDE T HE APPEAL ON THIS COUNT, AFTER PERMITTING ADDITIONAL EVIDENCE ON RECORD, IF NECESSARY. IT WOULD ALSO BE OPEN TO THE TRIBUNAL TO RESTORE THE ISSUE TO THE FILE OF THE ASSESSING AUTHORITY TO ASCERTAIN PROPER FACTS IN THE CIRCUMST ANCES. 10. COMING BACK TO THE FACTS OF THE CASE IN HAND IN THE LIGHT OF THE AFOREMENTIONED DECISION OF THE HONBLE HIGH COURT, WE FIND THAT THERE IS CLEAR DISSIMILARITY OF THE FACTS IN AS MUCH AS I N THE CASE OF THE ASSESSEE, THE GAIN HAS ARISEN OUT OF THE HEDGING MA DE BY THE ASSESSEE. THE ASSESSEE HAS ENTERED INTO A FORWARD C ONTRACT AND HAS BEEN BENEFITTED BY THE FLUCTUATIONS IN FOREIGN EXCH ANGE IRRESPECTIVE OF THE FACT WHETHER TRADE AGREEMENT EXISTS OR NOT. IN OTHER WORDS, THE EXCHANGE RATE FLUCTUATION GAIN DOES NOT HAVE ANY FI RST DEGREE NEXUS WITH THE EXPORT SALES OF THE ASSESSEE. IN THE ABSEN CE OF THE FIRST ITA NO. 1293 /AHD/2013 . A.Y.2009-10 6 DEGREE NEXUS THE RATIO LAID DOWN BY THE HONBLE SUP REME COURT IN THE CASE OF LIBERTY INDIA 317 ITR 218 SQUARELY APPLY. 11. SINCE THE LD. CIT(A) HAS DECIDED THE ISSUE IN FAVOU R OF THE ASSESSEE, HEAVILY RELYING UPON THE DECISION OF THE HONBLE HIGH COURT OF GUJARAT IN THE CASE OF AMBA IMPEX (SUPRA) AND SI NCE WE HAVE SUBSTANTIVELY DISTINGUISHED THE FACTS OF THE CASE I N HAND WITH THE FACTS OF THE CASE BEFORE THE HONBLE HIGH COURT (SUPRA). WE SET ASIDE THE FINDINGS OF THE LD. CIT(A) AND RESTORE THAT OF THE A.O. GROUND NO. 1 IS ACCORDINGLY ALLOWED. 12. GROUND NO. 2 RELATES TO THE DEPRECIATION ON PLANT A MOUNTING TO RS. 20,32,557/-. 13. WHILE SCRUTINIZING THE RETURN OF INCOME, THE A.O. F OUND THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE H AS NOT DONE ANY BUSINESS ACTIVITIES AT ITS UNIT-I. THE A.O. WAS OF THE FIRM BELIEF THAT, THEREFORE, THE ASSESSEE IS NOT ELIGIBLE FOR DEPRECI ATION AND ACCORDINGLY DISALLOWED THE SAME. 14. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) A ND EXPLAINED THAT WORK IN UNIT-I AND UNIT-II ARE COMPLEMENTARY F OR THE FINISHED PRODUCT, ELECTRICITY CONSUMPTION BILLS WERE SUBMITT ED. IT WAS FURTHER EXPLAINED THAT SINCE THERE WAS A FIRE ON UNIT-I, TH E PLANT AND MACHINERIES WERE SHIFTED TO UNIT-II. TO SUBSTANTIAT E THIS CLAIM GOODS MOVEMENT CHALLAN WAS PRODUCED AND ALSO DETAILS OF C LAIMS MADE WITH UNITED INSURANCE CO. WAS ALSO FURNISHED. ITA NO. 1293 /AHD/2013 . A.Y.2009-10 7 15. AFTER CONSIDERING THESE DIRECT EVIDENCES, THE LD. C IT(A) WAS OF THE OPINION THAT THERE IS A MERIT IN THE CASE OF T HE ASSESSEE. THE PLANT AND MACHINERIES WERE USED DURING THE YEAR AND, THER EFORE, ELIGIBLE FOR DEPRECIATION AND ACCORDINGLY DIRECTED THE A.O. TO A LLOW THE DEPRECIATION AS PER THE LAW. 16. BEFORE US, THE LD. D.R. COULD NOT BRING ANY COGENT MATERIAL EVIDENCE ON RECORD TO CONTROVERT THE FINDINGS OF TH E LD. CIT(A), AS THE FINDINGS OF THE LD. CIT(A) ARE BASED ON THE VERIFIC ATION OF DIRECT EVIDENCES, WE DECLINE TO INTERFERE. GROUND NO. 2 IS DISMISSED. 17. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS P ARTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 09 - 06 - 20 16. SD/- SD/- (RAJPAL YADAV) (N. K. BILLAIYA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD: TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHME DABAD