M/s. A.C.Enterprises, CHENNAI V. DCIT, CHENNAI

ITA 1304/CHNY/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 64395 (ITAT-CHENNAI)
• Duration Of Justice: 3 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-10-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2004-2005
• Appeal Filed On: 14-06-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DR S MOHARANA
• Assessee Lawyers: G STANLY
• Keywords: Revision of order; Competent authority
• Section: 143(3); 80HHC; 6; 263; 12; 28; 2

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL B BENCH, CHENNAI. BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER & SHRI S.S. GODARA, JUDICIAL MEMBER I.T.A. NO.1304 /MDS/2012 ASSESSMENT YEAR : 2004-05 M/S. A.C. ENTERPRISES, F/41-A, ANNA NAGAR EAST, CHENNAI 600 102. [PAN:AAFFA0254R] VS. THE DEPUTY COMMISSIONER OF INCOME TAX, BUSINESS RANGE XIII, NUNGAMBAKKAM, CHENNAI 34. (APPELLANT) (RESPONDENT) A PPELLANT BY : SHRI G. STANLY, ADVOCATE RESPONDENT BY : DR. S. MOHARANA, CIT DR DATE OF HEARING : 10.09.2012 DATE OF PRONOUNCEMENT : 05.10.2012 ORDER PER BENCH BY WAY OF PRESENT APPEAL, THE ASSESSEE HAS QUESTIO NED CORRECTNESS OF THE ORDER OF THE COMMISSIONER OF INCOME TAX (APP EALS) XII CHENNAI DATED 19.03.2012 IN ITA NO. 320/2006-07 FOR THE ASS ESSMENT YEAR 2004-05 IN PROCEEDINGS UNDER SECTION 143(3) OF THE INCOME T AX ACT 1961 [IN SHORT THE ACT]. 2. THE AR REPRESENTING THE ASSESSEE BEFORE US HAS ASSAILED THE ORDER OF THE CIT(A) BY REFERRING TO THE GROUNDS OF APPEAL RA ISED AND SUBMITTED THAT THE CIT(A) HAS ERRED IN REJECTING THE ASSESSEES CL AIM OF DEDUCTION UNDER I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.1304 1304 1304 1304/M/ /M/ /M/ /M/12 1212 12 2 SECTION 80HHC OF THE ACT REGARDING ITS INCOME FRO M QUOTA SALES AND IN CONFIRMING THE DISALLOWANCE CLAIMED BY THE ASSESSEE ON ACCOUNT OF FOREIGN TRAVEL. 3. ON THE OTHER HAND, THE REVENUE HAS SUPPORTED TH E CIT(A)S ORDER ON BOTH GROUNDS. SINCE THERE IS VARIANCE IN THE SUBMIS SION OF THE PARTIES QUA VALIDITY OF CIT(A)S ORDER, WE FRAME FOLLOWING TWO ISSUES FOR OUR APT ADJUDICATION: (I) WHETHER, THE CIT(A) HAS RIGHTLY CONFIRMED REJEC TION OF THE ASSESSEES CLAIM OF DEDUCTION QUA QUOTA SALES AS HELD BY THE ASSESSING OFFICER THEREBY HOLDING THAT THE SAME IS NOT COVERED BY SECTION 80HHC OF THE ACT? (II) WHETHER THE ORDER OF THE CIT(A) IN CONFIRMING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER OF ` .50,000/- REGARDING FOREIGN TRAVEL EXPENSES CLAIMED BY THE ASSESSEE IS ELIGIBLE TO BE MODIFIED OR CONFIRMED? ISSUE NO. 1: 3. THE RELEVANT FACTS PERTAINING TO THE ISSUE ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM INVOLVED IN THE BUSINESS OF PURCHA SE AND EXPORT SALE OF COTTON GARMENTS. IN ITS RETURN FILED FOR THE ASSESS MENT YEAR 2004-05 ON 01.11.2004, IT HAD DECLARED TAXABLE INCOME OF ` .51,36,529/-. IN SCRUTINY PROCEEDINGS, THE ASSESSING OFFICER TOOK COGNIZANCE OF THE ASSESSEES ACCOUNT STATEMENT WHICH HAD STATED THAT THE ASSESSE E HAD REALIZED AN I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.1304 1304 1304 1304/M/ /M/ /M/ /M/12 1212 12 3 AMOUNT OF ` .20,46,793/- BY RESORTING TO QUOTA SALES AND THE SAME HAD BEEN TAKEN INTO ACCOUNT BY THE ASSESSEE WHILST COMP UTING DEDUCTION UNDER SECTION 80HHC. IN THE ASSESSING OFFICERS OPINION, THE QUOTA SALE WAS NOT AN ITEM OF RECEIPT, WHICH COULD FALL UNDER SECTION 28 OF THE ACT. THE ASSESSEE JUSTIFIED ITS ACCOUNT STATEMENT BEFORE THE ASSESSING OFFICER BY DRAWING SUPPORT FROM CBDT CIRCULAR F.NO. 133/131/97 -TPL DATED 23.02.1998. HOWEVER, THE ASSESSING OFFICER DID NOT CONCUR WITH ASSESSEES EXPLANATION AND HELD THAT THE ASSESSEES QUOTA SA LE COULD NOT BE TAKEN INTO CONSIDERATION FOR THE PURPOSE OF COMPUTATION OF DED UCTION UNDER SECTION 80HHC OF THE ACT. ACCORDINGLY, VIDE ASSESSMENT OR DER DATED 26.12.2006 HE TOOK THE QUOTA SALE AMOUNT REALIZED BY THE OUT OF THE PURVIEW OF DEDUCTION UNDER SECTION 80HHC OF THE ACT. 4. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEF ORE THE CIT(A), WHEREIN ASSESSING OFFICERS FINDINGS HAVE BEEN CONF IRMED VIDE THE IMPUGNED ORDER REPRODUCED HEREIN BELOW: THE ASSESSEE BEFORE THE UNDERSIGNED STATED THAT QU OTA SALES IS INTEGRAL PART OF THE EXPORT ACTIVITY AND HENCE THE SAME IS INCLUDABLE IN THE ELIGIBLE PROFITS OF THE BUSINESS. FOR THIS PURP OSE THE ASSESSEE RELIED ON CERTAIN CASE LAWS. I HAVE CONSIDERED THE ABOVE SUBMISSIONS OF THE ASSE SSEE. IT MAY BE TRUE THAT THE SALE OF QUOTA MAY BE DIRECTLY RELA TED TO THE EXPORT ACTIVITY OF THE ASSESSEE. HOWEVER ALL INCOMES OF TH E EXPORT ACTIVITY ARE NOT ELIGIBLE FOR DEDUCTION U/ S.80HHC OF THE ACT. W HAT IS ALLOWABLE UNDER SEC.80HHC IS INCOME DERIVED FROM EXPORT OF GO ODS AND MERCHANDISE OUT OF INDIA AND SUCH SALE PROCEEDS ARE RECEIVED/BROUGHT IN INDIA BY WAY OF CONVERTIBLE FOREIGN EXCHANGE. TH E RELEVANT PROVISIONS F SEC.80HHC ARE: I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.1304 1304 1304 1304/M/ /M/ /M/ /M/12 1212 12 4 DEDUCTION IN RESPECT OF PROFITS RETAINED FOR EXPORT BUSINESS. 80HHC. (1) WHERE AN ASSESSEE , BEING AN INDIAN COMPANY OR A PERSON (OTHER THAN A COMPANY) RESIDENT IN INDIA, IS ENGAGED IN THE BUSINESS OF EXPORT OUT OF INDIA OF ANY GOODS OR MERCHANDISE TO WHICH THIS SECTION APPLIES, THERE SHALL, IN ACCO RDANCE WITH AND SUBJECT TO THE PROVISIONS OF THIS SECTION, BE ALLOW ED, IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE, A DEDUC TION TO THE EXTENT OF PROFITS , REFERRED TO IN SUB-SECTION (LB), DERIVED BY THE ASSESSEE FROM THE EXPORT OF SUCH GOODS OR MERCHANDI SE : (2)(A) THIS SECTION APPLIES TO ALL GOODS OR MERCHAN DISE, OTHER THAN THOSE SPECIFIED IN CLAUSE (B), IF THE SALE PRO CEEDS OF SUCH GOODS OR MERCHANDISE EXPORTED OUT OF INDIA ARE, REC EIVED IN, OR BROUGHT INTO, INDIA BY THE ASSESSEE (OTHER THAN THE SUPPORTING MANUFACTURER) IN CONVERTIBLE FOREIGN EXCHANGE, WITH IN A PERIOD OF SIX MONTHS FROM THE END OF THE PREVIOUS YEAR OR, WITHIN SUCH FURTHER PERIOD AS THE COMPETENT AUTHORITY MAY ALLOW IN THIS BEHALF. THUS, THERE ARE TWO MANDATORY REQUIREMENTS BEFORE C LAIMING DEDUCTION U/S.80HHC. THEY ARE- I) THE INCOME SHOULD BE FROM THE SALE PROCEEDS OF G OODS AND MERCHANDISE EXPORTED OUT OF INDIA; AND II) THE SALE PROCEEDS ARE BROUGHT INTO INDIA BY CON VERTIBLE FOREIGN EXCHANGE. UNLESS THE ABOVE TWO INGREDIENTS ARE FULFILLED, THE AMOUNTS WILL NOT BE QUALIFIED FOR THE PURPOSE OF DEDUCTION U/S.8 0HHC OF THE ACT. ANY INCOME IN WHICH THE ABOVE TWO INGREDIENTS ARE MISSI NG, WILL AUTOMATICALLY GOES OUTSIDE THE PURVIEW OF SEC.80HHC OF THE ACT. IT ALSO MAKES NO DIFFERENCE WHETHER SUCH INCOME IS DIRECTLY LINKED OR INDIRECTLY LINKED TO THE EXPORT ACTIVITY. IN FACT, THIS VIEW H AS BEEN CLEARLY HELD BY THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. K. RAVINDRANATHAN NAIR (295 ITR 228) (SC), WHEREIN IT WAS HELD THAT 'PROFIT INCENTIVES AND ITEMS LIKE RENT, COMMISSION, BROKERAGE, CHARGES, ETC., THOUGH FORMED PART OF GROSS TOTAL IN COME HAD TO BE EXCLUDED AS THEY WERE INDEPENDENT INCOMES' WHICH H AD NO ELEMENT OF EXPORT TURNOVER. THE SAID ITEMS DISTORTE D THE FIGURE OF EXPORT PROFITS'. [PARA 18] I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.1304 1304 1304 1304/M/ /M/ /M/ /M/12 1212 12 5 IN THE INSTANT CASE, THE SALE OF QUOTA LICENCES IS NOT ON ACCOUNT OF SALE PROCEEDS OF GOODS OR MERCHANDISE EXPORTED. FUR THER THE QUOTA SALES IS NOT RECEIVED IN THE FORM OF CONVERTIBLE FO REIGN EXCHANGE. IN OTHER WORDS THE QUOTA SALES ARE THE SALES WITHIN IN DIA AND THE AMOUNT IS RECEIVED IN INDIAN CURRENCY. THUS, THE ABOVE MEN TIONED TWO NECESSARY INGREDIENTS ARE TOTALLY MISSING AND HENCE THE QUOTA SALES IS TOTALLY OUTSIDE THE PURVIEW OF SEC.80HHC. FURTHER AS HELD BY THE SUPREME COURT IN THE CASE OF LIBERTY INDIA VS. CIT (317 ITR 218) (SC), THE IMMEDIATE. SO URCE OF INCOME OF 'SALE' OF QUOTA' IS THE PARTICULAR GOVERNMENTAL SCH EME AND NOT THE EXPORT ACTIVITY. THE DECISION OF THE LIBERTY INDIA IS AS UNDER- LIBERTY INDIA VS. CIT(2009)(317 ITR 218)(SC):DUTY D RAWBACK RECEIPTS/DUTY ENTITLEMENT PASS BOOK:(DEPB BENEFITS ARE ON ACCOUNT OF STATUTORY PROVISIONS IN CUSTOMS ACT/SCHEME(S) FRAME D BY GOVERNMENT; THEREFORE, PROFITS SO DERIVED DO NOT FORM PART OF N ET PROFITS OF ELIGIBLE INDUSTRIAL UNDERTAKING FOR PURPOSE OF SECTIONS 80-I B AND 80-IA. THOUGH THE ABOVE DECISION IS WITH RESPECT TO DEDUCT ION U/S 80- IA/IB, THE RATIO IS APPLICABLE TO THE FACTS OF THE PRESENT CASE ALSO. IN VIEW OF THE ABOVE DECISIONS, IT IS CLEAR THAT TH E IMMEDIATE SOURCE OF INCOME OF QUOTA SALES IS THE GOVERNMENTAL SCHEME AND NOT THE EXPORT ACTIVITY ITSELF. FURTHER IN VIEW OF THE SUPR EME COURT'S DECISION IN THE CASE OF K RAVINDRANATHAN NAIR (SUPRA), THE ASSE SSEE'S CLAIM OF QUOTA SALES, IN WHICH THE ELEMENT OF EXPORT OF GOOD S OR MERCHANDISE AND. RECEIPT OF PROCEEDS BY CONVERTIBLE FOREIGN EXC HANGE ARE TOTALLY MISSING, CANNOT BE TREATED AS ELIGIBLE INCOME FOR T HE PURPOSE OF DEDUCTION U/S.80HHC. THEREFORE THE ASSESSING OFFICER HAS RIGHTLY EXCLUDE D 90% OF THE SAID QUOTA SALES FROM THE ELIGIBLE PROFITS BEFORE C OMPUTING DEDUCTION U/S.80HHC. THE ACTION OF THE ASSESSING OFFICER IS U PHELD. 5. IN SUPPORT OF THE ISSUE, THE AR BEFORE US HAS R EFERRED TO THE FINDINGS OF THE ASSESSING AUTHORITY AS WELL AS CIT(A) AND SUBMI TTED THAT THE ASSESSEES CLAIM OF DEDUCTION UNDER SECTION 80HHC QUA THE AMOU NT REALIZED THROUGH QUOTA SALE HAS BEEN WRONGLY TAKEN OUT OF THE PURV IEW OF THE DEDUCTION I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.1304 1304 1304 1304/M/ /M/ /M/ /M/12 1212 12 6 UNDER SECTION 80HHC. IN SUPPORT OF THE PLEA, THE AR HAS ALSO REFERRED TO ORDER OF CHENNAI BENCH OF ITAT DATED 19.01.2010 IN I.T.A. NO. 813/MDS/2008 PERTAINING TO THE ASSESSMENT YEAR 2003 -04, WHEREIN ALSO, THE SAME VERY ISSUE WAS INVOLVED AND DECIDED IN ASSESSE ES FAVOUR. IN THE LIGHT THEREOF, HE PRAYED FOR ACCEPTANCE OF THE ISSUE. 6. THE DR, ON THE OTHER HAND, HAS RELIED UPON THE ORDER OF THE CIT(A) AS WELL AS THE REASONS CONTAINED THEREIN. THEREAFTER, HE PRAYED FOR UPHOLDING THE CIT(A)S ORDER. 7. WE HAVE HEARD BOTH SIDES AT LENGTH AND ALSO GON E THROUGH THE RELEVANT FINDINGS AS WELL AS ORDER OF THE COORDINAT E BENCH CITED BY THE AR OF THE ASSESSEE. IT TRANSPIRES THAT IN THE PRECEDING A SSESSMENT YEAR I.E. ASSESSMENT YEAR 2003-04, THE VERY SAME DISPUTE HAD BEEN ARISEN. WE ALSO FIND THAT THE CIRCUMSTANCES WERE SLIGHTLY DIFFERENT AS THE ASSESSING OFFICER HIMSELF HAD ALLOWED THE ASSESSEES CLAIM OF DEDUCTI ON OF ` .10,62,874/- REPRESENTING QUOTA SALES UNDER SECTION 80HHC OF T HE ACT, WHILST FINALISING THE ASSESSMENT UNDER SECTION 143(3) OF THE ACT. H OWEVER, THE CIT, INVOKING SECTION 263 OF THE ACT HAD REVISED THE A SSESSMENT ON THE GROUND THAT THE ASSESSING OFFICERS ORDER WAS ERRONEOUS AN D PREJUDICIAL TO THE INTEREST OF THE REVENUE. THE ASSESSEE CARRIED THE M ATTER IN APPEAL, WHEREIN THE COORDINATE BENCH, WHILST EXAMINING THE ASSESSEE S CLAIM OF DEDUCTION QUA, THE AMOUNT REALIZED THROUGH QUOTA SALE, VIZ- A-VIS PROVISIONS CONTAINED IN THE ACT UNDER SECTION 80HHC HAD HELD AS UNDER: I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.1304 1304 1304 1304/M/ /M/ /M/ /M/12 1212 12 7 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESSEE FILED ITS RETURN ON 30.1.2003 ADMITTING TOTAL INCOME OF ` .99,58,851/- AFTER CLAIMING DEDUCTION U/S 80HHC TO THE TUNE OF ` .1,03,65,852/-. THE ASSESSMENT WAS COMPLETED U/S 143(3) BY ACCEPTING TH E CLAIM OF DEDUCTION U/S 80HHC. IN CLAIMING THE ABOVE DEDUCTI ON, THE ASSESSEE HAS INCLUDED A SUM ` .10,82,874/- REPRESENTING QUOTA SALES BEING AN EXPORT INCENTIVES IN RESPECT OF WHICH, ACCORDING T O THE ASSESSEE, DEDUCTION WAS ALLOWABLE U/S 80HHC. AS PER THE ASSE SSEE, IT WAS EXPLAINED DURING ASSESSMENT PROCEEDINGS THAT QUOTA SALES ARE EQUATED WITH EXPORT INCENTIVES LIKE DDB, DFRC AND OTHER BEN EFITS IN VIEW OF CBDT CIRCULAR NO,133/131/97-TPL DATED 23.2.1998. TH E LD. CIT, AFTER CALLING FOR THE RECORDS OF THE ASSESSMENT ORDER, AF TER GIVING DUE NOTICE U/S 263 OF THE ACT TO THE ASSESSEE AND AFTER CALLIN G FOR THE ASSESSEES OBJECTIONS THEREON, HAS FOUND THE ORDER TO BE ERRON EOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE. THUS, HE HAS SET ASIDE THE ASSESSMENT ORDER DATED 31.10.2003 FOR ASSESSMENT YE AR 2003-04 TO BE PASSED DE NOVO. BEING AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 3. IT WAS ARGUED BY THE LD.AR WITH REFERENCE TO CB DT CIRCULAR NO.133/131/97-TPL DATED 23.2.1998 THAT THIS CIRCULA R WAS AVAILABLE WHEN ASSESSMENT ORDER WAS PASSED AND THAT ACCORDING TO THIS CIRCULAR, QUOTA SALES ARE TO BE INCLUDED FOR THE DEDUCTION U/S 80HHC. IT WAS ALSO ARGUED THAT THE LD. CIT HAS NOT FINALLY GIVEN A FINDING THAT THE ASSESSMENT ORDER IS REALLY ERRONEOUS IN SO FAR AS I T IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE WHICH HE IS BOUND TO DO. ON THE OTHER HAND, THE LD.DR HAS SUPPORTED THE ORDER OF THE LD. CIT AN D HAS FURTHER SUBMITTED THAT THE ASSESSMENT ORDER IN QUESTION IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENU E BECAUSE THE ASSESSING OFFICER HAS NOT AT ALL APPLIED HIS MIND TO THE ISSU E OF DEDUCTION U/S 80HHC. 4. AFTER CAREFULLY CONSIDERING THE RIVAL SUBMISSIO NS IN THE LIGHT OF THE MATERIAL AVAILABLE ON RECORD INCLUDING THE COP Y OF THE CBDT CIRCULAR REFERRED TO ABOVE, WE ARE OF THE CONSIDE RED OPINION THAT THERE IS NO ERROR IN THE ASSESSMENT ORDER DATED 23. 1.2006. THIS IS NOT A CASE IN WHICH IT CAN BE SAID THAT THE ASSESSING OFF ICER HAS NOT APPLIED HIS MIND. WHEN THE CBDT CIRCULAR WAS VERY MUCH IN VOGUE AND THE ITO HAS ACCEPTED THE DEDUCTION OF QUOTA SALES U/S 8 0HHC, IT CANNOT BE SAID THAT THE ASSESSING OFFICER HAS NOT APPLIED HIS MIND TO THIS ISSUE. WE ARE IN AGREEMENT WITH THE LD.DR WHEN HE SAYS THA T NON- APPLICATION OF MIND TO ANY ITEM OF INCOME DOES AMOUNT TO AN ERR OR IN THE ORDER, BUT THIS IS NOT THE CASE OF NON-APPLICATION OF MIND. W HEN THERE IS A SPECIFIC CIRCULAR FOR SUCH ALLOWANCES AND THE ASSESSEE HAS M ADE A CLAIM AS PER I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.1304 1304 1304 1304/M/ /M/ /M/ /M/12 1212 12 8 LAW PARTICULARLY WHEN THE CBDT CIRCULARS ARE BINDIN G ON THE DEPARTMENT, IT CANNOT BE SAID THAT THE ORDER IS ERR ONEOUS EVEN IF THE ASSESSING OFFICER HAS NOT MENTIONED ANY CIRCULAR IN HIS ORDER. HENCE, THE DECISIONS RELIED ON BY THE LD.DR IN THIS REGARD ARE OF NO AVAIL. WHEN THERE IS A CIRCULAR WHICH IS SUPPOSED TO BE IN THE NOTICE OF THE ASSESSING OFFICER WHERE IS THE NEED TO CALL FOR FUR THER DETAILS FROM THE ASSESSEE IN THIS REGARD FOR THAT MATTER. CONSEQUEN TLY, WE SET ASIDE THE REVISIONAL ORDER PASSED BY THE LD. CIT U/S 263 AND RESTORE THAT OF THE ASSESSING OFFICER. 5. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE STANDS ALLOWED. TAKING CUE FROM THE SAME, WE OF THE OPINION THAT THE ISSUE IN HAND IS NO MORE RES INTEGRA AS WITHOUT ANY SIGNIFICANT CHANGE IN THE CIRCUMSTA NCES POINTED OUT BY THE REVENUE, THE AMOUNT REALIZED FRO M QUOTA SALE IS COVERED BY SECTION 80HHC OF THE ACT. HENCE, IN OR DER TO MAINTAIN CONSISTENCY OF THE JUDICIAL OPINION, WE ARE OF THE VIEW THAT THE CIT(A) HAS ERRED IN HOLDING THAT THE ASSESSEE IS NOT ENTITLED FOR THE BENEFIT OF DEDUCTION UNDER SECTION 80HHC OF THE ACT. THEREFORE, IN PRI NCIPLE, WE ACCEPT THE SUBMISSION OF THE ASSESSEE. AT THE SAME TIME, DESPITE THE FACT THAT NEITHER OF THE PARTIES HAVE CITED BEFORE US CASE LAW OF THE HONBLE SUPREME COURT REP ORTED AS [2012] 342 ITR 49 TOPMAN EXPORTS V. CIT DECIDED ON 08.02.2012, WE NOTICE THAT THE CIT(A) HAS NOT CONSIDERED THE ABOVE SAID CASE LAW, WHILE PASSING THE ORDER ON 19.03.2012 I.E. WELL AFTER THE JUDGMENT OF THE H ONBLE APEX COURT. A PERUSAL OF THE ABOVE SAID JUDGMENT MAKES IT CLEAR T HAT IT HAS BEEN CATEGORICALLY HELD THAT THE ENTIRE SALE PROCEEDS AR ISING FROM SALE OF DEPB LICENSES CANNOT BE TAKEN AS THE PROFITS FOR THE PUR POSE OF ASSESSMENT. THEIR I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.1304 1304 1304 1304/M/ /M/ /M/ /M/12 1212 12 9 LORDSHIPS HAVE BEEN PLEASED TO HOLD AS UNDER: AS THE DEPB CREDIT HAS DIRECT NEXUS WITH THE COST OF IMPORTS FOR MANUFACTURING AN EXPORT PRODUCT, ANY AMOUNT REA LISED BY THE ASSESSEE OVER AND ABOVE THE DEPB CREDIT ON TRANSFER OF THE DEPB CREDIT WOULD REPRESENT PROFIT ON THE TRANSFER OF TH E DEPB CREDIT. THUS, WHILE THE FACE VALUE OF THE DEPB CREDIT WILL FALL U NDER CLAUSE (IIIB) OF SECTION 28 OF THE ACT, THE DIFFERENCE BETWEEN THE S ALE VALUE AND THE FACE VALUE OF THE DEPB CREDIT WILL FALL UNDER CLAUSE (II ID) OF SECTION 28 OF THE ACT. THE COST OF ACQUIRING THE DEPB CREDIT IS N OT NIL BECAUSE THE PERSON ACQUIRES IT BY PAYING CUSTOMS DUTY ON THE IM PORT CONTENT OF THE EXPORT PRODUCT AND THE DEPB CREDIT WHICH ACCRUES TO A PERSON AGAINST EXPORTS HAS A COST ELEMENT IN IT. THE DEPB CREDIT R EPRESENTS PART OF THE COST INCURRED BY A PERSON FOR MANUFACTURE OF THE EX PORT PRODUCT AND HENCE EVEN WHERE THE DEPB CREDIT IS NOT UTILISED BY THE EXPORTER BUT IS TRANSFERRED TO ANOTHER PERSON, THE CREDIT CONTINUES TO REMAIN AS A COST TO THE EXPORTER. WHEN, THEREFORE, THE DEPB CREDIT I S TRANSFERRED BY A PERSON, THE ENTIRE SUM RECEIVED BY HIM ON SUCH TRAN SFER DOES NOT BECOME HIS PROFITS. IT IS ONLY THE AMOUNT THAT HE R ECEIVES IN EXCESS OF THE DEPB CREDIT WHICH REPRESENTS HIS PROFITS ON TRA NSFER OF THE DEPB CREDIT. WHEN WE APPLY THE RATIO OF THE ABOVE SAID CASE LAW VIS-A-VIZ, FACTS OF THE INSTANCE CASE, WE FIND THAT THE ASSESSEES ACTI VITY OF QUOTA SALE IS, IN FACT, AKIN TO SALE OF DEPB LICENSE. THE PARTIES BEF ORE US ARE ALSO NOT ABLE TO POINT OUT ANY DISTINGUISHING FEATURE QUA THE SAME. SIMILARLY, IN OUR OPINION, NEITHER THE ASSESSING OFFICER NOR THE CIT(A) HAVE E XAMINED VARIOUS VITAL ASPECTS OF THE MATTER I.E. FACE VALUE OF THE ASSESS EES QUOTA SALE AS WELL AS PROFITS ARRIVED AT THEREOF. HENCE, IN THE LARGER INTEREST OF JUSTICE, WE DEEM IT APPROPRIATE TO RESTORE THE ISSUE BACK TO THE FILE O F THE ASSESSING OFFICER, WHO SHALL PASS A FRESH ORDER IN ACCORDANCE WITH LAW BY TAKING INTO ACCOUNT THE ABOVE CASE LAW (SUPRA) AFTER AFFORDING ADEQUATE OPP ORTUNITY OF HEARING TO THE ASSESSEE. I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.1304 1304 1304 1304/M/ /M/ /M/ /M/12 1212 12 10 THE ISSUE STANDS ACCEPTED IN FAVOUR OF THE ASSESS EE FOR STATISTICAL PURPOSE. ISSUE NO. 2: 8. THE FACTS APROPOS TO THIS ISSUE ARE THAT ITS AS SESSMENT PROCEEDINGS, THE ASSESSEE HAD RAISED THE CLAIM OF ` .5,70,626/- IN THE SHAPE OF FOREIGN TRAVEL EXPENSES IN THE PREVIOUS YEAR RELEVANT TO TH E IMPUGNED ASSESSMENT YEAR. THE ASSESSING OFFICER DISALLOWED THE AMOUNT O F ` .50,000/- OUT OF THE TOTAL AMOUNT CLAIMED BY HOLDING THE SAME BE PERSON AL EXPENDITURE. IN APPEAL AS WELL, THE CIT(A) HAS UPHELD THE ASSESSING OFFICERS FINDING: A) DISALLOWANCE OF TRAVELLING EXPENSES: THE FIRST GROUND OF THE ASSESSEE IS REGARDING THE DISALLOWANCE OF TRAVELLIN G EXPENSES OF ` .50,000/-. THE ASSESSEE CLAIMED ` .5,70,626/- BY WAY OF FOREIGN TRAVEL EXPENSES DURING THE F.Y.2003-04 RELEVANT TO THE A.Y .2004-05. THE ASSESSING OFFICER DISALLOWED A ROUND SUM AMOUNT OF ` .50,000/- BEING EXPENSES OF PERSONAL IN NATURE. I HAVE PERUSED THE ASSESSMENT ORDER AND CONTENTIONS OF THE ASSESSEE. IN THE CASE OF TRAVELLING EXPENSES, ESPEC IALLY FOREIGN TRAVEL, AN ELEMENT OF EXPENSES OF PERSONAL IN NATURE CANNOT BE RULED OUT. FURTHER THE EXPENSES DEBITED ARE, BY WAY OF PURCHAS E OF FOREIGN CURRENCY ETC. THE EXACT EXPENSES INCURRED AND NECES SARY EVIDENCES FOR INCURRING SUCH EXPENSES IN THE FOREIGN TRAVEL ARE A LSO NOT AVAILABLE. THEREFORE THE ASSESSING OFFICER'S DISALLOWANCE OF ` . 50,000/ - (WHICH IS LESS THAN 10% OF THE TOTAL FOREIGN TRAVEL EXPENSES) IS QUITE REASONABLE AND NEEDS NO INTERFERENCE. THE ASSESSEE FAILS IN IT S APPEALS IN THIS REGARD. 9. IN SUPPORT OF THE ISSUE, THE AR HAS VEHEMENTLY ARGUED THAT THE AUTHORITIES BEFORE I.E. THE ASSESSING OFFICER AS WE LL AS CIT(A) HAVE WRONGLY REJECTED THE ASSESSEES CLAIM OF EXPENDITURE. TO BU TTRESS HIS PLEA, THE AR I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.1304 1304 1304 1304/M/ /M/ /M/ /M/12 1212 12 11 PRODUCED COPY OF THE CHENNAI BENCH OF ITAT IN I.T.A . NO. 140/MDS/2009 DATED 18.09.2009 IN THE CASE OF M/S. MEHAR GARMENT INTERNATIONAL VS. DCIT AND PRAYED FOR DECISION OF THE ISSUE IN FAVOUR OF T HE ASSESSEE. 10. ON BEHALF OF THE REVENUE, THE DR HAD SUPPORTED THE FINDINGS OF THE CIT(A) ON THE BASIS OF REASONS CONTAINED IN CIT(A) S ORDER. 11. WE HAVE HEARD BOTH PARTIES AND ALSO PERUSED TH E RELEVANT FINDINGS. ADMITTEDLY, THE ASSESSING OFFICER HAS ONLY DISALLOW ED AN AMOUNT OF ` .50,000/- OUT OF TOTAL CLAIM OF ` .5,70,626/-. THE CIT(A) HAS ALSO UPHELD THE ASSESSING OFFICERS FINDING BY STATING REASONS THAT THE SAME WERE IN THE SHAPE OF EXPENSES DEBITED FOR PURCHASE OF FOREIGN C URRENCY AS WELL AS DETAILS OF EXPENDITURE. IN OUR OPINION, THE CIT(A) S FINDING CANNOT BE IN ANY WAY TERMED AS PERVERSE OR ILLEGAL. THERE IS NO MATE RIAL MADE AVAILABLE BEFORE US AS WELL SO AS TO CONTROVERT TO THE CIT(A) S OBSERVATIONS. AS FAR AS CASE LAW (SUPRA) CITED BY THE ASSESSEE IS CONCERNED , IN THE SAID CASE THE COORDINATE BENCH WAS OF THE OPINION THAT NO REASON HAS BEEN ASSIGNED FOR REJECTING THE CONCERNED ASSESSEES CLAIM EITHER BY THE ASSESSING OFFICER OR BY THE CIT(A). IN THE INSTANT CASE, THE FACTS ARE Q UITE OPPOSITE TO THE SAME AS BOTH AUTHORITIES BELOW HAVE GIVEN DUE REASONS IN SUPPORT OF FINDINGS. ACCORDINGLY, THERE IS NO ILLEGALITY OR INFIRMITY IN THE CIT(A)S ORDER. WE CONFIRM THE SAME QUA THIS ISSUE. 12. TO SUM UP, THE APPEAL STANDS PARTLY ALLOWED FO R STATISTICAL PURPOSE QUA ISSUE NO. 1 ONLY. I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.1304 1304 1304 1304/M/ /M/ /M/ /M/12 1212 12 12 13. HENCE, THE APPEAL IS PARTLY ALLOWED FOR STATIS TICAL PURPOSE. ORDER PRONOUNCED ON FRIDAY, THE OF 5 TH OCTOBER , 2012 AT CHENNAI. SD/ - SD/ - (N.S. SAINI) ACCOU NTANT MEMBER (S.S. GODARA) JUDICIAL MEMBER CHENNAI, DATED, THE 05.10.2012 VM/- TO: THE ASSESSEE//A.O./CIT(A)/CIT/D.R.