Mcfills Enterprises Pvt.Ltd., Ahmedabad V. The Income tax Officer,Ward-4(4), Ahmedabad

ITA 131/AHD/2008

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 9051 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 8 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-09-2009
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 10-08-2009
• Assessment Year: 2004-2005
• Appeal Filed On: 07-01-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P M SHUKLA
• Keywords: Set aside
• Section: 80HHC

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH B AHMEDABAD BEFORE SHRI P.K.BANSAL, ACCOUNTANT MEMBER AND SHRI MAHAVIR SINGH, JUDICIAL MEMBER ITA NO.131 & 507/AHD/2008 ASSESSMENT YEAR:2004-05 DATE OF HEARING:10.8.09 DRAFTED:18.8.09 MCFILLS ENTERPRISES PVT. LIMITED, 501, 5 TH FLOOR, SHIKHAR, NR. NAVRANGPURA RLY. CROSSING, NAVRANGPURA, AHMEDABAD PAN NO.AADCM5954B INCOME TAX OFFICER, WARD-4(4), AHMEDABAD V/S . V/S . INCOME TAX OFFICER, WARD-4(4), AHMEDABAD M/S. MEFILLS ENTERPRISES PVT. LTD., 501, 6 TH FLOOR, SHIKHAR, NR. NAVRANGPURA RAILWAY CROSSING, NAVRANGPURA, AHMEDABAD (APPELLANT) .. (RESPONDENT) ASSESSEE BY :- SHRI TUSHAR P HEMANI, AR REVENUE BY:- SHRI P.M. SHUKLA, SR. DR O R D E R PER MAHAVIR SINGH JUDICIAL MEMBER:- THE CROSS APPEALS ONE BY THE ASSESSEE, AND OTHER BY REVENUE ARE ARISING OUT OF THE ORDER OF COMMISSIONER OF INCOME-TAX (APP EALS)-III, AHMEDABAD IN APPEAL NO. CIT(A)-VIII/ITO4(4)/357/06-07 DATED 06-11-2007. THE ASSESSMENT WAS FRAMED BY THE ITO-WARD-4(4), AHMEDABAD U/S.143(3) OF THE I NCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) VIDE HIS ORD ER DATED 29-12-2006 FOR THE ASSESSMENT YEAR 2004-05. FIRST WE WILL DEAL WITH ASSESSEES APPEAL IN ITA NO .131/AHD/2008. ITA NO.131 & 507/AHD/2008 A.Y. 2004-05 MCFILLS ENTERPRISES P. LXTD. V. ITO, WD-4(4), ABD PAGE 2 2. THE ONLY ISSUE IN THIS APPEAL OF THE ASSESSEE IS AS REGARDS TO THE APPLICABILITY OF THE SECOND PROVISO TO SUB-SECTION 3 TO SECTION 8 0HHC OF THE ACT, FOR THE ALLOWANCE OF DEDUCTION U/S.80HHC OF THE ACT IN RESP ECT OF INCOME FROM DEPB LICENCE. FOR THIS, THE ASSESSEE HAS RAISED THE FOLL OWING GROUND:- 1. THE CIT (APPEALS) HAS ERRED IN LAW AND ON FACTS IN HOLDING THAT THE EXPORT TURNOVER OF THE COMPANY U/S. 80HHC IS MORE THAN RS. 10,00,00,000/- AND THEREFORE, IS NOT ELIGIBLE FOR THE BENEFIT OF DEDUC TION PROVIDED IN THE SECOND PROVISO TO SUB-SECTION 3(E) TO SECTION 80HHC. IT IS SUBMITTED THAT THE COMPANYS EXPORT TURNOVER IS BELOW RS.10,00,00,000/ - (ONLY RS.8,98,18,506/-) AND THEREFORE, THE DEDUCTION IN RESPECT OF INCOME F ROM DEPB LICENCES AS PROVIDED IN SECTION 80HHC SHOULD BE GRANTED. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN ACCORDANCE WITH TH E LEGAL PROVISIONS, DEDUCTION IN RESPECT OF INCOME BY WAY OF PROFIT ON TRANSFER OF DEPB LICENCES OF RS.19,25,640/- SHOULD BE ALLOWED TO THE COMPANY. IT IS PRAYED THAT IT MAY BE HELD SO NOW. 3. AT THE OUTSET, LD. COUNSEL FOR THE ASSESSEE FAIR LY STATED THAT THE TURNOVER OF THE ASSESSEE IS BELOW RS.10 CRORES, AND NOT ABOVE R S.10 CRORES AS HELD BY THE CIT(A) AS WELL AS THE ASSESSING OFFICER. LD. COUNS EL FOR THE ASSESSEE SUBMITTED THAT THE OBSERVATION OF ASSESSING OFFICER THAT THE EXPORT TURNOVER IS MORE THAN RS.10 CRORES IS INCORRECT. IN VIEW OF THIS, LD. COUNSEL STATED THAT THE ASSESSEES CASE SQUARELY FALLS UNDER THE SECOND PROVISO TO SECTION 80HHC (3) OF THE ACT, AS AMENDED BY THE TAXATION LAWS (AMENDMENT) ACT, 2002 W.R.E.F.1-4-1998. LD DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAND, FAIR LY STATED THAT THIS FACT CAN BE VERIFIED AND IN CASE THE ASSESSEES TURNOVER IS LES S THAN RS.10 CRORES, THE ASSESSEE CLAIM CAN BE ALLOWED. IN VIEW OF THE ABOVE FACTS AN D CIRCUMSTANCES, WE DIRECT THE ASSESSING OFFICER TO VERIFY THE EXPORT TURNOVER OF THE ASSESSEE, WHETHER THE SAME EXCEEDS RS.10 CRORES OR IS BELOW RS.10 CRORES. THIS FACT NEEDS RE-VERIFICATION AND IN CASE THE ASSESSEES ONLY EXPORT TURNOVER IS BELOW R S.10 CRORES, THE ASSESSEE IS ENTITLED TO RELIEF AS PER THE AMENDED PROVISION. A CCORDINGLY, THIS ISSUE IS SET ASIDE TO THE FILE OF ASSESSING OFFICER AS INDICATED ABOVE AN D THIS ISSUE OF THE ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. NOW WE TAKE UP THE REVENUES APPEAL IN ITA NO.507/A HD/2008. ITA NO.131 & 507/AHD/2008 A.Y. 2004-05 MCFILLS ENTERPRISES P. LXTD. V. ITO, WD-4(4), ABD PAGE 3 4. THE FIRST ISSUE IN THIS APPEAL OF REVENUE IS AGA INST THE ORDER OF CIT(A) IN DIRECTING THE ASSESSING OFFICER TO EXCLUDE EXCISE D UTY AND SALES TAX FROM THE TOTAL TURNOVER FOR THE PURPOSE OF COMPUTING DEDUCTION U/S .80HHC OF THE ACT. 5. AT THE OUTSET, WE FIND THAT THE ISSUE IS SQUAREL Y COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY THE DECISION OF HONBLE APEX COURT IN THE CASE OF CIT VS. LAKSHMI MACHINE WORKS (2007) 290 ITR 667 (SC), WHEREIN THE HONBLE APEX COURT HAS HELD AS UNDER:- IN FACT, IN CIVIL APPEAL NO.4409 OF 2005, THE ABOV E PROPOSITION HAS BEEN ACCEPTED BY THE ASSESSING OFFICER [SEE : PAGE NO.24 OF THE PAPER BOOK] , IF SO, THEN EXCISE DUTY AND SALES TAX ALSO CANNOT FORM PAR T OF THE TOTAL TURNOVER UNDER SECTION 80HHC(3), OTHERWISE THE FORMULA BECOM ES UNWORKABLE. IN OUR VIEW, SALES TAX AND EXCISE DUTY ALSO DO NOT HAVE AN Y ELEMENT OF TURNOVER WHICH IS THE POSITION EVEN IN THE CASE OF RENT, COM MISSION, INTEREST ETC., IT IS IMPORTANT TO BEAR IN MIND THAT EXCISE DUTY AND SALE S TAX ARE INDIRECT TAXES. THEY ARE RECOVERED BY THE ASSESSEE ON BEHALF OF THE GOVERNMENT. THEREFORE, IF THEY ARE MADE RELATABLE TO EXPORTS, THE FORMULA UNDER SECTION 80HHC WOULD BECOME UNWORKABLE. THE VIEW WHICH WE HAVE TAKEN IS IN THE LIGHT OF THE AMENDMENTS MADE TO SECTION 80HHC FROM TIME TO TIME. AS THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE A SSESSEE, WE DISMISS THIS ISSUE OF THE REVENUES APPEAL. 6. THE NEXT ISSUE IN THIS APPEAL OF REVENUE IS AGAI NST THE ORDER OF CIT(A) IN DIRECTING THE ASSESSING OFFICER TO ALLOW DEDUCTION U/S.80HHC OF THE ACT ON DISCLAIMER CERTIFICATE ISSUED BY M/S. CLARIANT (IND IA) LTD. 7. AFTER HEARING THE RIVAL CONTENTIONS AND GOING TH ROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND THAT THE ASSESSE E HAS SOLD ITS OWN MANUFACTURED GOODS WORTH RS.1,64,43,471/- TO M/S. CLARIANT (INDI A) LTD. AN EXPORT HOUSE AND THE SALES WERE MADE TO THE EXPORT HOUSE IN THE CAPACITY OF SUPPORTING MANUFACTURER. THE EXPORT HOUSE HAS EXPORTED THE GOODS FOR A TOTAL CONSIDERATION OF RS.1,77,37,244/- AND THE EXPORT HOUSE HAD EARNED PR OFIT IN RESPECT OF THE SAID TRANSACTION AND HAS ISSUED DISCLAIMER CERTIFICATES. THE ASSESSEE HAD CLAIMED DEDUCTION U/S.80HHC FOR A SUM OF RS.4,84,824/- ON T HE BASIS OF DISCLAIMER CERTIFICATES. THE AO HAS DISALLOWED THE SAID CLAIM ON THE GROUND THAT THE EXPORT HOUSE IS NOT HAVING ANY POSITIVE CLAIM OF DEDUCTION U/S.80HHC ON THE EXPORTED ITA NO.131 & 507/AHD/2008 A.Y. 2004-05 MCFILLS ENTERPRISES P. LXTD. V. ITO, WD-4(4), ABD PAGE 4 TRADING GOODS AS PER THE CERTIFICATES ISSUED BY CLA RIANT, BUT IT HAS MADE PROFITS ON EXPORT OF GOODS SUPPLIED BY THE COMPANY TO THEM. AG AINST SALES VALUE OF RS.1,64,43,471/-, THE CORRESPONDING EXPORT TURNOVER OF CLARIANT IS RS.1,77,37,244/- THEREFORE, THERE IS A PROFIT ON EXPORT OF GOODS MAD E BY CLARIANT FROM THE GOODS SUPPLIED BY THE SUPPORTING MANUFACTURER, MCFILLS EN TERPRISES PVT. LIMITED. THE AO HAS REPRODUCED THE ASSESSEES SUBMISSIONS IN HIS AS SESSMENT ORDER BUT HE HAS NOT REBUTTED ASSESSEES CONTENTIONS CONTAINED THEREIN, MEANING THEREBY THAT THE AO TACITLY ADMITTED THE LEGAL CONTENTIONS. IN SPITE OF THAT THE AO REJECTED THE ASSESSEES CLAIM FOR DEDUCTION U/S.80HHC IN RESPECT OF THE SAL ES AS SUPPORTING MANUFACTURER MADE TO THE EXPORT HOUSE, WHO IN TURN EXPORTED THE GOODS AND ISSUED DISCLAIMER CERTIFICATE. THE DISALLOWANCE CAME TO BE MADE ON TH E ERRONEOUS PRESUMPTION THAT EXPORT HOUSE HAD NOT MADE PROFIT. ON 22-12-2006, T HE ASSESSEE HAD FILED ANOTHER LETTER BEFORE THE AO POINTING OUT THAT THE EXPORT H OUSE VIZ. M/S. CLARIANT (INDIA) LTD. MUMBAI WAS HAVING NET PROFIT ON EXPORT OF GOODS AMO UNTING TO RS.18.68 LAKHS. THE ABOVE FIGURES INDICATE THAT M/S. CLARIANT (INDIA) L IMITED HAS ELIGIBLE DEDUCTION U/S.80HHC AS UNDER:- PROFIT ON EXPORT OF MANUFACTURED GOODS : RS.20,22, 000/- LOSS ON EXPORT OF TRADING GOODS : RS. 1,54,000/- NET PROFIT ON EXPORT OF GOODS : RS.18,68 ,000/- ------------------- 8. WE FIND THAT THE CIT(A) IN VIEW OF THE ABOVE FAC TS ALLOWED THE CLAIM OF THE ASSESSEE BY GIVING FOLLOWING FINDINGS IN PARA-4.2 OF HIS APPELLATE ORDER:- 4.2 AS REGARDS DISALLOWANCE OF DEDUCTION U/S.80HHC ON DISCLAIMER CERTIFICATE ISSUED BY M/S. CLARIANT (INDIA) LIMITED, IT IS NOTI CED THAT THE APPELLANT HAS SOLD ITS OWN MANUFACTURED GOODS WORTH RS.1,64,43,471/- T O M/S. CLARIANT (INDIA) LTD., AN EXPORT HOUSE AS SUPPORTING MANUFACTURER. T HE EXPORT HOUSE HAS EARNED PROFIT IN RESPECT OF THE SAID TRANSACTION AN D HAS ISSUED DISCLAIMER CERTIFICATE ON THE BASIS OF WHICH THE APPELLANT HAS CLAIMED DEDUCTION U/S.80HHC FOR A SUM OF RS.4,84,824/- U/S. 80HHC. TH E ASSESSING OFFICER HAS DISALLOWED THE SAID CLAIM ON THE GROUND THAT THE EX PORT HOUSE IS NOT HAVING ANY POSITIVE CLAIM OF DEDUCTION U/S. 80HHC ON THE E XPORTED TRADING GOODS. IN MY VIEW ONCE DISCLAIMER CERTIFICATE IS RECEIVED., I T IS NOT REQUIRED TO GO INTO THE DETAILS OF PROFIT OF THE EXPORT HOUSE AS TO WHETHER THE EXPORT HOUSE HAS INCURRED PROFIT OR LOSS ON THE EXPORT OF GOODS PURC HASED FROM THE APPELLANT, IT IS NOTICED THAT THE PENALTY PROCEEDINGS HAS SATISFI ED THE CONDITIONS OF THE RELEVANT PROVISIONS IN RESPECT OF ITS CLAIM RELATIN G TO SALES MADE TO EXPORT HOUSE AS THE APPELLANT HAS SOLD THE GOODS TO THE EX PORT HOUSE AND THE EXPORT HOUSE HAS EXPORTED SU9CH GOODS AND HAS ISSUE D A CERTIFICATE IN THE PRESCRIBED MANNER THAT IN RESPECT OF THE AMOUNT OF EXPORT TURNOVER MENTIONED IN THE CERTIFICATE, THE EXPORT HOUSE HAS NOT CLAIME D THE DEDUCTION UNDER THIS ITA NO.131 & 507/AHD/2008 A.Y. 2004-05 MCFILLS ENTERPRISES P. LXTD. V. ITO, WD-4(4), ABD PAGE 5 SECTION. THE APPELLANT HAS OBTAINED A CERTIFICATE F ROM THE EXPORT HOUSE M/S. CLARIANT (INDIA) LIMITED DULY CERTIFIED BY THE AUDI TORS, M/S. A.F. FERGUSON & COMPANY. IN VIEW OF THE ABOVE FACTS, IT IS HELD TH AT THE APPELLANT HAS CORRECTLY CLAIMED DEDUCTION IN RESPECT OF SALES OF RS.1,64,43 ,471/-. THE LD. A.R. HAS CLEARLY EXPLAINED THAT THE FATS OF IPCA LABORATORIE S ARE DIFFERENT. THIS GROUND IS ALLOWED. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES, AND C ONSIDERATION DONE BY THE CIT(A) ON THE GIVEN FACTS, WE CONFIRM THE FINDINGS OF THE CIT(A) ALLOWING THE CLAIM OF THE ASSESSEE. THIS ISSUE OF THE REVENUES APPEAL IS DI SMISSED. 9. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED FOR STA TISTICAL PURPOSES AND THAT OF REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 11/09/2009 SD/- SD/- (P.K.BANSAL) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD, DATED : 11/09/2009 *DKP COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(APPEALS)- VIII, AHMEDABAD 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, /TRUE COPY/ DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD