ITO 2(1)(4), MUMBAI V. GREYTRIX INDIA P.LTD, MUMBAI

ITA 1384/MUM/2013

• Counselvise Citation: 138419914 RSA 2013
• Duration Of Justice: 1 year(s) 9 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-12-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 19-11-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 18-02-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RUDOLPH N DSOUZA
• Section: 80HHC

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL G , BENCH MUMBAI , BEFORE : SHRI R.C.SHARMA , A M & SHRI VIVEK VARMA , J M ITA NO. 1384 / MUM/20 13 ( ASSESSMENT YEAR : 20 0 9 - 20 10 ) ITO - 2(1)(4), MUMBAI . VS. M/S GREYTRIX INDIA PVT. LTD., 402, 4 TH FLOOR, MAHINDER CHAMBERS, OPP.DUKES FACTORY. W.T.PATIL MARG, CHEMBUR, MUMBAI - 71 PAN/GIR NO. : A A BCG 7455 M ( APPELLANT ) .. ( RESPONDENT ) /REVENUE BY : SHRI RUDOLPH N. DSOUZA /ASSESSEE BY : NONE DATE OF HEARING : 19 TH NOV. 201 4 DATE OF PRONOUNCEMENT : 17/12/2014 O R D E R PER R.C.SHARMA ( A .M.) : TH IS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A ) , DATED 26 - 12 - 2012 FOR ASSESSMENT YEAR 20 0 9 - 10 , IN THE MATTER OF ORDER PASSED U/S. 143(3 ) OF THE I.T. ACT . 2. F IRST GRIEVANCE OF THE REVENUE RELATES TO ALLOWING CLAIM OF DEDUCTION U/S.10A OUT OF INTEREST. 3. WE FOUND THAT THE CIT(A) HAS ALLOWED ASSESSEES CLAIM AFTER FOLLOWING THE DECISION OF ITAT IN ASSESSEES OWN CASE FOR THE A.YS.2006 - 07 & 2007 - 08 . PRECISE OBSERVATION OF TRIBUNAL IN ITS ORDER DATED 7 - 10 - 2011 WAS AS UNDER : - ITA NO. 1384 / 13 2 ' 10. WE HAVE CONSIDERING THE AFORESAID DECISIONS CITED BY THE LEARNED DEPARTMENTAL REPRESEN TATIVE AT IN ALL THESE CASES, THE JUDGMENT OF THE HON'BLE JURISDICT IONAL HIGH COURT IN GEM PLUS JEWELLERY INDIA LTD. (SUPRA) WAS NOT CONSIDERED AS I AS 0 AVAILABLE. THE PROVISIONS OF SECTION 10A WAS CONSIDERED IN THIS CASE AND A PARAS - 4 0 6, THE HN'BLE COURT HELD AS FOLLOWS: - '4. UND ER SUB - S. (1) OF S. 10A A DEDUCT ION IS ALLOWED FROM THE TOTAL INCOME OF THE ASSESSEE OF SUCH PROFITS AND GAINS AS ARE DERIVED BY AN UNDERTAKING FROM THE EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE FOR A PERIOD OF TEN CONSECUTIVE ASSESSMENT YEARS COMMENCING FROM THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE UNDERTAKING BEGINS MANUFACTURE OR PRODUCTION. SUB - SO (4) OF S. 10A PROVIDES THE MANNER IN WHICH THE PROFITS DERIVED FROM THE EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE SHALL BE COMPUTED. SUB - SO (4) PROVIDES AS FOLLOWS: - 'FOR THE PURPOSES OF SUB - SS. (1) AND (1A), THE PROFITS DERIVED FROM EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE SHALL BE THE AMOUNT WHICH BEARS TO THE PROFITS OF THE BUSINESS OF THE UNDERTAKING, THE SAME PROPORTION AS THE EXPORT TURNOVER IN RESPECT OF SUCH ARTICLES OR THINGS OR COMPUTER SOFTWARE BEARS TO THE TOTAL. TURNOVER OF THE BUSINESS CARRIED ON BY THE UNDERTAKING.' 5. UNDER SUB - S (4) THE PROPORTION BETWEEN THE EXPORT TURNOVER IN RESPECT OF THE ARTICLES OR THINGS, OR AS THE CASE MAY BE, COMPUT ER SOFTWARE EXPORTED, TO THE TOTAL TURNOVER OF THE BUSINESS CARRIED OVER BY THE UNDERTAKING IS APPLIED TO THE PROFITS OF THE BUSINESS OF THE UND ERTAKING IN COMPUTING THE PROFITS DERIVED FROM EXPORT. IN OTHER WORDS, THE PROFITS OF THE BUSINESS OF THE UNDERT AKING ARE MULTIPLIED BY THE EXPORT TURNOVER IN RESPECT OF THE ARTICLES, THINGS OR, AS THE CASE MAY BE, COMPUTER SOFTWARE AND DIVIDED BY THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE UNDERTAKING. THE FORMULA WHICH IS PRESCRIBED BY SUB - SO (4) OF S. 10 A IS AS FOLLOWS: TOTAL TUR NOVER OF THE BUSINESS CARRIED ON BY THE UNDERTAKING . THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE UNDERTAKING WOULD CONSIST OF THE TURNOVER FROM EXPORT AND THE TURNOVER FROM LOCAL SALES. THE EXPORT TURNOVER CONSTITUTES T HE NUMERATOR IN THE FORMULA PRESCRIBED BY SUBS.(4). EXPORT TURNOVER ALSO FORMS A CONSTITUENT ELEMENT OF THE DENOMINATOR IN AS MUCH AS THE EXPORT TURNOVER IS A PART OF THE TOTAL TURNOVER. THE EXPORT TURNOVER, IN THE NUMERATOR MUST HAVE THE SAME MEANING AS T HE EXPORT TURNOVER WHICH IS A CONSTITUENT ELEMENT OF THE TOTAL TURNOVER IN THE DENOMINATOR . THE LEGISLATURE HAS PROVIDED A DEFINITION OF THE EXPRESSION EXPORT TURNOVER IN EXPLN.2 TO S.10A BY WHICH THE EXPRESSION IS DEFINED TO MEAN THE CONSIDERATION IN R ESPECT OF EXPORT BY THE UNDERTAKING OF ARTICLES, THINGS OR COMPUTER SOFTWARE RECEIVED IN OR BROUGHT INTO INDIA BY THE ASSESSEE IN CONVERTIBLE FOREIGN EXCHANGE BUT SO AS NOT TO INCLUDE INTER ALIA FREIGHT, TELECOMMUNICATION CHARGES OR INSURANCE ATTRIBUTABLE TO THE DELIVERY OF THE ARTICLES, THINGS OR SOFTWARE OUTSIDE INDIA. THEREFORE IN COMPUTING THE EXPORT TURNOVER THE LEGISLATURE HAS MADE A SPECIFIC EXCLUSION OF FREIGHT AND INSURANCE CHARGES. ITA NO. 1384 / 13 3 THE SUBMISSION WHICH HAS BEEN URGED ON BEHALF OF THE REVENUE IS THAT WHILE FREIGHT AND INSURANCE CHARGES ARE LIABLE TO BE EXCLUDED IN COMPUTING EXPORT TURNOVER, A SIMILAR EXCLUSION HAS NOT BEEN PROVIDED IN REGARD TO TOTAL TURNOVER. THE SUBMISSION OF THE REVENUE, HOWEVER, MISSES THE POINT THAT THE EXPRESSION 'TOTAL TURN OVER' HAS NOT BEEN DEFINED AT ALL BY PARLIAMENT FOR THE PURPOSES OF S. 10A. HOWEVER, THE EXPRESSION 'EXPORT TURNOVER' HAS BEEN DEFINED. THE DEFINITION OF 'EXPORT TURNOVER' EXCLUDES FREIGHT AND INSURANCE. SINCE EXPORT TURNOVER HAS BEEN DEFINED BY PARLIAMENT AND THERE IS A SPECIFIC EXCLUSION OF FREIGHT AND INSURANCE, THE EXPRESSION 'EXPORT TURNOVER' CANNOT HAVE A DIFFERENT MEANING WHEN IT FORMS A CONSTITUENT PART OF THE TOTAL TURNOVER FOR THE PURPOSES OF THE APPLICATION OF THE FORMULA. UNDOUBTEDLY, IT WAS OPE N TO PARLIAMENT TO MAKE A PROVISION TO THE CONTRARY. HOWEVER, NO SUCH PROVISION HAVING BEEN MADE, THE PRINCIPLE WHICH HAS BEEN ENUNCIATED EARLIER MUST PREVAIL AS A MATTER OF CORRECT STATUTORY INTERPRETATION. ANY OTHER INTERPRETATION WOULD LEAD TO AN ABSURD ITY. IF THE CONTENTION OF THE REVENUE WERE TO BE ACCEPTED, THE SAME EXPRESSION VIZ. 'EXPORT TURNOVER' WOULD HAVE A DIFFERENT CONNOTATION IN THE APPLICATION OF THE SAME FORMULA. THE SUBMISSION OF THE REVENUE WOULD LEAD TO A SITUATION WHERE FREIGHT AND INSUR ANCE, THOUGH IT HAS BEEN SPECIFICALLY EXCLUDED FROM 'EXPORT TURNOVER' FOR THE PURPOSES OF THE NUMERATOR WOULD BE BROUGHT IN AS PART OF THE 'EXPORT TURNOVER' WHEN IT FORMS AN ELEMENT OF THE TOTAL TURNOVER AS A DENOMINATOR IN THE FORMULA. A CONSTRUCTION OF A STATUTORY PROVISION WHICH WOULD LEAD TO AN ABSURDITY MUST BE AVOIDED.' [EMPHASIS OWN] 11. THE HON'BLE SUPREME COURT, WHILE CONSIDERING SIMILAR PROVISIONS UNDER SECTION 80HHC(3) OF THE ACT IN MYSODET (P) LTD. VS. CIT (2008 ) 305 ITR 276 (SC), AT PARA - 8, HELD AS FOLLOWS: - THUS, IN THE CASE OF AN ASSESSEE WHO IS DOING EXPORT BUSINESS EXCLU SIVELY, 'EXPORT TURNOVER AND TOTAL TURNOVER' WOULD BE IDENTICAL, IF THE E NTIRE SALE PROCEEDS ARE BROUGHT INTO INDIA IN CONVERTIBLE FOREIGN EXCH ANGE WITHIN THE PRESCRIBED TIME - LIMIT. IN THAT CASE, THE ENTIRE PROFIT UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION) (WHICH WILL INCLUDE THE THREE EXPORT INCENTIVES) WILL BE DEDUCTIBLE UNDER S. 80HHC. HOWEVER, IN ORDER TO ARRIVE AT THE AMOUNT DEDUCTIBLE UNDER S. 80HH C IN THE CASE OF AN ASSESSEE DOING EXPORT BUSINESS AS WELL AS SOME OTHER DOMESTIC BUSINESS, THE FRACTION OF 'EXPORT TURNOVER' TO 'TOTAL TURNOVER', WILL BE APPLIED TO HIS PROFITS COMPUTED UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION' (WHICH AG AIN WILL INCLUDE THE THREE EXPORT INCENTIVES). THE OPERATION OF S. 80HHC R / W S. 28, AS AMENDED BY THE FINANCE ACT, 1990, CAN BE ILLUSTRATED BY WAY OF THE FOLLOWING EXAMPLES: CODE I (SIC - CODE II (SIC - CODE III (SIC - CODE IV (SIC - CASE CASE I) CASE II) 2/3 CASE III) Y2 IV) 1/3 EXPORT EXCLUSIVELY EXPORT 1/3 EXPORT 1/22/3 DOMESTIC SALE EXPORT BUSINESS DOMESTIC SALE DOMESTIC SALE (FIGURES IN LAKHS OF RUPEES) (I) TURNOVER (A) FOB EXPORTS 100 100 100 100 (B) ITA NO. 1384 / 13 4 DOMESTIC RATE - 50 100200 (C) TOTAL TURNOVER 100 150200 300 (II) BUSINESS PROFITS 10 152030 BEFORE INCENTIVES (ASSUMED FIGURES) (III) CCS, DDK, ILL 10 10 10 10 TOTAL PROFITS OF THE 20 25 30 40 BUSINESS (IV) DEDUCTION UNDER S. 20.00 25 X 00/150 30 X 100/200 40 X 100/300 80HHC IF ENTIRE EXPORT = 16.67 = 15.00 = 1 3.33 PROCEEDS, I.E. RS. 100 LAKHS IS BROUGHT INTO 'INDIA WITHIN THE STIPULATED PERIOD (V) DEDUCTION U/ S 80HHC 20 X 50/100 25 X 50/150 30 X 50/200 40 X 50/300 IF ONLY 50 PER CENT OF THE = 10.00 = 8.33 = 7.50 = 6.67' EXPORT PROCEEDS I.E., RS. 50 LAKHS IS BRO UGHT INTO INDIA THE ABOVE CIRCULAR INDICATES VIDE PARA 4 OF THE CIRCULAR THAT S. 80HHC(3) STATUTORILY FIXES THE QUANTUM OF DEDUCTION ON THE BASIS OF A PROPORTION OF BUSINESS PROFITS UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' IRRESPECTIVE OF WHAT COULD STRICTLY BE DESCRIBED AS PROFITS DERIVED FROM EXPORT OF GOODS OUT OF INDIA. EVEN IN CL. 9 THE ILLUSTRATION GIVEN INDICATES THAT THE RATIO MENTIONED IN SUB - SO (3) HAS TO BE APPLIED TO BUSINESS PROFITS COMPUTED UNDER THE PROVISIONS OF SS. 28 TO 43D OF THE IT ACT. THIS CIRCULAR SUPPORTS THE REASONING GIVEN BY US IN OUR JUDGMENT HEREINABOVE. FOR THE ABOVE REASONS, WE ALLOW THIS CIVIL APPEAL BY SETTING ASIDE THE IMPUGNED JUDGMENT OF THE HIGH COURT WITH NO ORDER AS TO COSTS. WE MAKE IT CLEAR THAT OU R REASONING IS STRICTLY APPLICABLE TO THE LAW AS IT STOOD DURING THE RELEVANT ASSESSMENT YEAR: [EMPHASIS OWN] 12. THESE JUDGMENTS OF THE HON'BLE JURISDICTIONAL HIGH COURT AS WELL AS THE HON'BLE SUPREME COURT CONFIRM THE VIEW OF THE TRIBUNAL IN M/S JEWE LE X INTERNATIONAL P. LTD. (SUPRA). THUS, WE RESPECTFULLY FOLLOWING THE SAME AND UPHOLD THE FINDINGS OF THE COMMISSIONER (APPE ALS) AND DISMISS THE GROUNDS NO.2 AND 3 RAISED BY THE REVE NUE. ABOVE DECISION WAS FOLLOWED BY THE TRIBUNAL IN A.Y.2007 - 08, VIDE ORD ER DATED 31 - 10 - 2011. RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE, WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDRE OF CIT(A) FOR ALLOWING THE CLAIM OF DEDUCTION IN RESPECT OF INTEREST RECEIVED ON MARGIN MONEY COMPULSORILY REQ UIRED TO BE DEPOSITED IN THE BANK. 4. THE ASSESSEE HAS ALSO CLAIMED THAT INSURANCE EXPENSES RS. 20,27,837/ - , INTERNET CHARGES RS. 10,756/ - , TELEPHONE EXPENSES RS.7,23,154/ - AND LEGAL AND PROFESSIONAL CHARGES RS. 1,90,001/ - HAVE BEEN EXCLUDED BY THE AO FROM EX PORT TURNOVER FOR THE PURPOSE OF DEDUCTION U/S.10A , WHEREAS THE SAME ARE CLAIMED TO BE REDUCED FROM THE TOTAL TURNOVER ALSO. THE ASSESSEE HAS CLAIMED THAT BOTH THE ISSUES HAVE ITA NO. 1384 / 13 5 BEEN DECIDED BY HONBLE ITAT AND CIT(A) FOR A.Y.2007 - 08 IN FAVOUR OF THE ASSESSE E. 5. WE HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND THAT THE CIT(A) HAS DIRECTED THE AO TO REDUCE THESE EXPENSES FROM TOTAL TURNOVER ALSO BY FOLLOWING THE ORDER OF ITAT IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2007 - 08, DATED 31 - 10 - 2011. SINCE THE EX PENSES HAVE BEEN REDUCED FROM EXPORT TURNOVER, THE SAME ARE ALSO REQUIRED TO BE REDUCED FROM THE TOTAL TURNOVER FOR COMPUTING DEDUCTION INCURRED U/S.10A. RESPECTFULLY FOLLOWING THE ORDER OF TRIBUNAL IN ASSESSEES OWN CASE, WE DO NOT FIND ANY REASON TO INTE RFERE IN THE ORDER OF CIT(A). 6 . IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 17 / 1 2 / 201 4 . / 1 2 / 2014 SD/ - SD/ - ( ) ( VIVEK VARMA ) ( ) ( R.C.SHARMA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED 17 / 12 /2014 /PKM , PS COPY OF THE ORDER F ORWARDED TO : / BY ORDER, ( ASSTT. REGISTRAR) / ITAT, MUMBAI 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / THE CIT(A), MUMBAI. 4. / CIT 5. / DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//