Flender Limited (since merged with Siemens Limited), Kolkata V. ACIT, Circle - 2, Kolkata, Kolkata

ITA 1504/KOL/2011

• Counselvise Citation: 150423514 RSA 2011
• Duration Of Justice: 3 year(s) 10 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-10-2015
• Appeal Filed By: Assessee
• Bench Allotted: C
• Assessment Year: 1999-2000
• Appeal Filed On: 08-11-2011
• Court: TRIBUNAL
• Department Lawyers: SANJAY MUKHERJEE JCITD
• Keywords: Business income
• Section: 80HHC

Judgement Text

ITA NO. 1504/KOL/2011 C-AM M/S.FLEND ER LIMITED 1 IN THE INCME TAX APPELLATE TRIBUNAL, C BENCH, KO LKATA BEFORE : SHRI MAHAVIR SINGH,JUDICIAL MEMBER, AND SHRI M. BALAGANESH, ACCOUNTANT MEMBER I.T.A NO. 1504/KOL/2011 A.Y. 1999-2000 M/S. FLENDER LIMITED VS. A.C.I.T, CIRCLE-2, KO LKATA (MERGED WITH SIEMENS LTD) PAN: AAACF4154D (APPELLANT) (RESPON DENT) FOR THE APPELLANT/ASSESSEE : S/SHRI SUBHASIS DEY, CA ABHAY RUIA, CA, LD.ARS FOR THE RESPONDENT/DEPARTMENT: SHRI SANJAY MUKHERJEE, JCITD, LD.DR DATE OF HEARING: 05-10-2015 DATE OF PRONOUNCEMENT: 7 -10-2 015 ORDER SHRI M.BALAGANESH, AM THIS APPEAL OF THE ASSESSEE ARISES OUT OF THE ORDE R OF THE LEARNED CITA IN APPEAL NO. 304/CIT(A)-1/CIR-2/07-08 DATED 25-07-2011 FO R THE ASST YEAR 1999-2000 PASSED AGAINST THE ORDER OF ASSESSMENT FRAMED BY THE LEARN ED AO U/S 147/143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT ). 2. SHRI. SUBHASIS DEY AND SHRI.ABHAY RUIA, CAS, THE LEARNED AR ARGUED ON BEHALF OF THE ASSESSEE SHRI.SANJAY MUKHERJEE, JCIT, THE LEARN ED DR ARGUED ON BEHALF OF THE REVENUE. 3. THE FIRST TWO GROUNDS RAISED BY THE ASSESSEE AR E REGARDING JURISDICTION OF THE LEARNED AO TO FRAME THE RE-ASSESSMENT. DURING THE COURSE OF HEARING BEFORE US, THE LEARNED AR INFORMED THE BENCH THAT THESE TWO GROUND S ARE NOT PRESSED BY HIM AND THE SAME IS TAKEN AS A STATEMENT FROM THE BAR. ACCORDI NGLY, THE FIRST TWO GROUNDS RAISED BY THE ASSESSEE ARE DISMISSED AS NOT PRESSED. ITA NO. 1504/KOL/2011 C-AM M/S.FLEND ER LIMITED 2 4. THE NEXT ISSUE TO BE DECIDED IN THIS APPEAL IS THE AMOUNT OF DEDUCTION U/S 80HHE OF THE ACT ELIGIBLE TO BE CLAIMED BY THE ASSESSEE I N THE FACTS AND CIRCUMSTANCES OF THE CASE. 4.1. THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASS ESSEE CLAIMED DEDUCTION U/S 80HHE OF THE ACT TO THE TUNE OF RS. 2,02,02,199/- IN THE RET URN OF INCOME. THE ASSESSEE IS ENGAGED IN TWO BUSINESSES NAMELY MANUFACTURE AND SALE OF GE AR BOXES, COUPLINGS ETC AND DEVELOPMENT OF COMPUTER SOFTWARE. THE ASSESSEE MAI NTAINED SEPARATE ACCOUNTS FOR THE SAID BUSINESSES AND THEIR PROFITS ARE COMPUTED SEPA RATELY. THE ASSESSEE CLAIMED DEDUCTION U/S 80HHE OF THE ACT IN RESPECT OF ITS DE VELOPMENT OF COMPUTER SOFTWARE BUSINESS IN THE FORMULA OF PROFITS OF THE BUSINESS OF COMPUTER SOFTWARE DEVELOPMENT MULTIPLIED BY EXPORT TURNOVER OF SUCH SOFTWARE DEVE LOPMENT AND DIVIDED BY TOTAL TURNOVER OF SUCH SOFTWARE DEVELOPMENT. WHEREAS THE LEARNE D AO RECOMPUTED THE DEDUCTION U/S 80HHE OF THE ACT BY TAKING THE TOTAL TURNOVER OF TH E ASSESSEE AS A WHOLE IN THE DENOMINATOR INSTEAD OF TOTAL TURNOVER OF SOFTWARE B USINESS ALONE. THE LEARNED AO RELIED ON THE EARLIER YEAR ORDER FOR ASST YEAR 1998-99 UP HELD BY THIS TRIBUNAL. THOUGH THE ASSESSEE HAD PREFERRED FURTHER APPEAL TO HONBLE HI GH COURT AGAINST THE ORDER OF THIS TRIBUNAL FOR ASST YEAR 1998-99 AND THE SAME WAS ADM ITTED , THE LEARNED CITA ON FIRST APPEAL UPHELD THE ADDITION OF THE LEARNED AO BASED ON THE EARLIER YEARS TRIBUNAL ORDER FOR THE ASST YEAR 1998-99. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUNDS:- 3. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LEARNED CIT(APPEALS) ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN RESTRICTING THE DEDUCTION ADMISSIBLE TO THE APPELLANT U/S. 80HHE OF THE ACT FOR THE YEAR UNDER CONSIDERATION T O ONLY RS.20,03,821 AGAINST THE CLAIM MADE BY THE APPELLA NT OF RS.2,02,02,199. 4. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LEARNED CIT(APPEALS) ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN RESTRICTING THE DEDUCTION ADMISSIBLE TO THE APPELLANT U/S. 80HHE OF THE ACT TO RS.20,03,821 BY MERELY FOLLOWIN G THE ORDER PASSED IN APPELLANTS OWN CASE FOR THE AY 1998-99 WITHOUT APPLYING HIS MIND TO THE ISSUE. 5. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LEARNED CIT(APPEALS) FAILED TO APPRECIATE THAT ASSE SSING OFFICER ERRED IN HOLDING THAT FOR THE PURPOSE OF COMPUTING DED UCTION ADMISSIBLE ITA NO. 1504/KOL/2011 C-AM M/S.FLEND ER LIMITED 3 U/S. 80HHE OF THE ACT TOTAL TURNOVER WOULD ALSO INCLUDE TURNOVER OF THE BUSINESS OF MANUFACTURE AND SALE OF GEAR BOX, C OUPLINGS ETC. 6. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(APPEALS) FAILED TO APPRECIATE THAT THE ASSESSING OFFICER ERRED IN CONSIDERING THE LOSS FROM THE BUSINESS OF GEAR BOX, COUPLINGS ETC. WHILE ARRIVING AT THE PROFITS OF THE BUSINE SS FOR THE PURPOSE OF COMPUTING DEDUCTION ADMISSIBLE U/S. 80HHE OF THE AC T. 7. THAT THE APPELLANT CRAVES LEAVE TO ADD TO AND/O R AMEND, ALTER, MODIFY OR RESCIND ANY OF THE GROUNDS HEREINABOVE BE FORE OR AT THE TIME OF HEARING OF THE APPEAL. 4.2. THE LEARNED AR ARGUED THAT THIS ISSUE IS SQU ARELY COVERED BY THE DECISION OF THE JURISDICTIONAL HIGH COURT IN ASSESSEES OWN CASE. IN RESPONSE TO THIS, THE LEARNED DR VEHEMENTLY SUPPORTED THE ORDERS OF THE LOWER AUTHOR ITIES. 4.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERU SED THE MATERIALS AVAILABLE ON RECORD. EVEN THOUGH THE ASSESSEE HAD RAISED SEVERAL GROUNDS WITH REGARD TO THE GRANT OF DEDUCTION U/S 80HHE OF THE ACT, WE FIND THAT THE CENTRAL ISSU E REVOLVES AROUND THE COMPUTATION OF DEDUCTION U/S 80HHE OF THE ACT ONLY. WE FIND THAT THE IMPUGNED ISSUE BEFORE US IS SQUARELY COVERED BY THE DECISION OF THE JURISDICTIO NAL HIGH COURT IN ASSESSEES OWN CASE OF FLENDER LTD VS CIT REPORTED IN 223 TAXMAN 221 (CALC UTTA) DATED 20.2.2014 WHEREIN THE QUESTIONS RAISED BEFORE THE HONBLE CALCUTTA HI GH COURT WERE AS FOLLOWS:- 4. THE LEARNED TRIBUNAL, AGREEING WITH THE VIEWS EXPRESSED BY THE CIT(A) AND RELYING ON THE JUDGMENT IN THE CASE OF CIT V. PARRY AGRO INDUSTRIES LTD [2002[257 ITR 41/[2003] 131 TAXMAN 577 (KER.), UPHELD THE VIEWS OF THE CIT(A) AND ADDED THAT IN ARRIVING AT THE ADMISSIBLE DEDUCTION UNDER SECTION 80HHE THE ASSESSING OFFICER HAS ALSO TO TAKE INTO ACCOUNT THE NEGATIVE PROFIT ARISING OUT OF TH E BUSINESS OF GEAR BOX. THE QUESTIONS IN THE CIRCUMSTANCE, WHICH ARISE FOR DETERMINATION, ARE AS FOLLOWS: (A) WHETHER THERE IS ANY MATERIAL DIFFERENCE BETW EEN SECTION 80HHC(3) AND SECTION 80HHE(3)? (B) WHETHER THE TURNOVER AND PROFIT OR LOSS ARISIN G OUT OF THE BUSINESS OF GEAR BOX ETC. IS TO BE TAKEN INTO ACCO UNT FOR THE PURPOSE OF DETERMINING ADMISSIBLE DEDUCTION UNDER SECTION 80HH E(1)? THEIR LORDSHIPS HAD HELD AS BELOW:- ITA NO. 1504/KOL/2011 C-AM M/S.FLEND ER LIMITED 4 8. WE HAVE CONSIDERED THE RESPECTIVE SUBMISSIONS ADVANCED BY THE LEARNED ADVOCATES FOR THE PARTIES. WE ARE OF T HE OPINION THAT THE SUBMISSIONS MADE BY MR. BAJORIA MUST BE ACCEPTED IN ANSWERING THE FIRST QUESTION FORMULATED ABOVE. SECTION 80HHC IS A PROVI SION INTENDED TO ENCOURAGE EXPORT OF ANY GOODS OR MERCHANDISE EXCEP T MINERALS AND MINERAL OIL. THE AFORESAID PROVISION IS GENERAL IN NATURE. IF THERE WAS NO MATERIAL DIFFERENCE BETWEEN SECTIONS 80HHC AND 80HH E, THERE WAS NO REASON TO LEGISLATE SECTION 80HHE BECAUSE EXPORT OF COMPUTER SOFTWARE IN ANY EVENT WOULD HAVE BEEN COVERED BY SECTION 80 HHC. THE FACT THAT THE LEGISLATURE TOOK PAINS TO SPECIFICALLY PROVIDE FO R COMPUTER RELATED BUSINESS SEPARATELY, IS A POINTER TO SHOW THAT THE PROVISION S CONTAINED IN SECTION 80HHE ARE SPECIFIC AND WERE CARVED OUT FROM THE GE NERAL CATEGORY OF EXPORT OF GOODS APPEARING FROM 80HHC. THERE IS, AS SUCH, NO REASON TO TREAT THEM IDENTICALLY NOR IS IT OPEN, IN OUR OPIN ION, TO HOLD THAT THERE IS NO MATERIAL DIFFERENCE BETWEEN THE LANGUAGE OF 80HHC (3) AND THAT OF SECTION 80HHE(3). THERE MAY NOT BE ANY MATERIAL DIFFERENCE BETWEEN SUB-SECTION 3 OF EACH OF THE AFORESAID SECTIONS BUT THEY CERTA INLY OPERATE IN DIFFERENT FIELDS. THE OBJECTS OF OPERATION OF THE AFORESAID TWO SECTIONS ARE ALTOGETHER DIFFERENT. THEREFORE, IN DECIDING A QUESTION ARISIN G OUT OF SECTION 80HHE, IF THE JUDGMENTS RENDERED IN THE CASES ARISING OUT O F SECTION 80HHC ARE TO BE APPLIED THEN A WRONG RESULT IS BOUND TO FOLLOW. WE ARE, AS SUCH, OF THE OPINION THAT THE FIRST QUESTION, FORMULATED ABOVE, MUST BE ANSWERED IN THE AFFIRMATIVE AND IN FAVOUR OF THE ASSESSEE. 9. IN SO FAR AS THE SECOND QUESTION IS CONCERNED , MR. BAJORIA DREW OUR ATTENTION TO A JUDGMENT OF THE DELHI HIGH COURT IN THE CASE OF CIT V. PADMNI TECHNOLOGIES LTD [2013] 33 TAXMANN.COM 66 8. THE ASSESSEE, IN THE CASE BEFORE DELHI HIGH COURT, WAS RUNNING AND M ANAGING TWO SEPARATE UNITS. ONE OF THE UNITS WAS ENGAGED IN THE BUSINESS OF MULTIMEDIA INCLUDING EXPORTS THEREOF AND THE OTHER UNIT WAS ENGAGED IN THE MANUFACTURE OF PET JARS. THE DELHI HIGH COURT HELD THAT THE EXPRESSIO N TOTAL TURNOVER OF THE BUSINESS WOULD ONLY MEAN THAT TOTAL TURNOVER OF THE GOODS TO WHICH THE SECTION APPLIES. IN THE AFORESAID CASE, THE CLAIM WAS MADE FOR DEDUCTION UNDER SECTION 80HHC. THEREFORE, THIS JUDGMENT IS NO T AN AUTHORITY FOR THE PURPOSE OF DECIDING THE ISSUE, WHICH HAS ARISEN BEF ORE US. 12. FROM A COMBINED READING OF THE AFORESAID TWO S UB-SECTIONS IT CAN BE SAID THAT THE BUSINESS REFERRED TO IN SUB -SECTION(3) IS THE BUSINESS APPEARING FROM SUB-SECTION(1).WHAT DID THE LEGISLAT URE HAVE IN MIND WHILE USING THE WORD BUSINESS HAS NOT BEEN LEFT UNIDENT IFIED. IN SUB-SECTION(1), THE WORD BUSINESS HAS ITSELF BEEN DEFINED IN CLAUSES (I) AND (II) OF SUB- SECTION(1) QUOTED ABOVE. THEREFORE, THE CONCLUSION IS BOUND TO BE THAT THE TURNOVER OF BUSINESS WHICH CAN BE TAKEN INTO ACCOU NT IS ONLY THE TURNOVER OF THE COMPUTER SOFTWARE OR IN RESPECT OF PROVIDING TECHNICAL SERVICE AS THE CASE MAY BE. ANY REFERENCE TO SECTION 80HHC FOR THE PURPOSE OF UNDERSTANDING THE MECHANISM OF SUB-SECTION(3) OF SE CTION 80HHE IS LIKELY TO LEAD TO WRONG CONCLUSION. THE LEGISLATURE, IN TH IS CASE, WAS ONLY ITA NO. 1504/KOL/2011 C-AM M/S.FLEND ER LIMITED 5 CONCERNED WITH RESPECT TO DEDUCTIONS ALLOWABLE IN RESPECT OF PROFITS FROM EXPORT OF COMPUTER SOFTWARE ETC. WHICH IS ALSO THE TITLE OF THE SECTION AND A POINTER TO SHOW THE INTENTION OF THE LEGISLATURE. 13. THE OBJECT OF PROVIDING THE MECHANISM IN SUB-S ECTION (3) FOR THE PURPOSE OF COMPUTING THE PROFITS WAS TO PROVIDE ADEQUATE SAFEGUARD TO PREVENT JUGGLERY OR MANIPULATION OF THE BOOKS OF AC COUNT. IN A CASE WHERE THE EXPORTER IS ALSO ENGAGED IN THE SAME BUSINESS I N THE DOMESTIC MARKET, IT MAY NOT BE VERY DIFFICULT FOR HIM TO MANIPULATE TH E BOOKS OF ACCOUNT IN SUCH A MANNER SO THAT THE ENTIRE OR MAJOR PART OF THE PROFIT IS SHOWN TO HAVE ARISEN FROM THE EXPORT BUSINESS AND ON THAT BASIS HE COULD INFLATE HIS CLAIM FOR DEDUCTION UNDER SECTION 80HHE. IN ORDER TO STOP ANY SUCH ATTEMPT, THE LEGISLATURE HAS PROVIDED FOR A SPECIAL MECHANISM F OR THE PURPOSE OF ASSESSING THE PROFITS FROM OUT OF WHICH DEDUCTIONS CAN BE CLAIMED. DEDUCTIONS WERE OBVIOUSLY PROVIDED FOR IN ORDER T O GENERATE FOREIGN EXCHANGE. 14. WE ARE, AS SUCH, OF THE OPINION THAT NEITHER T HE TURNOVER NOR THE PROFIT NOR LOSS ARISING OUT OF THE BUSINESS AC TIVITY RELATING TO GEAR BOX HAD ANYTHING TO DO WITH THE COMPUTATION OF THE ADMI SSIBLE DEDUCTION UNDER SECTION 80HHE(3). THEREFORE, THE SECOND QUESTION, F ORMULATED ABOVE, IS ANSWERED IN THE NEGATIVE AND IN FAVOUR OF THE ASSES SEE. HENCE RESPECTFULLY FOLLOWING THE AFORESAID DECISION , WE HAVE NO HESITATION IN ALLOWING THE GROUNDS RAISED BY THE ASSESSEE IN THIS REGARD. 5. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. THIS ORDER IS PRONOUNCED IN OPEN COURT ON 7 / 10/ 2015 COPY OF THE ORDER FORWARDED TO: SD/- ( MAHAVIR SINGH, JUDICIAL MEMBER ) SD/- (M. BALAGANESH, ACCOUNTANT MEMBER) DATE 7 /10/2015 ITA NO. 1504/KOL/2011 C-AM M/S.FLEND ER LIMITED 6 1.. THE APPELLANT : M/S. FLENDER LIMITED (MERGED W ITH SIEMENS LIMITED) I D T M D 43 SHANTIPALLI, EM BYPASS, KOLKATA-42. 2 THE RESPONDENT- THE ASSTT. COMMISSIONER OF INCOM E-TAX, CIR-2, AAYKAR BHAWAN, P-7 CHOWRINGHEE SQ, KOL-69. 3 4.. /THE CIT, / THE CIT(A) 5. DR, KOLKATA BENCH 6. GUARD FILE. TRUE COPY, BY ORDER, ASSTT REGISTRAR ** PRADIP SPS