BARMECHA EXPORTS, MUMBAI V. ACIT 16(2), MUMBAI

ITA 1512/MUM/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 78735 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 1 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-04-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Next Hearing Date: 02-04-2014
• Assessment Year: 2002-2003
• Appeal Filed On: 21-02-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: JKTLP DH LS SHRI KISHOR DHULE
• Keywords: Reopening of assessment; Depreciation; Reassessment proceedings
• Section: 80HHC; 234B

Judgement Text

BARMECHA EXPORTS 1 VK;DJ VIHYH; VF/KDJ.K TH U;K;IHB EQACBZ ESAA IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH, MUMBAI JH JH JH JH FOT; IKY JKO] U;KF;D LNL; ,OA JH UJSUNZ DQEKJ FC YYS;K] YS[KK LNL; DS LE{K FOT; IKY JKO] U;KF;D LNL; ,OA JH UJSUNZ DQEKJ FCYYS ;K] YS[KK LNL; DS LE{K FOT; IKY JKO] U;KF;D LNL; ,OA JH UJSUNZ DQEKJ FCYYS ;K] YS[KK LNL; DS LE{K FOT; IKY JKO] U;KF;D LNL; ,OA JH UJSUNZ DQEKJ FCYYS ;K] YS[KK LNL; DS LE{K BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI NARENDRA KUMAR BILLAIYA, ACCOUNTANT MEMBER VK;DJ VIYH LA[;K /ITA NO.1512/MUM/2011 FU/KKZJ.K O'KZ @ ASSESSMENT YEAR:- 2002-03 BARMECHA EXPORTS 6/1910, JADAKHADI, MAHIDHARPURA, 1 ST FLOOR, HIRA BAZAAR, SURAT -3, GUJARAT VS. ACIT, RANGE 16(2) R.NO. 207, 2 ND FLOOR, MATRU MANDIR, MUMBAI 400 007. PAN: - AAACG2 026K APPELLANT RESPONDENT ASSESSEE BY/ FU/KKZFJRH DH VKSJ LS SHRI B.V. JHAVERI REVENUE BY/ JKTLP DH VKSJ LS SHRI KISHOR DHULE ORDER PER VIJAY PAL RAO, JM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 12.10.2010 OF CIT(A) FOR A.Y. 2002-03. THE ASSESSEE HAS FILED THE REVISED GROUNDS ALONG WITH THE BREIF FACTS FILED AS UNDER:- '1. THE COMMISSIONER (APPEALS) FAILED TO APPRECIATE THAT TH E ADVANCE INCOME-TAX PAID BY THE ASSESSEE FIRM WHICH IS DEBITED TO THE PROFIT & LOSS ACCOUNT, DOES NOT FORM PART OF THE 'INDIRECT COST' WHILE COMPUTING DEDUCTION U/S. 80HHC OF THE ACT AS IT IS NOT A DEDUCTIBLE EXPENDIT URE AND THEREFORE, THE SAME OUGHT NOT TO HAVE BEEN TREATED AS 'INDIREC T COST' WHILE DATE OF HEARING 03.04.2014 DATE OF PRONOUNCEMENT 09.04.2014 BARMECHA EXPORTS 2 COMPUTING DEDUCTION U/S. 80HHC(3)(B) OF THE ACT. '2. THE COMMISSIONER (APPEALS) ERRED IN NOT REDUCIN G THE TOTAL EXPENDITURE BY 10% OF THE EXPORT INCENTIVES I.E. RS.50,533/- WHILE COMPUTING THE' INDIRECT COST'. '3. THE COMMISSIONER (APPEALS) FAILED TO APPRECIATE THAT INTEREST U/S. 234B AND U/S, 234C CANNOT BE LEVIED IN REASSESSMENT PROCEEDINGS A S HELD BY THE HONBLE APPELLATE TRIBUNAL IN DETAMATIC LTD. VS. ACIT IN [ (2008) 299 ITR (AT) 286, MUMBAI. 2. GROUND NO. 1 IS REGARDING APPORTIONMENT OF INDIR ECT COSTS WHILE COMPUTING DEDUCTION U/S 80HHC. THE ASSESSEE IS A PA RTNERSHIP FIRM CARRYING ON THE BUSINESS OF EXPORT OF DIAMONDS. THE ASSESSEE CLAIMED DEDUCTION U/S 80HHC OF RS. 50,22,583/-. WHILE COMPLETING THE ASSE SSMENT THE AO REDUCED THE DEDUCTION U/S 80HHC TO RS. 44,98,583/-. THIS RE DUCTION IN THE DEDUCTION U/S 80HHC MADE BY THE AO DUE TO NON ALLOWANCE OF RE DUCTION FOM INDIRECT COST 10% OF THE EXPORT INCENTIVE AMOUNTING TO RS. 50,533 /- AS PER CLAUSE (BBA) OF EXPLANATION TO SECTION 80HHC OF THE ACT, AND FURTHE R THE AO HAS INCLUDED THE ADVANCE TAX PAYMENT OF RS. 7,00,000/- IN THE INDIRE CT COSTS AND DEPRECIATION ON THE ASSET OF RS. 3,219/- WHICH WAS TO BE REDUCED AN D THE DEPRECIATION OF RS. 4,422/- ALLOWABLE AS PER THE BLOCK OF ASSETS WAS TO BE INCLUDED. 3. ON APPEAL, CIT(A) HAS CONFIRMED THE ACTION OF TH E AO. 4. WE HAVE HEARD THE LD. AR AS WELL AS LD. DR AND C ONSIDERED THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET WE NOTE THAT SO FAR AS THE ADVANCE INCOME TAX PAYMENT OF RS. 7,00,000/- IS CONCERNED THE SAME IS NOT ALLOWABLE AS DEDUCTION AND, THEREFORE, IT CANNOT BE INCLUDED IN THE INDIRECT COSTS FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/S 80HHC. THE AUTHORITIES BELOW HAVE COMPLETELY GONE WRONG WHEN THIS AMOUTN OF RS. 7,00, 000/- WAS INCLUDED IN THE INDIRECT COSTS. AS REGARDS THE REDUCTION OF INDIREC T COSTS BY 10% OF THE EXPORT INCENTIVE, THE LD,. AR OF THE ASSESSEE HAS RELIED U PON THE DECISION OF HONBLE BARMECHA EXPORTS 3 SUPREME COURT IN THE CASE OF HERO EXPORTS VS. COMMI SSIONER OF INCOME TAX (295 ITR 454)(SC), WHEREIN THE HONBLE SUPREME COUR T HAS HELD IN PARA 13 AS UNDER:- AS STATED ABOVE, IN OUR OPINION, THE WORD ATTRIBU TABLE IN S. 80HHC(3)(B) IN THE MAIN SECTION ITSELF INDICATES THAT APPORTIONMENT (PRINCI PLE OF ATTRIBUTION) IS NOT OMITTED FROM THE SAID PROVISION OF S. 80HHC(3)(B). AS STATED ABO VE, THE ASSESSEE HAS EARNED OTHER INCOME OF RS.1,60,000 APART FROM THE FOB VALUE OF E XPORT OF RS.6,50,000.THEREFORE, SOME EXPENSE HAS TO BE ATTRIBUTED TO EARNING OF RS. 1,60,000. IF SO, THE NEXT QUESTION WHICH ARISES IS HOW TO ALLOCATE THE COSTS ? AS STAT ED ABOVE, THE ASSESSEE HAS TWO INCOMES WITH ONE COMMON POOL OF EXPENSES AND SINCE THE PRIN CIPLE OF ATTRIBUTION HAS BEEN RETAINED IN THE SCHEME OF S. 80HHC, BOTH IN TERMS O F S. 80HHC(3), CLAUSE (E) TO THE EXPLANATION TO S. 80HHC(3)(A),(B), AND (C) AND IN C LAUSE (BAA) TO THE EXPLANATION TO S. 80HHC, INSTEAD OF GOING INTO LENGTHY EXERCISE OF DI VIDING SUCH COMMON EXPENSES, THE ASSESSEE HAS ESTIMATED THE REDUCTION OF EXPORT TURN OVER BY 10% OF THE OTHER INCOME OF RS.1,60,000 (IN THE ABOVE EXAMPLE). ULTIMATELY, CLA USE (BAA) TO THE EXPLANATION IS ITSELF BASED ON THE ASSUMPTION THAT 10% OF THE INCOME WOUL D BE AN EXPENSE. WE MAKE IT CLEAR THAT WE ARE NOT READING EXPLANATION (BAA) INTO S. 8 0HHC(3)(B). WHAT WE SAY IS AS A GUIDANCE VALUE FACTOR, 10% OF THE TOTAL OTHER INCOM E OF RS.1,60,000 WOULD BE FAIR ESTIMATE. THIS GUIDANCE VALUE IS NOT FLOWING FROM C LAUSE (BAA), BUT FROM THE SCHEME OF S. 80HHC READ WITH THE MEMORANDUM TO THE FINANCE ACT O F 1991. TAKE A REVERSE CASE, IF ALLOCATION OF EXPENSES IS TO BE DONE ON ACTUAL BASI S, IT WOULD NOT ONLY BE VERY DIFFICULT, BUT IN SOME CASES ACTUAL APPORTIONMENT MAY NOT BE IN TH E INTEREST EVEN OF THE DEPARTMENT. 5. FOLLOWING THE DECISION OF HONBLE SUPREME COURT, WE DIRECT THE AO TO ALLOW 10% OF EXPORT INCENTIVE TO BE REDUCED FROM TH E INDIRECT COSTS FOR THE PURPOSE OF DEDUCTION U/S 80HHC. THE NEXT ITEM OF DI FFERENCE IS DEPRECIATION. THE LD. AR HAS POINTED OUT THAT THE AO HAS NOT ALLO WED THE DEPRECIATION AS PER THE PROVISIONS OF INCOME TAX ACT BUT TOOK THE DEPRE CIATIN AS PER THE BOOKS OF ACCOUNTS. ON PRINCIPLE THE CLAIM OF DEPRECIATON HA S TO BE ALLOWED AS PER THE PROVISIONS OF ACT AND NOT AS PER THE DEPRECIATION B OOKED BY THE ASSESSEE IN THE BARMECHA EXPORTS 4 BOOKS OF ACCOUNTS, THEREFORE, THE AO IS DIRECTED TO ALLOW THE CLAIM OF DEPRECIATION AS PER THE PROVISIONS OF THE ACT AND O N THE BLOCK OF ASSETS. 6. THE NEXT GROUND IS REGARDING LEVY OF INTEREST U/ S 234B AND 234C IN THE REASSESSMENT PROCEEDINGS. 7. WE HAVE HEARD THE LD. AR AS WELL AS LD. DR AND C ONSIDERED THE RELEVANT MATERIAL ON RECORD. THE LD. AR OF THE ASSESSEE HAS SUBMITTED THAT IN THE ORIGINAL ASSESSMENT INTEREST U/S 234B AND 234C WAS NOT LEVIE D, THEREFORE, NO INTEREST U/S 234B AND 234C CAN BE LEVIED IN THE REASSESSMENT PROCEEDINGS. IN SUPPORT OF HIS CONTENTION HE HAS RELILED UPON THE DECISION OF THIS TRIBUNAL IN THE CASE OF DATAMATICS LTD. VS. ASSISTANT COMMISSIONER OF INCOM E TAX 299 ITR (AT) 286 (MUMBAI). AT THE OUTSET WE NOTE THAT IN VIEW OF OUR FINDING IN RESPECT OF CLAIM OF 80HHC THIS GROUND OF APPEAL REGARDING LEVY OF INTER EST U/S 234B AND 234C BECOMES INFRUCTUOU AND NO SPECIFIC FINDING IS REQUI RED. 8. SINCE THE ASSESSEE HAS NOT RAISED THE GROUNDS OF VALIDITY OF REOPENING OF ASSESSMENT IN THE REVISED GROUNDS, THEREFORE, THE G ROUNDS RAISED ON THIS ISSUE AS FILED ALONG WITH THE FORM 36 ARE TREATED AS DIMI SSED BEING NOT PRESSED 9. IN THE RESULT APPEAL OF THE ASSESSEE IS PARTLY A LLOWED. ORDER PRONOUNCED IN THE OPEN COURT TODAY I.E -0 4-2014 SD/- SD/- ( N.K. BILLAIYA ) ( VIJAY PAL RAO ) ( ACCOUNTANT MEMBER / YS[KK LNL; YS[KK LNL; YS[KK LNL; YS[KK LNL; ) (JUDICIAL MEMBER/ U;KF;D LNL; U;KF;D LNL; U;KF;D LNL; U;KF;D LNL; ) MUMBAI DATED 09-04-2014 SKS SR. P.S,