B.Mohanachandran Nair, V. DCIT, Kollam

ITA 158/COCH/2007

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 58193 (ITAT-COCHIN)
• Duration Of Justice: 4 year(s) 10 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-01-2012
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 02-01-2012
• Assessment Year: 2003-2004
• Appeal Filed On: 23-02-2007
• Court: TRIBUNAL
• Department Lawyers: S VIJAYAPRABHA
• Assessee Lawyers: P BALAKRSIHNAN
• Keywords: Business income; Principle of natural justice
• Section: 43B; 80HHC

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE: SHRI N.R.S.GANESAN, JUDICIAL MEMBER AND SHRI B.R. BASKARAN, ACCOUNTANT MEMBER ITA NO. 158/COCH/2007 ASSESSMENT YEAR : 2003-04 B.MOHANACHANDRAN NAIR, PRASANTHI CASHEW CO., MANGAD, KOLLAM. THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-1, KOLLAM (APPELLANT) VS. (RESPONDENT) APPELLANT BY: SHRI P.BALAKRSIHNAN, ADV. RESPONDENT BY: MS. S.VIJAYAPRABHA, JR. DR DATE OF HEARING: 02/01/2012 DATE OF PRONOUNCEMENT: 6/01/2012 ORDER PER SHRI B.R.BASKARAN, ACCOUNTANT MEMBER:- THE APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 15.12.2006 PASSED BY THE LD. CIT(A)-III, TRIVANDRUM AN D IT RELATES TO THE ASSESSMENT YEAR 2003-04. 2. THE GROUNDS RAISED BY THE ASSESSEE GIVE RISE TO THE FOLLOWING ISSUES: A) COMPUTATION OF DEDUCTION U/S 80HHC OF THE ACT. B) ADDITION RELATING TO SUPPRESSED STOCK AND TURN OVER. C) ADDITION MADE U/S 43B OF THE ACT. D) DEDUCTION U/S 80HHC ON DEPB RECEIPTS. 3. THE FACTS RELATING THE ABOVE SAID ISSUES ARE STATED IN BRIEF. THE ASSESSEE HEREIN IS THE PROPRIETOR OF M/S PRASANTHI CASHEW COMPANY LOCATED AT MANGAD, KOLLAM. HE IS ENGAGED IN THE BUSINESS O F PROCESSING AND EXPORTING OF CASHEW. THE EXPORT TURNOVER OF THE AS SESSEE CONSISTED OF BOTH EXPORT OF PROCESSED GOODS AND EXPORT OF TRADING GOO DS. IN THE RETURN OF INCOME FILED FOR THE YEAR UNDER CONSIDERATION, THE ASSESSEE CLAIMED DEDUCTION I.T.A.158/COCH/2007 2 OF RS.96,62,109/- U/S 80HHC OF THE ACT ON THE PROFI T FROM EXPORT TURNOVER. ACCORDING TO THE ASSESSING OFFICER, THE SAID DEDUCT ION U/S 80HHC WAS WRONGLY COMPUTED BY THE ASSESSEE AND ACCORDINGLY REWORKED T HE DEDUCTION AT RS.20,88,046/-. THE ASSESSING OFFICER CARRIED OUT THREE TYPES OF ADJUSTMENTS IN THE SAID COMPUTATION, OUT OF WHICH THE ASSESSEE IS AGGRIEVED BY THE ADJUSTMENT MADE IN RESPECT OF DETERMINATION OF IND IRECT COST OF TRADING GOODS, WHILE ARRIVING AT THE PROFIT FROM THE EXPOR T OF TRADING GOODS. THE ASSESSING OFFICER ALSO DID NOT CONSIDER THE SALES T AX REFUND AS PART OF BUSINESS INCOME. THE ASSESSING OFFICER ALSO NOTICED THAT TH E COMMERCIAL TAXES DEPARTMENT HAD CARRIED OUT INSPECTIONS AT THE VARIO US BUSINESS PREMISES OF THE ASSESSEE AND FOUND OUT STOCK DISCREPANCIES. TH E ASSESSING OFFICER TREATED THE VALUE OF STOCK DISCREPANCIES AS UNEXPLA INED INVESTMENT AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. THE ASSESSING OFFICER WAS ALSO OF THE VIEW THAT THE DISALLOWANCES MADE BY THE ASSESSEE HIMSELF U/S 43B OF THE ACT IN RESPECT OF PF AND ESI PAYMENTS WER E INADEQUATE AND ACCORDINGLY ADDED THE DIFFERENCE AS COMPUTED BY HIM TO THE TOTAL INCOME OF THE ASSESSEE. 4. IN THE APPEAL FILED BY THE ASSESSEE BEFORE L D CIT(A), THE FIRST APPELLATE AUTHORITY PARTIALLY ACCEPTED THE CLAIM OF THE ASSES SEE IN RESPECT OF DEDUCTION U/S 80HHC OF THE ACT, BUT CONFIRMED THE ORDER OF TH E ASSESSING OFFICER IN RESPECT OF OTHER TWO ITEMS. THE LD CIT(A) ALSO ENH ANCED THE ADDITION PERTAINING TO SUPPRESSION OF STOCK AND TURNOVER. STILL AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 5. THE FIRST ISSUE PERTAINS TO THE COMPUTATION O F INDIRECT COST RELATING TO EXPORT OF TRADING GOODS. U/S 80HHC(3)(C) OF THE A CT, THE PROFIT DERIVED FROM THE EXPORT OF TRADING GOODS SHALL BE THE EXPORT TUR NOVER IN RESPECT OF SUCH TRADING GOODS AS REDUCED BY THE DIRECT AND INDIRECT COSTS ATTRIBUTABLE TO EXPORT OF SUCH TRADING GOODS. THE DISPUTE IS WITH REGARD TO THE QUANTUM OF INDIRECT COSTS ATTRIBUTABLE TO THE TRADING GOODS. THE ASSESSEE HAS TAKEN THE TOTAL AMOUNT OF INDIRECT COST AT RS.1,74,53,650 /-, WHILE THE ASSESSING OFFICER HAS TAKEN THE SAME AT RS.4,71,01,876/-. TH OUGH IT IS NOT CLEARLY BORNE I.T.A.158/COCH/2007 3 OUT OF RECORD, THERE APPEARS TO BE NO DISPUTE WITH REGARD TO THE ALLOCATION OF INDIRECT COSTS BETWEEN PROCESS EXPORT AND TRADIN G EXPORT, WHICH ARE TO BE CARRIED OUT IN ACCORDANCE WITH THE FOLLOWING FORMUL A AS PER CLAUSE (E) OF EXPLANATION TO 80HHC(3) INDIRECT COSTS X EXPORT TURNOVER/TOTAL TURNOVER. THE ASSESSING OFFICER HAS TAKEN ALL THE EXPENSES DE BITED TO THE PROFIT AND LOSS ACCOUNT AS INDIRECT COST AND ACCORDINGLY ARR IVED AT THE FIGURE OF RS.4,71,01,876/-. HOWEVER, ACCORDING TO THE ASSESS EE, HE HAS TAKEN ONLY THOSE INDIRECT EXPENSES, WHICH ARE ATTRIBUTABLE T O THE EXPORT TURNOVER. ACCORDING TO THE ASSESSEE, HE HAS FOLLOWED THE SIMI LAR METHOD OF COMPUTATION IN THE EARLIER YEARS ALSO AND THE SAID METHOD WAS ALSO ACCEPTED BY THE ASSESSING OFFICER. ACCORDINGLY, IT WAS CONT ENDED, BY PLACING RELIANCE ON THE DECISION OF HONBLE SUPREME COURT IN THE CAS E OF RADHASOAMI SATSANG VS. CIT REPORTED IN 193 ITR 321, THAT THE ASSESSING OFFICER WAS NOT CORRECT IN DEVIATING FROM THE VIEW TAKEN CONSISTENTLY IN EARLI ER YEARS, IN THE ABSENCE OF ANY MATERIAL WHICH JUSTIFIES THE SAID CHANGE. THE LD A.R ALSO PLACED RELIANCE ON THE FOLLOWING DECISION IN SUPPORT OF THE COMPUTA TIONS MADE BY THE ASSESSEE. (A) GLAXO SMITHKLINE ASIA (P) LTD VS. ACIT (97 TTJ (DEL) 108) (B) SURENDRA ENGINEERING CORPN. VS. ACIT (78 TTJ ( MUM)(SB)347) (C) ORDER DATED 31-01-2007 PASSED BY SMC BENCH OF COCHIN ITAT IN THE CASE OF M/S POYILAKADA TRUST VS. DCIT. 5.1 WE NOTICE THAT THE SMC BENCH OF THE COCHIN TRIBUNAL HAS CONSIDERED THE OTHER TWO DECISIONS REFERRED SUPRA AND HAS DECI DED AN IDENTICAL ISSUE IN FAVOUR OF THE ASSESSEE. IN THE CASE OF SURENDRA ENG INEERING CORPORATION, SUPRA, THE SPECIAL BENCH OF THE TRIBUNAL HAS OBSERV ED AS UNDER: THE COMMISSIONER (APPEALS) VIEW THAT AS PER THE DE FINITION OF INDIRECT COSTS IN EXPLANATION (E) BELOW SUB SECTION (3), EX CEPT FOR THE ALLOCATION BETWEEN EXPORT TURNOVER IN RESPECT OF TRADING GOODS AND TOTAL TURNOVER IN A CASE WHERE THE ASSESSEE HAVE BOTH EXPORTS AND LOCAL SALES, NO OTHER APPORTIONMENT IS CONTEMPLATED, APPEARED TO OV ER LOOK THE IMPORT OF THE WORDS ATTRIBUTABLE TO SUCH EXPORT APPEARIN G IN CLAUSE (B) OF SUB-SECTION (3). THE DEFINITION OF INDIRECT COSTS MUST BE GOVERNED OR CONTROLLED BY THE WORDS ATTRIBUTABLE TO SUCH EXPOR T APPEARING IN CLAUSE (B) OF SUB-SECTION (3) SINCE THE ATTEMPT IS TO FIND OUT, IN A I.T.A.158/COCH/2007 4 REASONABLE MANNER, THE PROFITS DERIVED FROM THE EXP ORT OF TRADING GOODS, AND THEREFORE, WHATEVER EXPENDITURE IS NOT R ELEVANT OR CANNOT BE REASONABLY STATED TO HAVE BEEN INCURRED IN CONNECTI ON WITH THE EXPORTS OR CAN BE REASONABLY SAID TO HAVE BEEN INCURRED IN CONNECTION WITH OTHER ACTIVITIES OR RECEIPTS WOULD HAVE TO BE EXCLU DED. IN THE CASE OF SMITHKLINE ASIA (P) LTD. VS. ACIT, SU PRA, THE DELHI BENCH HAS HELD THAT THE INDIRECT COST ATTRIBUTABLE TO THE EXP ORT IS TO BE REDUCED FOR COMPUTING DEDUCTION U/S 80HHC IN RESPECT OF EXPORT OF TRADING GOODS AND NOT ALL COSTS OTHER THAN DIRECT COSTS. WHILE COMING TO THIS CONCLUSION, THE DELHI BENCH HAS FOLLOWED THE DECISION OF MUMBAI SPECIAL B ENCH IN THE CASE OF SURENDRA ENGG. CORPORATION, REFERRED SUPRA. 5.2 ON A CAREFUL READING OF THE DECISIONS REFER RED SUPRA, WE NOTICE THAT THE INDIRECT COSTS NOT RELATABLE TO THE EXPORT TURNOVER (BOTH PROCESSING EXPORT AND TRADING EXPORT) HAVE TO BE EXCLUDED FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/S 80HHC. FROM THE EXPLANATIONS FURNISH ED BY THE ASSESSEE BEFORE LD CIT(A), WHICH ARE PLACED IN PAGES 14 TO 1 8 OF THE ASSESSEES PAPER BOOK, CERTAIN EXPENSES EXCLUSIVELY PERTAIN TO THE M ANUFACTURING/PROCESSING UNIT. IN OUR VIEW, THE QUESTION OF ALLOCATION OF INDIRECT COSTS SHALL ARISE ONLY IN RESPECT OF THOSE EXPENSES WHICH HAVE BEEN INCURR ED COMMONLY BOTH FOR PROCESS EXPORT AND TRADING EXPORT. IN THE EXPLANATI ONS FILED BEFORE LD CIT(A), THE ASSESSEE HAS POINTED OUT THAT CERTAIN T YPES OF INDIRECT EXPENSES HAVE BEEN INCURRED EXCLUSIVELY FOR PROCESS EXPORT. AS PER SEC. 80HHC(3), THE PROFITS DERIVED FROM TRADING GOODS SHALL BE THE EXP ORT TURNOVER IN RESPECT OF SUCH TRADING GOODS AS REDUCED BY THE DIRECT AND INDIRECT COSTS ATTRIBUTABLE TO EXPORT OF SUCH TRADING GOODS . IF A PARTICULAR TYPE OF INDIRECT EXPENSE IS PROVED TO HAVE BEEN INCURRED ON LY IN RESPECT OF PROCESSED EXPORTS, IN OUR VIEW, THE SAME COULD NOT BE ALLOCAT ED TO TRADING EXPORTS. HENCE, IN OUR VIEW, THE QUESTION OF DETERMINATION O F SUCH TYPES OF INDIRECT COSTS REQUIRES RE-EXAMINATION. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND RESTORE THE SAME TO THE FI LE OF THE ASSESSING OFFICER WITH A DIRECTION TO DETERMINE THE QUANTUM OF INDIR ECT COSTS AS PER THE DECISIONS RELIED UPON BY THE ASSESSEE AND ALSO BY D ULY CONSIDERING THE DISCUSSIONS MADE ABOVE AND THERE AFTER ASCERTAIN TH E AMOUNT OF INDIRECT I.T.A.158/COCH/2007 5 COSTS ATTRIBUTABLE TO THE TRADING EXPORTS AS PER TH E FORMULA GIVEN IN SEC. 80HHC OF THE ACT. 6. THE NEXT ISSUE RELATES TO THE ADDITION ON AC COUNT OF SUPPRESSED STOCK AND TURNOVER. DURING THE COURSE OF APPELLATE PROCE EDINGS BEFORE LD CIT(A), THE FIRST APPELLATE AUTHORITY SOUGHT CLARIFICATIONS FROM THE ASSESSEE AND ALSO SOUGHT TO ENHANCE THE ADDITION MADE ON THIS ISSUE. AS PER THE LETTER OF LD CIT(A), THE EXPLANATIONS ARE REQUIRED TO BE FURNISH ED BY 11.12.2006. SINCE THE ASSESSEE HAS FAILED TO GIVE THE EXPLANATIONS BY THE SAID DATE, THE LD CIT(A) PROCEEDED TO FINALISE THE ISSUE AS PER THE I NFORMATION AVAILABLE ON RECORD. BEFORE US, THE LD A.R SUBMITTED THAT THE A SSESSEE HAS FILED HIS EXPLANATIONS BEFORE LD CIT(A) ON 12.12.2006, I.E. T HERE WAS A DELAY OF JUST ONE DAY, BUT BEFORE THE PASSING OF ORDER BY LD CIT( A). ACCORDINGLY, IT WAS PRAYED THAT THE LD CIT(A) HAS DECIDED THE IMPUGNED ISSUE WITHOUT CONSIDERING THE EXPLANATIONS OF THE ASSESSEE. WE N OTICE THAT THE LD CIT(A) HAS PASSED THE ORDER ON 15.12.2006 AND THE ASSESSEE HAS CLAIMED TO HAVE FILED THE EXPLANATIONS BEFORE THAT DATE. IN OUR VIE W, THE ASSESSEE SHOULD NOT BE PENALIZED FOR A DELAY OF ONE OR TWO DAYS. ACCOR DINGLY, IN THE INTEREST OF NATURAL JUSTICE, THE IMPUGNED ISSUE REQUIRES RE-EXA MINATION AT THE END OF LD CIT(A). ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND RESTORE THE SAME TO HIS FILE WITH A DIRECTION TO AD JUDICATE THE IMPUGNED ISSUE AFRESH AFTER AFFORDING NECESSARY OPPORTUNITY OF BEI NG HEARD TO THE ASSESSEE. 7. THE NEXT ISSUE RELATES TO THE DISALLOWANCE OF EMPLOYERS CONTRIBUTION OF PF/ESI MADE U/S 43B OF THE ACT. THE CLAIM OF THE A SSESSEE IS THAT HE HAS MADE PAYMENT BEFORE THE DUE DATE FOR FILING THE RET URN OF INCOME AND HENCE, BY PLACING RELIANCE ON THE DECISION OF HONBLE SUP REME COURT IN THE CASE OF ALLIED MOTORS (91 TAXMANN 205) AND VINAY CEMENTS (2 13 CTR 268), IT IS CONTENDED THAT NO DISALLOWANCE IS CALLED FOR. WE F IND FORCE IN THE SAID CONTENTIONS OF THE ASSESSEE. ACCORDINGLY, WE SET A SIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND RESTORE THE SAME TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO VERIFY THE DATES OF PAYMENTS OF THE IM PUGNED PAYMENTS AND I.T.A.158/COCH/2007 6 DECIDE THE ISSUE AFRESH IN ACCORDANCE WITH LAW BY D ULY CONSIDERING THE DECISIONS OF HONBLE APEX COURT ON THIS ISSUE. 8. THE LAST ISSUE PERTAINS TO ELIGIBILITY OF DE DUCTION U/S 80HHC OF THE ACT ON DEPB RECEIPTS. THE ASSESSEE HAS NOT RAISED THIS GROUND BEFORE LD CIT(A). HOWEVER, IT IS PRAYED THAT THIS GROUND MAY BE ADMIT TED AS IT IS A PURELY A LEGAL ISSUE AND FURTHER IT DOES NOT INVOLVE VERIFIC ATION OF FRESH FACTS. RELIANCE IS PLACED IN THIS REGARD ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF NATIONAL THERMAL POWER COMPANY LTD. VS. CIT (22 9 ITR 383)(SC). IN VIEW OF THE ABOVE, WE ADMIT THIS GROUND. IN ANY CA SE, THIS ISSUE NEEDS TO BE EXAMINED AFRESH IN THE LIGHT OF THE DECISION RENDER ED BY HONBLE BOMBAY HIGH COURT IN THE CASE OF KALPATARU COLOURS AND CHE MICALS (328 ITR 45). ACCORDINGLY WE REMAND THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR MAKING FRESH EXAMINATION OF THE SAME. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED ON 6.1.12 SD/- SD/- (N.R.S.GANESAN) (BR BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER COCHIN, DATED: 6TH JANUARY, 2012 GJ COPY TO 1 SHRI B.MOHANACHANDRAN NAIR, PRASANTHI CASHEW CO., MANGAD, KOLLAM. 2 THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-1, KOLLAM. 3 CIT, TRIVANDRUM. 4 THE CIT(A)-III, TRIVANDRUM. 5 THE DR, ITAT, COCHIN BENCH. 6 GUARD FILE. I.T.A.158/COCH/2007 7