Nekkanti Sea Foods Ltd, Hyderabad, Hyderabad V. DCIT, Circle-16(1), Hyderabad, Hyderabad

ITA 1628/HYD/2016

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 4368 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 10 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 10-10-2018
• Assessment Year: 2004-2005
• Appeal Filed On: 02-12-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NILANJAN DEY
• Assessee Lawyers: S RAMA RAO
• Keywords: Retrospective amendment
• Section: 143(3); 80HHC; 234B

Judgement Text

ITA NOS 1627 1628 AND 1634 OF 2016 NEKKANTI SEA FOO DS LTD HYDERABAD. PAGE 1 OF 6 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD B BENCH, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S.RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NOS.1627,1628 AND 1634/HYD/2016 (ASSESSMENT YEARS:2002-03, 2004-05 & 1999-2000) M/S. NEKKANTI SEA FOODS LTD, HYDERABAD PAN: AAACN4664J VS DY. COMMISSIONER OF INCOME TAX, CIRCLE 16(1) HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI S. RAMA RAO FOR REVENUE : SHRI NILANJAN DEY, DR O R D E R PER SMT. P. MADHAVI DEVI, J.M. ALL THESE ARE ASSESSEES APPEALS FOR THE A.YS 2002-0 3, 2004-05 & 1999-2000 RESPECTIVELY AGAINST THE SEPARA TE ORDERS OF THE CIT (A)-4, HYDERABAD, DATED 8.9.2016. SINCE THE ISSUE IN ALL THESE APPEALS IS COMMON, THE APPEALS WERE HEARD TOG ETHER AND ARE DISPOSED OF BY THIS COMMON AND CONSOLIDATED ORD ER. FOR THE SAKE OF CLARITY AND CONVENIENCE, THE GROUNDS OF APP EAL FOR THE A.Y 2002-03 ARE REPRODUCED HEREUNDER: 1. THE ORDER OF THE LEARNED CIT (A) IS ERRONEOUS BO TH ON FACTS AND IN LAW. 2. THE LEARNED CIT (A) ERRED IN CONFIRMING THE ACT ION OF THE AO IN NOT ALLOWING THE INDIRECT EXPENDITURE INCURRED ON P ROCUREMENT AND SALE OF DEPB LICENSES FOR THE PURPOSE OF ARRIVING A T THE DEDUCTION U/S 80HHC OF THE I.T. ACT. DATE OF HEARING : 10.10.2018 DATE OF PRONOU NCEMENT : 31.10.2018 ITA NOS 1627 1628 AND 1634 OF 2016 NEKKANTI SEA FOO DS LTD HYDERABAD. PAGE 2 OF 6 3. THE LEARNED CIT (A) ERRED IN CONFIRMING THE CHAR GING OF INTEREST U/S 234B OF THE I.T. ACT WITHOUT CONSIDERING THE FA CT THAT THE TAX AROSE ON ACCOUNT OF RETROSPECTIVE AMENDMENT BROUGHT IN. 4. ANY OTHER GROUND OR GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING. 2. FURTHER, THE ASSESSEE HAS ALSO RAISED THE FOLLOW ING ADDITIONAL GROUNDS OF APPEAL: THE AO ERRED IN EXCLUDING THE INCOME FROM THE DEPB LICENSE FOR THE PURPOSE OF DEDUCTION U/S 80HHC IN VIEW OF THE F ACT THAT THE 4 TH PROVISO TO SUB-SECTION (3) OF SECTION 80HHC IS HEL D BY THE SUPREME COURT AS PROSPECTIVE . 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE CO MPANY, ENGAGED IN THE BUSINESS OF PROCESSING AND EXPORT OF MARINE PRODUCTS, FILED ITS RETURN OF INCOME FOR THE RELEVA NT A.YS. DURING THE ASSESSMENT PROCEEDINGS U/S 143(3) OF THE ACT, T HE DEDUCTION CLAIMED BY THE ASSESSEE U/S 80HHC WAS DISALLOWED BY THE AO HOLDING THAT THE ASSESSEE COMPANY DOES NOT HAVE PRO FITS FROM THE EXPORT BUSINESS UNDER CLAUSE (A), (B) OR (C) OF SUB -SECTION (3) OF SECTION 80HHC AND THEREFORE, THE PROVISO TO SUB-SEC TION (3) OF SECTION 80HHC IS NOT AT ALL ATTRACTED AND THE ASSES SEE WOULD NOT BE ELIGIBLE FOR ANY DEDUCTION U/S 80HHC. IN THE APP EAL FILED BY THE ASSESSEE, THE CIT (A) ALSO CONFIRMED THE DISALL OWANCE AGAINST WHICH THE ASSESSEE FILED FURTHER APPEAL TO ITAT AND THE COORDINATE BENCH OF THIS TRIBUNAL IN ITA NOS.1665 & 1666 FOR THE A.Y 1999-2000 AND 2002-03 VIDE ORDER DATED 29.05.20 09, BY FOLLOWING THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF IPCA LABORATORIES LTD VS. DCIT (2004) 266 ITR 521 H ELD THAT THE ASSESSEE IS NOT ELIGIBLE FOR SUCH DEDUCTION I.E. U/ S 80HHC WHEN THERE IS NEGATIVE PROFIT IN THE AGGREGATE. ITA NOS 1627 1628 AND 1634 OF 2016 NEKKANTI SEA FOO DS LTD HYDERABAD. PAGE 3 OF 6 4. FURTHER, AS REGARDS THE COMPUTATION OF PROFIT ON SALE OF DEPF LICENSE IS CONCERNED, THE BENCH REMITTED THE I SSUE TO THE FILE OF THE AO FOR RECONSIDERATION AS TO WHETHER TH E ASSESSEE HAS INCURRED ANY EXPENDITURE FOR THE SALE OF DEPB LICEN SE AND IF IT IS INCURRED, THEN TO REDUCE IT FROM THE GROSS RECEIPTS ON SALE OF DEPB LICENSE WHILE COMPUTING THE PROFITS OF THE ASS ESSEE. CONSEQUENT THERETO, THE AO CONSIDERED THE ASSESSEE S SUBMISSIONS THAT THE EXPENDITURE RELEVANT TO EARNIN G OF INCOME UNDER THE HEAD SALE OF DEPB HAS TWO COMPONENTS I.E. DIRECT AND INDIRECT COST AND THAT THE APPLICATION AND LICENSE FEE AND SALES TAX ARE THE DIRECT EXPENSES ATTRIBUTABLE TO THE SALE OF DEPB AND THE INDIRECT COSTS INCURRED ON EXPORT INCENTIVES ARE IN THE FORM OF EXCESS PAYMENTS MADE IN PROCUREMENT OF RAW-MATERIAL AND THE EXPORT INCENTIVES AND SHOULD ALSO BE CONSIDERED. TH E AO, HOWEVER, REDUCED ONLY THE DIRECT COST AND LATER COM PUTED THE INCOME FROM DEPB INCENTIVES. HE OBSERVED THAT IF 90 % OF INCOME FROM EXPORT INCENTIVE IS REDUCED FROM THE PROFITS O F THE BUSINESS, THE ASSESSEE DIES NOT HAVE POSITIVE PROFITS. THUS, HE INVOKED THE 3 RD PROVISO TO SUB-SECTION (3) OF SECTION 80HHC AND OB SERVED THAT THE ASSESSEE HAS NOT EXPLAINED AS TO HOW THE CONDIT IONS STIPULATED THEREIN HAVE BEEN FULFILLED BY THE ASSES SEE. HE THEREFORE, DISALLOWED THE CLAIM OF THE ASSESSEE U/S 80HHC. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT (A) SEEKING REDUCTION OF INDIRECT EXPENSES FROM DEPB SA LE RECEIPTS FOR FURTHER COMPUTATION U/S 80HHC OF THE ACT. THE CIT ( A) HOWEVER, CONFIRMED THE ORDER OF THE AO AND THE ASSESSEE IS I N SECOND APPEAL BEFORE US. ITA NOS 1627 1628 AND 1634 OF 2016 NEKKANTI SEA FOO DS LTD HYDERABAD. PAGE 4 OF 6 5. AS THE ADDITIONAL GROUND RAISED BY THE ASSESSEE GOES TO THE ROOT OF THE MATTER AND IS A LEGAL GROUND, WE DEEM IT FIT AND PROPER TO ADMIT THE SAME AND CONSIDER THE MERITS OF THE SAID GROUND. WE FIND THAT THE AO HAS DISALLOWED THE CLAI M OF DEDUCTION U/S 80HHC MAINLY BY INVOKING THE PROVISO 3 & 4 OF SUB-SECTION 3 OF SECTION 80HHC.THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE PROVISO 3 TO SUB-SECTIO N 3 OF SECTION 80HHC HAS BEEN INTRODUCED BY THE FINANCE ACT OF 200 5 WHEREAS THE A.YS BEFORE US ARE 1999-2000, 2002-03 AND 2003- 04 AND THEREFORE, THE SAID CONDITIONS ARE NOT APPLICABLE T O THE A.YS BEFORE US. FOR THIS PROPOSITION, HE PLACED RELIANCE UPON T HE DECISION OF THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF AVANI EXPORTS V. CIT (2012) 348 ITR 391 (GUJ.) WHICH HAS BEEN CONFIR MED BY THE HON'BLE SUPREME COURT AS REPORTED IN (2015) 58 TAXM ANN.COM 100(S.C). HE SUBMITTED THAT THE SAID DECISION HAS A LSO BEEN FOLLOWED AND CONFIRMED BY THE HON'BLE SUPREME COURT IN THE SUBSEQUENT CASE IN THE CASE OF UNION OF INDIA VS.PA LIWAL OVERSEAS (P) LTD REPORTED IN (2017) 77 TAXMANN.COM 35 (S.C). THE LEARNED COUNSEL FOR THE ASSESSEE HAS FILED COPIES OF THE OR DERS BEFORE US. 6. THE LEARNED DR, ON THE OTHER HAND, SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 7. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE M ATERIAL ON RECORD, WE FIND THAT THE HON'BLE SUPREME COURT H AS CONFIRMED THE DECISION OF THE HON'BLE GUJARAT HIGH COURT IN T HE CASE OF AVANI EXPORT (SUPRA) THAT THE AMENDMENT TO SECTION 80HHC(3) MADE BY THE TAXATION LAW 2 ND AMENDMENT OF 2005 WITH ITA NOS 1627 1628 AND 1634 OF 2016 NEKKANTI SEA FOO DS LTD HYDERABAD. PAGE 5 OF 6 RETROSPECTIVE EFFECT I.E. W.E.F. 1.4.1992, IS ONLY PROSPECTIVE IN NATURE AND THAT THE CASES OF EXPORTERS HAVING A TUR NOVER BELOW RS.10.00 CRORES AND THOSE ABOVE RS.10.00 CRORES WOU LD BE TREATED SIMILARLY AND ON PAR PRIOR TO THE PERIOD OF AMENDME NT. THE RELEVANT PARAS OF THE HON'BLE GUJARAT HIGH COURT AR E REPRODUCED HEREUNDER: 25. IN THE CASE BEFORE US, IT IS NOT ONE WHERE THE EXE CUTIVE HAS FAILED TO CARRY OUT THE OBJECT OF THE PARLIAMENT NECESSITATIN G EXERCISE OF CONTROL BY RETROSPECTIVE AMENDMENT WHAT THE EXECUTIVE OUGHT TO HAVE ACHIEVED. IN THE PRESENT CASE, ACCORDING TO THE FINANCE MINIS TER PRESENTING THE BILL, A VALID PIECE OF LEGISLATION HAS BEEN WRONGLY INTERPR ETED BY THE TRIBUNAL. WE HAVE ALREADY POINTED OUT THAT ACCORDING TO THE EXIS TING LAW, IF A VALID PIECE OF LEGISLATION IS WRONGLY INTERPRETED BY THE TRIBUN AL, THE AGGRIEVED PARTY SHOULD MOVE HIGHER JUDICIAL FORUM FOR CORRECT INTER PRETATION. AS POINTED BY THE APEX COURT IN THE CASE OF PRITVI COTTON MILLS L TD (SUPRA), THE LEGISLATURE DOES NOT POSSESS OR EXERCISE POWER TO REVERSE THE D ECISION IN EXERCISE OF JUDICIAL POWER. THUS, WE ARE OF THE VIEW THAT THE P RINCIPLES LAID DOWN IN THE CASE OF R. C. TOBACCO (P) LTD. (SUPRA) HAS NO APPLI CATION TO THE FACTS OF THE PRESENT CASE. THE IMPUGNED AMENDMENT GRANTING BENEF IT RESTRICTING IT TO A CLASS OF ASSESSEE WHOSE TURNOVER IS LESS THAN RS. 1 0 CRORE IS PERMISSIBLE PROSPECTIVELY BUT THE WAY IT HAS BEEN ENACTED, IT T AKES AWAY AN ENJOYED RIGHT OF A CLASS OF CITIZEN WHO AVAILED OF THE BENEFIT BY COMPLYING WITH THE REQUIREMENTS OF THE THEN PROVISIONS OF LAW. 26. ON CONSIDERATION OF THE ENTIRE MATERIALS ON RECORD , WE, THEREFORE, FIND SUBSTANCE IN THE CONTENTION OF THE LEARNED COUNSEL FOR THE PETITIONERS THAT THE IMPUGNED AMENDMENT IS VIOLATIVE FOR ITS RETROSPECTI VE OPERATION IN ORDER TO OVERCOME THE DECISION OF THE TRIBUNAL, AND AT THE S AME TIME, FOR DEPRIVING THE BENEFIT EARLIER GRANTED TO A CLASS OF THE ASSES SEES WHOSE ASSESSMENTS WERE STILL PENDING ALTHOUGH SUCH BENEFIT WILL BE AV AILABLE TO THE ASSESSEES WHOSE ASSESSMENTS HAVE ALREADY BEEN CONCLUDED. IN O THER WORDS, IN THIS TYPE OF SUBSTANTIVE AMENDMENT, RETROSPECTIVE OPERATION C AN BE GIVEN ONLY IF IT IS FOR THE BENEFIT OF THE ASSESSEE BUT NOT IN A CASE W HERE IT AFFECTS EVEN A FEWER SECTION OF THE ASSESSES. 27. WE, ACCORDINGLY, QUASH THE IMPUGNED AMENDMENT ONLY TO THIS EXTENT THAT THE OPERATION OF THE SAID SECTION COULD BE GIVEN EF FECT FROM THE DATE OF AMENDMENT AND NOT IN RESPECT OF EARLIER ASSESSMENT YEARS OF THE ASSESSEES WHOSE EXPORT TURNOVER IS ABOVE RS. 10 CRORE. IN OTH ER WORDS, THE RETROSPECTIVE AMENDMENT SHOULD NOT BE DETRIMENTAL T O ANY OF THE ASSESSES. 8. WE FIND THAT THE ISSUE IS THEREFORE, COVERED BY THE ABOVE DECISIONS AND RESPECTIVELY FOLLOWING THE SAME , THE ADDITIONAL GROUND OF APPEAL RAISED BY THE ASSESSEE IS ALLOWED AND ITA NOS 1627 1628 AND 1634 OF 2016 NEKKANTI SEA FOO DS LTD HYDERABAD. PAGE 6 OF 6 CONSEQUENTLY, WE DIRECT THE AO TO RECOMPUTE THE DED UCTION U/S 80HHC IN ACCORDANCE WITH LAW AFTER REDUCING BOTH TH E DIRECT AND INDIRECT EXPENSES FROM DEPB RECEIPT.. 9. IN THE RESULT, ASSESSEES APPEALS ARE PARTLY ALL OWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST OCTOBER, 2018. SD/- SD/- (S.RIFAUR RAHMAN) ACCOUNTANT MEMBER (P. MADHAVI DEVI) JUDICIAL MEMBER HYDERABAD, DATED 31 ST OCTOBER, 2018. VINODAN/SPS COPY TO: 1 SHRI S.RAMA RAO, ADVOCATE, FLAT NO.102, SHRIYA'S ELEGANCE, 3-6- 643, STREET NO.9, HIMAYATNAGAR, HYDERABAD 500029 2 DY.CIT, CIRCLE 16(1) IT TOWERS, AC GUARDS, HYDERA BAD 3 CIT (A)-4, HYDERABAD 4 PR. CIT 4, HYDERABAD 5 THE DR, ITAT HYDERABAD 6 GUARD FILE BY ORDER