Pratap Cashew Co. Ltd, Kollam V. DCIT, Kollam

ITA 165/COCH/2007

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 58297 (ITAT-COCHIN)
• Duration Of Justice: 5 year(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-03-2012
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 27-02-2012
• Assessment Year: 2002-2003
• Appeal Filed On: 26-02-2007
• Court: TRIBUNAL
• Department Lawyers: VIJAYAPRABHA
• Assessee Lawyers: T V HARIHARAN
• Keywords: Opportunity of being heard
• Section: 80HHC; 80IB

Judgement Text

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. 200/COCH/2007 ASSESSMENT YEAR : 2002-03 THE DEPUTY COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE, KOLLAM. M/S. PRATAP CASHEW CO. LTD., KOCHUPILAMMODU. [PAN: AABCP 6100C] (APPELLANT) VS. (RESPONDENT) ITA NO. 165/COCH/2007 ASSESSMENT YEAR : 2002-03 M/S. PRATAP CASHEW CO. LTD., KOCHUPILAMMODU. KOLLAM. [PAN: AABCP 6100C] THE DEPUTY COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE, KOLLAM. (APPELLANT) VS. (RESPONDENT) ASSESSEE BY: SHRI T.V.HARIHARAN, CA RESPONDENT BY: SMT. VIJAYAPRABHA, JR. DR DATE OF HEARING: 27/02/2012 DATE OF PRONOUNCEMENT: 02/03/2012 ORDER PER SHRI B.R.BASKARAN, ACCOUNTANT MEMBER:- THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER DATED 13-11-2006 PASSED BY THE LD. CIT(A)-I, KOCHI AND THEY RELATE TO THE ASS ESSMENT YEAR 2002-03. 2. IN THE APPEAL BY THE REVENUE, THE SOLITARY ISSUE URGED RELATES TO THE DECISION OF THE LD. CIT(A) WITH REGARD TO THE ALLOCATION OF IND IRECT COSTS FOR THE PURPOSE OF DEDUCTION U/S. 80HHC IS BEING ASSAILED BY THE REVEN UE. 3. IN THE APPEAL OF THE ASSESSEE, THE FOLLOWING THR EE ISSUES ARE AGITATED:- I.T.A. NOS.200 & 165 /COCH/2007 2 A) TREATMENT OF DEPB RECEIPTS FOR THE PURPOSE OF DE DUCTION U/S. 80HHC B) TREATMENT OF FREIGHT, SHIPPING CHARGES, COMMISS ION AND DISCOUNT FOR THE PURPOSE OF DEDUCTION U/S. 80HHC. C) DEDUCTION U/S. 80-IB OF THE ACT IN RESPECT OF P ROCESSING COMMISSION. 4. THE FACTS RELATING TO THE CASE ARE STATED IN BRIEF. THE ASSESSEE-COMPANY IS ENGAGED IN THE MANUFACTURE AND EXPORT OF CASHEW KER NELS AND CASHEW NUT SHELL OIL. FOR THE YEAR UNDER CONSIDERATION, THE ASSESSEE CLAI MED DEDUCTION U/S. 80HHC OF THE ACT IN RESPECT OF EXPORT PROFIT DERIVED BY IT AND A LSO DEDUCTION U/S. 80-IB OF THE ACT IN RESPECT OF PROCESSING COMMISSION INCOME. THE AS SESSING OFFICER MODIFIED THE AMOUNT ELIGIBLE U/S. 80HHC AND DENIED DEDUCTION U/S . 80-IB OF THE ACT IN RESPECT OF PROCESSING COMMISSION INCOME. THE APPEAL FILED BY THE ASSESSEE BEFORE LD CIT(A) WAS PARTLY ALLOWED. HENCE BOTH THE PARTIES ARE IN APPEAL BEFORE US IN RESPECT OF ISSUES DECIDED AGAINST EACH OF THEM. 5. WE SHALL TAKE UP THE APPEAL OF THE REVENUE F IRST. THE DISPUTE IS WITH REGARD TO THE ALLOCATION OF INDIRECT COST ATTRIBUTABLE TO EXP ORT OF TRADING GOODS FOR THE PURPOSE OF DEDUCTION U/S 80HHC OF THE ACT. THIS ISSUE WAS D ISCUSSED IN DETAIL BY THIS BENCH OF THE TRIBUNAL IN ITS ORDER DATED 6 TH JANUARY, 2012 IN THE CASE OF B. MOHANACHANDRAN NAIR IN I.T.A. NO. 158/COCH/2007. F OR THE SAKE OF CONVENIENCE, WE EXTRACT BELOW THE RELEVANT PORTIONS OF THE SAID ORD ER:- 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 ACT, THE PROFIT DERIVED FROM THE EXPORT OF TRADING GOODS SH ALL BE THE EXPORT TURNOVER IN RESPECT OF SUCH TRADING GOODS AS REDUC ED BY THE DIRECT AND INDIRECT COSTS ATTRIBUTABLE TO EXPORT OF SUCH TRAD ING GOODS. THE DISPUTE IS WITH REGARD TO THE QUANTUM OF INDIRECT COSTS A TTRIBUTABLE TO THE TRADING GOODS. THE ASSESSEE HAS TAKEN THE TOTAL AMOUNT OF INDIRECT COST AT RS.1,74,53,650/-, WHILE THE ASSES SING OFFICER HAS TAKEN THE SAME AT RS.4,71,01,876/-. THOUGH IT IS NOT C LEARLY BORNE OUT OF RECORD, THERE APPEARS TO BE NO DISPUTE WITH REGARD TO THE ALLOCATION OF INDIRECT COSTS BETWEEN PROCESS EXPORTAND TRADI NG EXPORT, WHICH I.T.A. NOS.200 & 165 /COCH/2007 3 ARE TO BE CARRIED OUT IN ACCORDANCE WITH THE FOLLO WING FORMULA AS PER CLAUSE (E) OF EXPLANATION TO 80HHC(3) INDIRECT COSTS X EXPORT TURNOVER/TOTAL TU RNOVER. THE ASSESSING OFFICER HAS TAKEN ALL THE EXPENSES D EBITED TO THE PROFIT AND LOSS ACCOUNT AS INDIRECT COST AND ACCORDING LY ARRIVED AT THE FIGURE OF RS.4,71,01,876/-. HOWEVER, ACCORDING T O THE ASSESSEE, HE HAS TAKEN ONLY THOSE INDIRECT EXPENSES, WHICH A RE ATTRIBUTABLE TO THE EXPORT TURNOVER. ACCORDING TO THE ASSESSEE , HE HAS FOLLOWED THE SIMILAR METHOD OF COMPUTATION IN THE EARLIER Y EARS ALSO AND THE SAID METHOD WAS ALSO ACCEPTED BY THE ASSESSING OFF ICER. ACCORDINGLY, IT WAS CONTENDED, BY PLACING RELIANCE ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF RADHASOAMI SATSANG VS . CIT REPORTED IN 193 ITR 321, THAT THE ASSESSING OFFICER WAS NOT CO RRECT IN DEVIATING FROM THE VIEW TAKEN CONSISTENTLY IN EARLIER 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 COMPUTATIONS 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 DECIDED AN IDENTICAL ISSUE IN FAVOUR OF THE ASSESSEE. IN THE CASE OF SURENDRA ENGINEERING CORPORATION, SUPRA, THE SPECI AL BENCH OF THE TRIBUNAL HAS OBSERVED 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 OVER LOO K THE IMPORT OF THE WORDS ATTRIBUTABLE TO SUCH EXPORT APPEARING IN CL AUSE (B) OF SUB- SECTION (3). THE DEFINITION OF INDIRECT COSTS MUS T 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 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, SUPRA, THE DELHI BENCH HAS HELD THAT THE INDIRECT COST ATTRIBUTABLE TO TH E EXPORT IS TO BE REDUCED FOR COMPUTING DEDUCTION U/S 80HHC IN RESPE CT OF EXPORT OF I.T.A. NOS.200 & 165 /COCH/2007 4 TRADING GOODS AND NOT ALL COSTS OTHER THAN DIRECT COSTS. WHILE COMING TO THIS CONCLUSION, THE DELHI BENCH HAS FOLLOWED T HE DECISION OF MUMBAI SPECIAL BENCH IN THE CASE OF SURENDRA ENGG. CORPOR ATION, REFERRED SUPRA. 5.2 ON A CAREFUL READING OF THE DECISIONS REFE RRED SUPRA, WE NOTICE THAT THE INDIRECT COSTS NOT RELATABLE TO THE EXPOR T TURNOVER (BOTH PROCESSING EXPORT AND TRADING EXPORT) HAVE TO BE E XCLUDED FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/S 80HHC. FR OM THE EXPLANATIONS FURNISHED BY THE ASSESSEE BEFORE LD C IT(A), WHICH ARE PLACED IN PAGES 14 TO 18 OF THE ASSESSEES PAPER B OOK, CERTAIN EXPENSES EXCLUSIVELY PERTAIN TO THE MANUFACTURING/ PROCESSING UNIT. IN OUR VIEW, THE QUESTION OF ALLOCATION OF INDIRECT COSTS SHALL ARISE ONLY IN RESPECT OF THOSE EXPENSES WHICH HAVE BEEN INCUR RED COMMONLY BOTH FOR PROCESS EXPORT AND TRADING EXPORT. IN THE EXP LANATIONS FILED BEFORE LD CIT(A), THE ASSESSEE HAS POINTED OUT THAT CERTA IN TYPES OF INDIRECT EXPENSES HAVE BEEN INCURRED EXCLUSIVELY FOR PROCES S EXPORT. AS PER SEC. 80HHC(3), THE PROFITS DERIVED FROM TRADING GO ODS SHALL BE THE EXPORT TURNOVER IN RESPECT OF SUCH TRADING GOODS A S REDUCED BY THE DIRECT AND INDIRECT COSTS ATTRIBUTABLE TO EXPORT O F SUCH TRADING GOODS. IF A PARTICULAR TYPE OF INDIRECT EXPENSE IS PROVED TO HAVE BEEN INCURRED ONLY IN RESPECT OF PROCESSED EXPORTS, IN OUR VIEW, THE SAME COULD NOT BE ALLOCATED TO TRADING EXPORTS. HENCE, IN OUR V IEW, THE QUESTION OF DETERMINATION OF SUCH TYPES OF INDIRECT COSTS REQU IRES RE-EXAMINATION. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) O N THIS ISSUE AND RESTORE THE SAME TO THE FILE OF THE ASSESSING OFFI CER WITH A DIRECTION TO DETERMINE THE QUANTUM OF INDIRECT COSTS AS PER T HE DECISIONS RELIED UPON BY THE ASSESSEE AND ALSO BY DULY CONSIDERING THE DISCUSSIONS MADE ABOVE AND THERE AFTER ASCERTAIN THE AMOUNT OF INDIRECT COSTS ATTRIBUTABLE TO THE TRADING EXPORTS AS PER THE FOR MULA GIVEN IN SEC. 80HHC OF THE ACT. 6. IN THE INSTANT CASE ALSO, WE ARE OF THE VIEW THA T THIS ISSUE NEEDS TO BE EXAMINED AT THE END OF THE ASSESSING OFFICER IN THE LIGHT OF THE PRINCIPLES DISCUSSED IN THE ABOVE STATED ORDER. ACCORDINGLY, WE SET ASIDE THE ORDER OF THE LD. CIT(A) ON THIS ISSUE AND RESTORE THE MATTER BACK TO THE FILE OF THE AO FOR E XAMINATION OF THE SAME AFRESH AFTER AFFORDING NECESSARY OPPORTUNITY OF BEING HEARD TO T HE ASSESSEE. 7. NOW WE SHALL TAKE UP THE APPEAL OF THE ASSESSEE. GROUND NO. 1 OF THE ASSESSEE IS GENERAL IN NATURE. THE ASSESSEE DID NOT PRESS G ROUND NO. 5 RELATING TO THE TREATMENT OF FREIGHT, SHIPPING CHARGES, COMMISSION AND DISCOU NT FOR THE PURPOSE OF COMPUTING I.T.A. NOS.200 & 165 /COCH/2007 5 DEDUCTION U/S. 80HHC OF THE ACT. THE LD. AR MADE T HE NECESSARY ENDORSEMENT IN THE GROUNDS OF THE APPEAL IN THIS REGARD BY AFFIXING HI S SIGNATURE. ACCORDINGLY, THIS GROUND IS DISMISSED AS WITHDRAWN. 8. GROUND NOS. 2, 3 & 4 RELATES TO TREATMENT OF DEPB RECEIPTS. BOTH THE PARTIES AGREED THAT THIS ISSUE NEEDS TO BE RE-EXAMINED IN T HE LIGHT OF THE DECISION BY THE HONBLE SUPREME COURT DATED 09/02/2012 IN THE CASE OF TOPMAN EXPORTS. ACCORDINGLY, WE SET ASIDE THE ORDER OF THE LD. CIT(A) ON THIS IS SUE AND RESTORE THE SAME TO THE FILE OF THE ASSESSING OFFICER WITH THE DIRECTION TO EXAMINE THE ISSUE AFRESH IN ACCORDANCE WITH THE DECISION OF HONBLE SUPREME COURT IN THE CASE O F TOPMAN EXPORTS, REFERRED SUPRA. 9. THE LAST ISSUE RELATES TO THE ELIGIBILITY OF THE ASSESSEE FOR DEDUCTION U/S 80IB OF THE ACT IN RESPECT OF PROCESSING COMMISSION INCOME RECEIVED BY IT. THE LD. COUNSEL FOR THE ASSESSEE, BY PLACING RELIANCE ON THE DECISION O F HYDERABAD BENCH OF ITAT IN THE CASE OF ACIT VS. BIOTECH MEDICALS (P) LTD (2009)(31 0 ITR (AT) 47, SUBMITTED THAT THERE IS DIRECT NEXUS BETWEEN THE PROCESSING COMMISSION E ARNED BY THE ASSESSEE FROM ITS SISTER CONCERNS AND ITS MANUFACTURING ACTIVITY AND HENCE THE SAID INCOME SHOULD BE CONSIDERED AS PROFIT DERIVED FROM THE ELIGIBLE UNIT . HE ALSO TOOK SUPPORT FROM THE DECISION OF HONBLE PUNJAB AND HARYANA HIGH COURT R EPORTED IN (2010)(326 ITR 27). 10.1 HOWEVER, ON A CAREFUL PERUSAL OF THE ASSESSME NT ORDER, WE NOTICE THAT THE ASSESSEE HAS FAILED TO FURNISH THE MANDATORY DETAIL S THAT ARE REQUIRED TO BE FURNISHED FOR AVAILING THE DEDUCTION U/S 80IB OF THE ACT. IT IS PERTINENT TO EXTRACT BELOW THE OBSERVATIONS MADE BY THE ASSESSING OFFICER IN THIS CONNECTION:- IN THE COMPUTATION OF TOTAL INCOME THE ASSESSEE HA S CLAIMED DEDUCTION U/S 80IB OF RS.1,14,660/-. NO SUPPORTING CERTIFICA TES OR DOCUMENTS WERE FILED ALONG WITH THE RETURN OF INCOME. THIS ASPECT WAS DISCUSSED WITH THE ASSESSEES AUTHORIZED REPRESENTATIVE AT THE TIME OF HEARING ON 20.3.2006. THE ASSESSEE HAS FILED AUDIT REPORT IN FORM 10CCB O N 21.3.2006. ACCORDING TO THE AUDIT REPORT, THE PROFIT DERIVED R EPRESENTS PROCESSING COMMISSION COLLECTED FROM OTHERS FOR UTILIZING THE ASSESSEES FACTORY AT JANGAREDDY GUDAM FOR PROCESSING 12740 BAGS FOR RS.3 ,82,200/-. THE ASSESSEE HAS NOT FURNISHED THE PROFIT AND LOSS ACCO UNT AND BALANCE SHEET OF THE INDUSTRIAL UNDERTAKING AS REQUIRED IN RULE 1 8BBB(2). THERE IS I.T.A. NOS.200 & 165 /COCH/2007 6 NOTHING ELSE ON RECORD TO EVIDENCE THAT OTHERS HAVE DONE PROCESSING IN THE ASSESSEES FACTORY AT JANAGAREDDY GUDAM AND THA T THE FACTORY IS SITUATED IN A NOTIFIED BACKWARD AREA. THEREFORE TH E ASSESSEES CLAIM FOR DEDUCTION U/S 80IB IS REJECTED. THE LD CIT(A), THOUGH OBSERVED THAT THERE IS NO CON DITION THAT THE INDUSTRIAL UNDERTAKING SHOULD BE LOCATED IN A NOTIFIED BACKWAR D AREA, YET HE CONFIRMED THE DISALLOWANCE ON ACCOUNT OF FAILURE OF THE ASSESSEE TO COMPLY WITH CONDITIONS PRESCRIBED IN THIS REGARD. THE OBSERVATIONS OF LD CIT(A) ARE EXTRACTED BELOW:- HOWEVER, THE APPELLANT FAILED TO COMPLY WITH THE S TATUTORY REQUIREMENT OF FURNISHING A SEPARATE BALANCE SHEET AND PROFIT AND LOSS ACCOUNT OF THE UNIT CLAIMING THE DEDUCTION, VIZ., THAT OF THE FACT ORY SITUATED AT ANDHRA PRADESH, SO AS TO ENABLE THE ASSESSING OFFICER TO V ERIFY THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE. THEREFORE, THE FAILURE ON THE PART OF THE APPELLANT TO MEET THIS REQUIREMENT UNDER RULE 18BBB (2) HAS RIGHTLY RESULTED IN THE DENIAL OF THIS DEDUCTION BY THE ASS ESSING OFFICER ON THAT GROUND. THUS, WE NOTICE THAT THERE IS FAILURE ON THE PART O F THE ASSESSEE TO COMPLY WITH THE CONDITIONS PRESCRIBED FOR ALLOWING DEDUCTION U/S 80 IB OF THE ACT AND FOR THAT REASON ONLY THE AO AS WELL AS LD CIT(A) HAS DENIED THE DED UCTION U/S 80IB TO THE PROCESSING COMMISSION EARNED BY THE ASSESSEE. BEFORE US, NO M ATERIAL WAS PLACED BEFORE US ON BEHALF OF THE ASSESSEE, TO SUGGEST THAT THE DEFECTS POINTED OUT BY THE TAX AUTHORITIES HAVE BEEN MADE GOOD WITH. IN THESE CIRCUMSTANCES, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE DECISION OF LD CIT(A) ON THIS IS SUE. 11. IN THE RESULT, THE APPEAL OF THE REVENUE IS TREATED AS ALLOWED AND THE APPEAL OF THE ASSESSEE IS TREATED AS PARTLY ALLOWED, FOR STAT ISTICAL PURPOSES. PRONOUNCED ON 02-03-2012 SD/- SD/- (N.R.S.GANESAN) (BR BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER KOCHI DATED: 2 ND MARCH, 2012 GJ I.T.A. NOS.200 & 165 /COCH/2007 7 COPY TO 1 M/S. PRATAP CASHEW CO. LTD., KOCHUPILAMMODU, KOLL AM. 2 THE DEPUTY COMMISSIONER OF INCOME-TAX, CENTRAL C IRCLE, KOLLAM. 3 THE COMMISSIONER OF INCOME-TAX(APPEALS)-I, KOCHI 4 THE COMMISSIONER OF INCOME-TAX, CENTRAL, KOCHI 5. THE DR, ITAT, COCHIN BENCH. 6 GUARD FILE. BY ORDER A SSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH