THE OPERA CLOTHING, MUMBAI V. M/S. DCIT WD 18(1), MUMBAI

ITA 1725/MUM/2008

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 2663 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-12-2009
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2004-2005
• Appeal Filed On: 10-03-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VANDANA SAGAR
• Assessee Lawyers: DEEPESH T CHEDDA
• Keywords: Competent authority; Set aside
• Section: 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH C, MUMBAI BEFORE SHRI N.V. VASUDEVAN, J.M. AND SHRI A.L. GEHL OT, A.M. ITA NO. 293/M/08 ASSESSMENT YEAR: 2004-05 INCOME TAX OFFICER, APPELLANT WARD 18(1)(3), ROOM NO. 106, PIRAMAL CHAMBERS, PAREL, MUMBAI 400 012. VS. M/S OPERA CLOTHING, RESPONDENT 2 & 4 SHAH & NAHAR INDL. ESTATE, S.J. MARG, LOWER PAREL, MUMBAI 400 013. (PAN AAA04522H) ITA NO. 1725/M/08 ASSESSMENT YEAR: 2004-05 M/S OPERA CLOTHING, RESPONDENT 2 & 4 SHAH & NAHAR INDL. ESTATE, S.J. MARG, LOWER PAREL, MUMBAI 400 013. (PAN AAA04522H) VS. INCOME TAX OFFICER, APPELLANT WARD 18(1)(3), ROOM NO. 106, PIRAMAL CHAMBERS, PAREL, MUMBAI 400 012. REVENUE BY : SMT. VANDANA SAGAR ASSESSEE BY : MR. DEEPESH T. CHEDDA ORDER PER A.L. GEHLOT, A.M.: THESE ARE THE CROSS APPEALS DIRECTED AGAINST THE O RDER OF CIT(A)-XVIII, MUMBAI, ON 16.10.2007 FOR THE ASSES SMENT YEAR 2004- 05. ITA NOS. 293 & 1725/M/08 M/S OPERA CLOTHING 2 ITA NO. 293/M/08 APPEAL BY REVENUE 2. GROUND NO. 1 READS AS UNDER:- ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN ALLOWING THE DEDUCTION U/S 80IB OF RS. 3,98,445/ - TO THE ASSESSEE WITHOUT APPRECIATING THE FACT THAT IF DEPB INCOME OF RS. 9,18,642/- AND DUTY DRAWBACK OF RS. 1,99,403/- ARE EXCLUDED, THERE IS LOSS TO THE ASSESSEE, AND THE ASSESSEE IS NOT ENTITLED FOR DEDUCTION U/S 80IB ON THESE INCOME. THE CIT(A) ERRED IN HOLDING THAT THE HONBLE SUPREM E COURTS DECISION IN THE CASE OF STERLING FOODS (237 ITR 579 ) IS NOT DIRECTLY APPLICABLE TO THE ASSESSEE WITHOUT APPRECIATING THE FACT THAT DEPB INCOME AND DUTY DRAWBACK CONSTITUTE PROFIT OR GAIN OF THE BUSINESS BY VIRTUE OF SEC.28 BUT THE SAME ARE NOT DERIVED FROM INDUSTRIAL UNDERTAKING. 3. THE AO DISALLOWED DEDUCTION U/S 80-IB ON DUTY DR AWBACK OF RS. 1,99,403/- AND DEPB OF RS. 9,18,642/- ON THE GROUND THAT THE SAME HAD NO NEXUS WITH THE ASSESSEES MANUFACTURING ACTI VITY AND, HENCE, NOT DERIVED FROM INDUSTRIAL UNDERTAKING. THE CIT(A) FOLLOWED THE JUDGMENT OF THE HONBLE GUJARAT HIGH COURT IN THE C ASE OF GELATINE AND CHEMICALS LTD., 275 ITR 284 AND DIRECTED THE AO TO ALLOW THE DEDUCTION U/S 80IB IN RESPECT OF DUTY DRAWBACK AND DEPB. 4. AT THE OUTSET, THE LEARNED REPRESENTATIVES OF TH E PARTIES SUBMITTED THAT THIS ISSUE IS COVERED AGAINST THE AS SESSEE BY THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE O F LIBERTY INDIA V. CIT, [2009] 317 ITR 218 WHEREIN IT WAS HELD THAT DE PB/DUTY DRAWBACK ARE INCENTIVE WHICH FLOWS FROM THE SCHEME FRAMED BY CENTRAL GOVERNMENT OR FROM SECTION 75 OF THE CUSTOM ACT HENCE PROFITS BY WAY OF SUCH INCENTIVE IS NOT FALL WITHIN THE EXP RESSION PROFITS DERIVED FROM INDUSTRIAL UNDERTAKING IN SECTION 80IB . WE RESPECTFULLY FOLLOW THE JUDGMENT OF THE APEX COURT AND IN THE LI GHT OF THAT WE SET ASIDE THE ORDER OF CIT(A) AND DIRECT THE AO TO CALC ULATE THE DEDUCTION U/S 80IB IN ACCORDANCE WITH THE ABOVE DECISION OF T HE APEX COURT, AFTER PROVIDING REASONABLE OPPORTUNITY OF HEARING T O THE ASSESSEE. ITA NOS. 293 & 1725/M/08 M/S OPERA CLOTHING 3 5. 2 ND GROUND IS AGAINST THE DELETION OF ADDITION OF RS. 3,73,715/- ON ACCOUNT OF BUSINESS PROMOTION EXPENSES. 6. THE ASSESSEE CLAIMED BUSINESS PROMOTION EXPENSES OF RS. 14,94,857/-. THE AO ASKED THE DETAILS BUT THE SAME WERE NOT PRODUCED BY THE ASSESSEE, THEREFORE, THE AO DISALLO WED 25% OF THE AMOUNT OBSERVING THAT TO THE EXTENT THE ASSESSEE HA S FAILED TO PROVE THE GENUINENESS OF THE CLAIM. THE CIT(A) DELETED TH E SAID ADDITION OBSERVING THAT THE EXPENDITURE WAS INCURRED FOR PA RTICIPATION IN VARIOUS EXHIBITIONS IN WHICH IT PARTICIPATED AND TH E RELATED COST. THE CIT(A) FURTHER NOTED THAT MAJOR PORTION OF THE EXPE NSES HAD BEEN INCURRED AS PARTICIPATION FEES. IT WAS ALSO THE OBS ERVATION OF THE CIT(A) THAT THE AO HAD NOT BROUGHT OUT ANY MATERIAL ON RECORD TO ESTABLISH THAT THE SAID PAYMENTS HAD NOT BEEN MADE BY THE ASSESSEE OR THAT THE SAID EXPENSES WERE NOT INCURRED FOR BUS INESS PURPOSES. 7. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF THE PARTIES AND PERUSED THE RECORD. THE LEARNED DRS CONTENTION WAS THAT THE ASSESSEE DID NOT PRODUCE ANY DETAILS BEFORE THE AO BUT THE SAME WERE PRODUCED BEFORE THE CIT(A) AND THE CIT(A) DELETED T HE ADDITION WITHOUT EXAMINING THOSE DETAILS AND WITHOUT GIVING PROPER O PPORTUNITY FOR THE AO TO EXAMINE THOSE DETAILS. WE ARE OF THE VIEW THA T SINCE THE CIT(A) DID NOT GIVE AN OPPORTUNITY TO THE AO TO EXAMINE TH E DETAILS SUBMITTED BEFORE HIM, WHICH AMOUNTS TO VIOLATION OF PRINCIPLES OF JUSTICE, WE DEEM IT FIT AND PROPER TO REMIT THE ISS UE BACK TO THE FILE OF THE AO WITH A DIRECTION TO EXAMINE THE SAID DETAILS . ON EXAMINATION IF THE AO FOUND THAT THE EXPENSES ARE NOT GENUINE, GIV E SPECIFIC REASONS BY WAY OF SPEAKING ORDER. NEEDLESS TO SAY THE AO SH ALL PROVIDE AN OPPORTUNITY OF HEARING TO THE ASSESSEE BEFORE DECID ING THE ISSUE. ITA NOS. 293 & 1725/M/08 M/S OPERA CLOTHING 4 ITA NO. 1725/M/08 APPEAL BY THE ASSESSEE 8. GROUND NO. IS IN RESPECT OF ADHOC DISALLOWANCE O F TRAVEL EXPENSES OF RS. 50,000/-. THE AO DISALLOWED RS. 50 ,000/- ON ACCOUNT OF TRAVEL EXPENSES ON ADHOC BASIS ON THE GROUND OF PERSONAL ELEMENT. BEFORE THE CIT(A) THE ASSESSEE SUMBITTED THAT THE D ISALLOWANCE IS UNWARRANTED SINCE THERE WAS NO MATERIAL ON RECORD T O SHOW THAT ANY PERSONAL EXPENDITURE WAS INCURRED. THE CIT(A) FOLLO WING HIS EARLIER ORDER FOR AY 2003-04, CONFIRMED THE DISALLOWANCE MA DE BY THE AO. 9. AFTER HEARING THE LEARNED REPRESENTATIVES OF THE PARTIES AND PERUSING THE RECORD, WE ARE OF THE VIEW THAT THE CI T(A) HAS RIGHTLY CONFIRMED THE DISALLOWANCE MADE BY THE AO ON ACCOUN T OF TRAVEL EXPENSES AS THE ASSESSEE FAILED TO PROVE OR ESTABLI SH THAT THERE IS NO PERSONAL ELEMENT INVOLVED IN THE TRAVEL EXPENSES. T HUS, WE UPHOLD THE ORDER OF CIT(A) ON THIS ISSUE. 10. GROUND NO. 2 IS IN RESPECT OF EXCLUSION OF OTHE R INCOME OF RS. 41,798/- FOR PURPOSE OF DEDUCTION U/S 80IB OF THE A CT. 11. THE AO DISALLOWED DEDUCTION U/S 80IB ON THE FOL LOWING ITEMS OBSERVING THAT THESE INCOMES HAD NO NEXUS WITH THE MANUFACTURING ACTIVITIES OF THE ASSESSEE:- 1. DISCOUNT RECEIVED RS. 12,958/- 2. QUOTA TRANSFER RS. 27,200/- 3. EXCHANGE DIFFERENCE RS. 1,640/- TOTAL RS. 41,798/- ========== 11.1 BEFORE THE CIT(A), THE ASSESSEE DID NOT PRESS THIS GROUND. THE RELEVANT FINDINGS OF THE CIT(A) IS REPRODUCED BELOW :- 14. GROUND NO. 7 OF THE APPEAL RELATES TO THE DEDUC TION U/S 80IB IN RESPECT OF RECEIPTS UNDER THE HEAD OTHER I NCOME. THE APPELLANT HAD EARNED INCOME OF RS. 41,798/- IN THE NATURE OF ITA NOS. 293 & 1725/M/08 M/S OPERA CLOTHING 5 DISCOUNT, QUOTA TRANSFER AND EXCHANGE DIFFERENCE. T HIS GROUND OF APPEAL BEING PETTY IS NOT PRESSED. 12. AFTER HEARING THE LEARNED REPRESENTATIVES OF TH E PARTIES AND PERUSING THE RECORD, WE ARE OF THE VIEW THAT THE AS SESSEE HAD NOT PRESSED THIS GROUND BEFORE THE CIT(A), THEREFORE, T HERE IS NO POINT IN RAISING THE SAME BEFORE US. WE, THEREFORE, DISMISS THIS GROUND OF APPEAL. 13. GROUND NO. 3 IS IN RESPECT OF CONSIDERATION OF ENTIRE SALE VALUE OF DEPB OF RS. 1,92,87,094 WHILE CALCULATING PROFIT S OF THE BUSINESS UNDER EXPLANATION (BAA) TO SEC 80 HHC OF THE ACT. 14. THE LEARNED REPRESENTATIVES OF THE PARTIES SUBM ITTED THAT THIS ISSUE IS COVERED BY THE SPECIAL BENCH DECISION OF ITAT IN THE CASE OF M/S TOPMAN EXPORTS V. ITO, [2009] 328 ITR(AT) 87(MU M.)(SB) WHEREIN IT WAS HELD AS UNDER:- 89. THE QUESTION RAISED BEFORE THE SPECIAL BENCH HAS TW O PARTS. IN SO FAR AS THE FIRST PART :`WHETHER THE ENTIRE AMOUNT R ECEIVED ON SALE OF DEPB ENTITLEMENTS REPRESENTS PROFIT CHARGEABLE UNDER SEC TION 28(IIID) OF THE INCOME TAX ACT, IS CONCERNED, WE ANSWER IT IN NEGA TIVE AND THE SECOND PART OF THE QUESTION :`OR THE PROFIT REFERRED TO TH EREIN REQUIRES ANY ARTIFICIAL COST TO BE INTERPOLATED? IS REPLIED IN AFFIRMATIV E TO THE EXTENT THAT THE FACE VALUE OF DEPB SHALL BE DEDUCTED FROM THE SALE PROCEEDS. AS REGARDS THE GROUNDS RAISED IN THESE APPEALS AGAINST THE DEN IAL OF DEDUCTION U/S 80HHC, IN FULL OR PART, WE FIND THAT THE COMPUTATI ON OF PROFITS DERIVED FROM EXPORTS AND THE RESULTANT AMOUNT OF DEDUCTION UNDER THIS SECTION CAN BE MADE ONLY WHEN THE DECISION IS TAKEN ON THE AMO UNT AND THE TIMING OF TAXABILITY OF THE FACE VALUE OF DEPB AND THE PROFI T ON ITS SALE. ON THIS ISSUE WE HOLD THAT THE FACE VALUE OF DEPB IS CHARG EABLE TO TAX U/S 28(IIIB) AT THE TIME OF ACCRUAL OF INCOME, THAT IS, WHEN THE APPLICATION FOR DEPB IS FILED WITH THE COMPETENT AUTHORITY PURSUANT TO EXP ORTS AND PROFIT ON SALE OF DEPB REPRESENTING THE EXCESS OF SALE PROCEEDS O F DEPB OVER ITS FACE VALUE IS LIABLE TO BE CONSIDERED U/S 28(IIID) AT TH E TIME OF ITS SALE. WHATEVER IS SAID ABOUT DEPB, SHALL ALSO HOLD GOOD FOR DFRC, ON BOTH ITS COMPONENTS, VIZ, THE FACE VALUE OF DFRC AND PROFIT ON ITS TRANSFER, EXCEPT FOR THE FACT THAT THE PROFIT ON SALE OF DFRC SHALL BE CHARGED TO TAX U/S 28(IIIE). THERE IS NO DISPUTE ABOUT THE DUTY DRAWB ACK, WHICH SHALL BE CHARGEABLE TO TAX AT THE TIME OF ACCRUAL OF INCOME U/S 28(IIIC) WHEN APPLICATION IS FILED WITH THE COMPETENT AUTHORITY A FTER MAKING EXPORTS. SINCE THE NECESSARY FACTS FOR THE DETERMINATION OF THE QUANTUM OF DEDUCTION U/S 80HHC, AS DISCUSSED ABOVE, ARE NOT A VAILABLE ON RECORD, WE, THEREFORE, SET ASIDE THE IMPUGNED ORDERS AND DI RECT THE AO TO COMPUTE ITA NOS. 293 & 1725/M/08 M/S OPERA CLOTHING 6 THE AMOUNT OF RELIEF IN ACCORDANCE WITH THE VIEW E XPRESSED BY US HERE IN ABOVE. 15. SINCE THE FACTS ARE SUBJECT TO VERIFICATION IN THE LIGHT OF ABOVE DECISION OF ITAT CITED SUPRA, WE THEREFORE REMIT TH IS ISSUE BACK TO THE FILE OF THE AO WITH A DIRECTION TO DECIDE THE ISSUE IN THE LIGHT OF THE SPECIAL BENCH OF ITAT (SUPRA) AFTER PROVIDING REASO NABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. 16. IN THE RESULT, BOTH THE APPEALS ARE PARTLY ALLO WED FOR STATISTICAL PURPOSES. PRONOUNCED ON THIS 16 TH DAY OF DECEMBER, 2009. SD/- SD/- (N.V. VASUDEVAN) (A.L. GEHLOT) JUDICIAL MEMBER ACCOUNTANT M EMBER DATED: 16 TH DECEMBER, 2009 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) CONCERNED. 4) THE CIT CONCERNED. 5) THE DEPARTMENTAL REPRESENTATIVE, D BENCH, I.T .A.T., MUMBAI. BY ORDER //TRUE COPY// ASST. REGISTRAR, I.T.A.T., MUMBAI. KV S.NO. DESCRIPTION DATE INITLS 1. DRAFT DICTATED ON 10.12.09 SR.P.S./P.S 2. DRAFT PLACED BEFORE AUTHOR 11.12.09 SR.P.S/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.P.S./PS SR.P.S./P.S 6. KEPT FOR PRONOUNCEMENT ON SR. ITA NOS. 293 & 1725/M/08 M/S OPERA CLOTHING 7 P.S./P.S. 7. FILE SENT TO THE BENCH CLERK SR.P.S./P.S 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER