M/s. SATYEN EXPORTS, MUMBAI V. ITO (OSD) - 14(2), MUMBAI

ITA 1834/MUM/2007

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 1237 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 3 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-06-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: J
• Next Hearing Date: 15-10-2009
• Assessment Year: 2002-2003
• Appeal Filed On: 02-03-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: L K AGRAWAL
• Keywords: Business income; Competent authority
• Section: 80HHC

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'J' BENCH, MUMBAI BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO. 1834/MUM/2007 (ASSESSMENT YEAR: 2002-03) M/S. SATYEN EXPORTS INCOME TAX OFFICER (OSD) 14(2) 8/10, DAHANUKAR BUILDING EARNEST HOUSE, NARIMAN POI NT NEW SILK BAZAR, KALBADEVI ROAD VS. MUMBAI 400021 MUMBAI 400021 PAN - AAAFS 53451 G APPELLANT RESPONDENT APPELLANT BY: SHRI NITESH JOSHI RESPONDENT BY: SHRI L.K. AGRAWAL O R D E R PER B. RAMAKOTAIAH, A.M. THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER OF THE CIT(A)- XIV, MUMBAI DATED 21,12.2006. 2. ASSESSEE HAS RAISED THE FOLLOWING 2 GROUNDS: - 1. (A) THE LEARNED COMMISSIONER OF INCOME TAX (AP PEALS) ERRED IN LAW IN UPHOLDING THE DISALLOWANCES MADE BY THE INCO ME TAX OFFICER AMOUNTING TO RS.29,03,772/- UNDER SECTION 8 0HHC OF THE ACT AND THEREBY RESTRICTING THE APPELLANTS CLA IM TO RS.66,44,437/- AS AGAINST A SUM OF RS.95,48,209/- C LAIMED BY THE APPELLANT AS PER RETURN OF INCOME FILED BY T HE APPELLANT. (B) THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL S) ERRED IN LAW IN HOLDING RECEIPTS AMOUNTING TO RS.29,62,102 U NDER DEPB SCHEME AS BUSINESS INCOME AND TREATING THE SAM E AS OTHER RECEIPTS. (C) THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL S) ERRED IN LAW IN TREATING THE INTEREST REFUND BY THE BANK AMO UNTING TO RS.2,45,822/- AS INCOME FROM OTHER SOURCES AS AGAIN ST NET INTEREST INCOME CREDITED BY THE APPELLANT AS BUSINE SS INCOME PERTAINING TO ITS EXPORT BUSINESS. (D) THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL S) ERRED IN LAW IN NOT DIRECTING THE INCOME TAX OFFICER TO ALLO W NET INTEREST INCOME AS BUSINESS INCOME. ITA NO. 1834/MUM/2007 M/S. SATYEN EXPORTS 2 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN LAW IN NOT DIRECTING THE INCOME TAX OFFICER TO EXCLUDE RS. 71,889/- BEING DISALLOWANCES OF VARIOUS EXPENSES BY THE INCOME TAX OFFICER FROM TOTAL DIRECT COST TREATING THE SAME AS PERSONAL. TH E APPELLANT SUBMITS THAT ONCE EXPENSES ARE TREATED AS PERSONAL IN NATURE THE SAME CANNOT BE INCLUDED IN DIRECT COST PERTAINING T O EXPORT AND HENCE SHOULD BE EXCLUDED FROM THE DIRECT COST FOR T HE PURPOSE OF DEDUCTION UNDER SECTION 80HHC OF THE ACT. 3. DURING THE COURSE OF ARGUMENT THE LEARNED COUNSEL S UBMITTED THAT THE ISSUE IN GROUND NO. 1(A) IS GENERAL IN NATURE AND N EED NOT BE ADJUDICATED. 4. THE ISSUE IN GROUND NO. 1(B) IS WITH REFERENCE TO E XCLUSION OF INCOME RECEIPT UNDER DEPB CLAIM AS BUSINESS INCOME AND TRE ATING THE SAME AS OTHER RECEIPTS. THE CIT(A) HAS REJECTED ASSESSEES CONTENTION THAT THE PROVISIONS OF SECTION 80HHC STOOD AMENDED. AS THE A SSESSEES EXPORT TURNOVER WAS IN EXCESS OF RS.10 CRORES THE CIT(A) O PINED THAT THE 3 RD PROVISO TO SECTION 80HHC(3) WAS APPLICABLE IN ASSESSEES CA SE AND SINCE THE RATE OF DUTY DRAWBACK ATTRIBUTABLE TO CUSTOMS DUTY WAS HIGH ER THAN THE RATE OF CREDIT AVAILABLE UNDER DEPB, THE ASSESSEE IS NOT EN TITLED FOR DEDUCTION UNDER SECTION 80HHC. IT WAS SUBMITTED THAT THE ISSU E OF DEPB WAS CONSIDERED BY THE ITAT SPECIAL BENCH IN THE CASE OF M/S. TOPMAN EXPORTS VS. ITO 318 ITR (AT) 87 (MUM)(SB) WHEREIN THE ISSUE OF DEPB WAS CONSIDERED AS UNDER: - IT IS TRUE THAT THE DEPB IS ISSUED WITH REFERENCE T O THE FOB VALUE OF EXPORTS AND THAT TOO AFTER THE MAKING OF EXPORTS, B UT THE OBJECTIVE OF DEPB, AS SET OUT BY THE GOVERNMENT OF INDIA ITSELF IN EXIM POLICY, IS ONLY 'TO NEUTRALIZE INCIDENCE OF CUSTOMS DUTY ON THE IMP ORT COMPONENT OF THE EXPORT PRODUCT'. CONSIDERING THE FOB VALUE OF EXPOR TS FOR FIXING THE STANDARD RATE AS PER SION IS ONLY A MEASURE ADOPTED TO QUANTIFY SUCH BENEFIT ON SOME PRAGMATIC BASIS FOR EACH INDUSTRY S O AS TO OVERCOME THE DIFFICULTY IN IDENTIFYING THE ELEMENT OF CUSTOMS DU TY INCLUDED IN THE IMPORT COMPONENT OF THE EXPORT PRODUCT IN EACH AND EVERY CASE INDIVIDUALLY. IT IS FURTHER CLEAR THAT ANY EXPORTER INDIVIDUALLY OR THROUGH THE RESPECTIVE ASSOCIATIONS ETC. CAN MOVE THE COMPE TENT AUTHORITY FOR THE ENHANCEMENT OF THE STANDARD RATE SO FIXED BY THE GO VERNMENT, IF THE LOAD OF ACTUAL CUSTOMS DUTY ON THE IMPORT COMPONENT IS HIGHER THAN THE STANDARD RATE FIXED BY THE GOVERNMENT. IN SUCH A SI TUATION THE COMPETENT AUTHORITY WILL REVISE UPWARD SUCH STANDAR D RATE. IN THE CASE OF DUTY DRAWBACK ALSO THE EXPORTERS HAVE BEEN GIVEN AN OPTION TO MOVE THE COMPETENT AUTHORITY IF THE CUSTOMS DUTY IN THE IMPORT CONTENT IS HIGHER THAN THE STANDARD RATE SO FIXED. THUS, IT CA N BE SEEN THAT IN THE ITA NO. 1834/MUM/2007 M/S. SATYEN EXPORTS 3 CASE OF DUTY DRAWBACK OR DEPB, AS THE CASE MAY BE, THERE IS A DIRECT RELATION BETWEEN ENTITLEMENT UNDER THE RESPECTIVE S CHEME AND THE INHERENT CUSTOMS DUTY COMPONENT IN THE COST OF PURC HASES, WHICH ARE ULTIMATELY USED FOR EXPORTS. DEPB CANNOT BE VIEWED AS INDEPENDENT OF THE CUSTOMS DUTY EMBEDDED INTO THE PURCHASE PRICE O F GOODS. FOR ALL PRACTICAL PURPOSES THE DEPB IS, IN A SENSE, REIMBUR SEMENT OF THE PART OF THE COST OF PURCHASES TO THE EXTENT IT IS REPRESENT ED BY THE CUSTOMS DUTY, WHICH IS INTRINSICALLY AN IMPORTANT CONTENT OF THE PURCHASE PRICE. AS BOTH THE DUTY DRAWBACK AND DEPB ARE POST-EXPORT SCHEMES, IT IS ONLY WHEN THE EXPORTS ARE MADE THAT AN APPLICATION CAN BE MOV ED WITHIN THE SPECIFIED TIME, PURSUANT TO WHICH THE EXPORTER BECO MES ENTITLED TO THE DUTY DRAWBACK OR DEPB, AS THE CASE MAY BE. THE TIMI NG OF ALLOWING THE DEPB DOES NOT AND CANNOT CHANGE THE TRUE CHARACTER OF RECEIPT. THEREFORE, THOUGH DEPB IS POST-EXPORT INCENTIVE, BU T ITS OBJECTIVE IS TO COUNTERBALANCE THE EFFECT OF CUSTOMS DUTY INCLUDED IN THE COST OF PURCHASES INCURRED DIRECTLY OR INDIRECTLY BY THE EX PORTER. IT CANNOT BE SEEN AS AN INCENTIVE DETACHED FROM COST OF GOODS PU RCHASED. 5. IN THE LIGHT OF THE ABOVE DECISION IT WAS SUBMITTED THAT THE MATTER MAY BE RE-EXAMINED BY THE A.O. ACCORDINGLY THE A.O. IS DIRECTED TO RE-EXAMINE THE ISSUE AFRESH AFTER CONSIDERING THE LAW ON THIS ISSUE. GROUND IS CONSIDERED ALLOWED. 6. THE ISSUE IN GROUND NO. 1(C) AND (D) IS WITH REFERE NCE TO TREATING THE INTEREST REFUND BY THE BANK AMOUNTING TO RS.2,45,82 2/- AS INCOME FROM OTHER SOURCES AS AGAINST NET INTEREST INCOME CREDIT ED BY THE ASSESSEE AS BUSINESS INCOME PERTAINING TO EXPORT. 7. THE ASSESSEE HAS RECEIVED INTEREST ON FIXED DEPOSIT AND AS PER THE A.O. THE AMOUNT OF RS.2,45,822/- IS INCOME FROM OTHER SO URCES AND ACCORDINGLY HE EXCLUDED FROM THE COMPUTATION OF BUSINESS INCOME . BEFORE THE CIT(A) IT WAS CONTENDED THAT THE ASSESSEE IS 100% TRADER EXPO RTER OF VARIOUS MACHINERY AND RELATED SPARE PARTS AND ITS BILL DISC OUNTING FACILITY IS WITH THE BANK OF INDIA, KALBADEVI BRANCH AND OUT OF THE AMOU NT OF RS.2,45,822/- CONSIDERED BY THE A.O. THE AMOUNT OF RS.56,769/- PE RTAINS TO BILL DISCOUNTING OF EARLIER YEAR AND ONLY RS.1,85,822/- IS INTEREST ON SURPLUS FUND PARKED IN THE BANK. THE CIT(A), WHILE CONFIRMI NG THE AMOUNT OF RS.1,85,822/- SO EARNED ON SURPLUS FUNDS, REJECTED THE CONTENTIONS WITH REFERENCE TO THE AMOUNT OF RS.56,769/- RELATING TO BILLS DISCOUNTING OF EARLIER YEARS. ITA NO. 1834/MUM/2007 M/S. SATYEN EXPORTS 4 8. IT WAS THE CONTENTION OF THE LEARNED COUNSEL THAT T HIS AMOUNT PERTAINS TO REFUND OF THE BILL DISCOUNTING CHARGES LEVIED BY THE BANK, HENCE, THIS AMOUNT ALSO IS TO BE CONSIDERED IN THE WORKING OF I NTEREST INCOME. IT WAS NOTICED THAT THE ASSESSEE HAS FURNISHED A STATEMENT BEFORE THE A.O. THAT IN THE TOTAL BILL DISCOUNTING ON EXPORT BILLS WAS RS.2 8,77,821/- AND THE BANK HAS REFUNDED AN AMOUNT OF RS.9,86,176/- ON EARLY DI SCHARGE OF EXPORT BILLS PERTAINING TO THE YEAR THEREBY THE NET BILL DISCOUN TING CHARGES WERE RS.18,91,545/- AND FURTHER REDUCING THE INTEREST ON FD WITH BANK OF RS.2,45,822/- THE NET AMOUNT CLAIMED WAS ONLY RS.16 ,45,723/-. ACCORDINGLY THE A.O. HAS TAKEN THE INTEREST INCOME ON FD AT RS.2,45,822/-. EVENTHOUGH THE CIT(A) HAS ANALYSED AND ACCEPTED THA T THE AMOUNT OF RS.56,922/- PERTAINS TO BILL DISCOUNTING OF EARLIER YEAR, THE DETAILS FURNISHED BY THE ASSESSEE WERE NOT ON RECORD AND THIS CLAIM C OULD NOT BE VERIFIED AT OUR END. IT IS ALSO NOTICED THAT THE A.O., WHILE CA LCULATING THE 80HHC, HAS TAKEN THE GROSS AMOUNT OF INTEREST PAID DURING THE YEAR ON DISCOUNTING OF EXPORT BILLS FOR THE PURPOSE OF ATTRIBUTION TO DIRE CT COST AND HENCE REBATE RECEIVED DURING THE YEAR ALSO WAS NOT PART OF THE C OST ATTRIBUTION WHILE WORKING OUT THE DIRECT AND INDIRECT COSTS. IN THESE CIRCUMSTANCES THERE IS NO JUSTIFICATION IN CONSIDERING THE AMOUNT OF RS.56,76 9/- PERTAINING TO EARLIER YEAR. HOWEVER, IN THE INTEREST OF JUSTICE, SINCE TH E DETAILS ARE NOT AVAILABLE ON RECORD, WE RESTORE THE MATTER OF RS.56,769/- TO THE FILE OF THE A.O. TO EXAMINE WHETHER THE REFUND OF BILL DISCOUNTING CHAR GES WAS OF EARLIER YEARS AND IF SO WHETHER THEY CAN BE CONSIDERED IN THE WOR KING OF DEDUCTION UNDER SECTION 80HHC. WITH REFERENCE TO THE INTEREST OF RS .1,82,822/- ON AMOUNT OF SURPLUS FUNDS PARTED WITH THE BANK, THE ISSUE IS TO BE DECIDED AGAINST THE ASSESSEE IN THE LIGHT OF THE DECISION OF THE HON'BL E BOMBAY HIGH COURT IN THE CASE OF RAVI RATNA EXPORTS (P.) LTD. 246 ITR 443 AN D ALSO BY THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF SHREE R AM HONDA POWER EQUIP. 289 ITR 475, WHICH IN TURN WAS FOLLOWED BY KASHMIR ARTS VS. CIT 213 CTR 421, DELHI BRASS & METAL WORKS LTD. IN 16 DTR 339 A ND KRAFT LAND INDIA 162 TAXMAN 123. IN VIEW OF THIS, THE INTEREST ON FI XED DEPOSIT FROM SURPLUS FUNDS HAS TO BE CONSIDERED AS INCOME FROM OTHER SOU RCES AND IS NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 80HHC. THE A.O. IS DIRE CTED TO EXAMINE THE ITA NO. 1834/MUM/2007 M/S. SATYEN EXPORTS 5 ISSUE OF RS.56,769/- WHETHER IT PERTAINS TO INTERES T ON FDRS OR REFUND OF BILL DISCOUNTING CHARGES AND DECIDE THE ISSUE ACCORDINGL Y. GROUND PARTLY ALLOWED. 9. GROUND NO. 2 PERTAINS TO THE ISSUE OF DISALLOWANCES ON ACCOUNT OF TELEPHONE AND MOTORCAR. THE ASSESSEES CONTENTION W AS THAT THESE EXPENSES WERE DISALLOWED CONSIDERING AS PART OF BUSINESS PRO FIT BUT THE SAME WERE NOT EXCLUDED WHILE WORKING OUT THE COST OF THE EXPORTS. THERE IS NO CLEAR FINDING BY THE A.O. ON THIS ISSUE WHETHER HE HAS TAKEN THE AMOUNT AS INCOME FOR THE PURPOSE OF CALCULATING 80HHC DEDUCTION. THE CIT (A) ALSO HAS NOT CONSIDERED THE ISSUE WHETHER THE SAME MAY NOT BE AD JUSTED FOR THE COST WORKING WHILE WORKING OUT THE PROFIT OF EXPORT. THE ISSUE WAS NOT DISCUSSED EITHER BY THE A.O. OR BY THE CIT(A) IN THE CORRECT PERSPECTIVE. WE ARE OF THE OPINION THAT THIS ISSUE CAN ALSO BE EXAMINED BY THE A.O. AFRESH. ACCORDINGLY THE GROUND IS RESTORED TO THE FILE OF THE A.O. ASSE SSEE SHOULD BE GIVEN OPPORTUNITY TO EXPLAIN THE VARIOUS CONTENTIONS IN T HIS REGARD. 10. IN THE RESULT, APPEAL IS PARTLY ALLOWED FOR STATIST ICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 25 TH JUNE 2010. SD/- SD/- (N.V. VASUDEVAN) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEM BER MUMBAI, DATED: 25 TH JUNE 2010 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) XIV, MUMBAI 4. THE CIT XIV, MUMBAI CITY 5. THE DR, J BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P