M/S. KOTHARI TRADING CORPORATION, MUMBAI V. THE ITO, WD-23(2)(6), (ERSTWHIL THE ITC, WD-14(1)(1), MUMBAI

ITA 184/MUM/2023

AI Insights

The case involves M/s Kothari Trading Corporation appealing against the order of the Commissioner of Income Tax (Appeals), which partly allowed their appeal against the Assessment Order for the year 1999-2000. The primary contention was regarding the reduction of INR 7,32,865/- from the profits of the business while computing the deduction under Section 80HHC of the Income Tax Act, 1961. The CIT(A) had held that 90% of the sundry balances written back should be reduced from the profits, categorizing them as 'charges or any other receipt of similar nature included in such profits' under Explanation (baa) to Section 80HHC(4A). The Tribunal found that the CIT(A) and the Assessing Officer failed to examine the nexus of these balances with the export activity, which is crucial for the deduction under Section 80HHC.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 113577 (ITAT-MUMBAI)
• Duration Of Justice: 4 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-05-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 16-05-2023
• Assessment Year: 1999-2000
• Appeal Filed On: 18-01-2023
• Other Referred Cases: CIT Vs. Dresser Rand India Pvt. Ltd.: 323 ITR 429 (Bombay), Technocraft Industries (India) Limited Vs. Deputy Commissioner of Income Tax [ITA Nos. 6011, 6012 & 6376/Mum/2007, dated 08.04.2011]
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Opportunity of being heard; Principle of natural justice
• Section: 143(3); 80HHC; 250

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL "SMC" BENCH, MUMBAI SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER SHRI RAHUL CHAUDHARY, JUDICIAL MEMBER ITA No. 184/MUM/2023 (Assessment Year: 1999-2000) M/s Kothari Trading Corporation, 131/133, 2 nd Floor, Sheikh Memon Street, Mumbai – 400002 [PAN: AADFK3135B] The ITO, Ward 23(2)(6), Mumbai, Earnest House, Nariman Point, Mumbai - 400021 ............... Vs ................ Appellant Respondent Appearance For the Appellant/Assessee For the Respondent/Department : : None Shri Sridhar Govind Menon Date Conclusion of hearing Pronouncement of order : : 17.05.2023 26.05.2023 O R D E R Per Rahul Chaudhary, Judicial Member: 1. By way of the present appeal the Appellant has challenged the order, dated 24/11/2022, passed by the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as ‘the CIT(A)’] for the Assessment Year 1900-2000, whereby the Ld. CIT(A) had partly allowed the appeal of the Assessee against the Assessment Order, dated 28/12/2010, passed under Section 254 read with Section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’). 2. The Appellant has raised following grounds of appeal: 1. “The learned Commissioner of Income Tax (Appeals) Unit 3 ITA No.184/Mum/2023 (Assessment Year: 1999-2000) 2 Coimbatore/NFAC, erred in passing order u/s 250 r.w.s. 254 of the Income Tax Act 1961 without providing proper opportunity of being heard. The order is bad, illegal, void and against the provisions of law and natural justice. 2.1 The learned Commissioner of Income Tax (Appeals) Unit-3 Coimbatore/NFAC erred in reducing Rs. 7,32,865/- being sundry balances written back for calculation of profit of business for purpose of section 80HHC of the Income Tax Act, 1961. 2.2 The learned Commissioner of Income Tax (Appeals) Unit-3 Coimbatore/NFAC, failed to appreciate that sundry balances written back does not fall under “charges or any other receipt of a similar nature included in such profits”. As defined in clause (baa) for the purpose of section 80HHC of Income Tax Act, 1961. 3 The learned Commissioner of Income Tax (Appeals) Unit-3 Coimbatore/NFAC, ought to have appreciated that the deduction u/s 80HHC of the Act is a beneficial provisions and should construed liberally”. 3. The relevant facts in brief are that the Assessing Officer while computing deduction under Section 80HHC of the Act reduced the Profits of the Business by INR 7,32,856/- being sundry balances written off. In appeal, the CIT(A) granted minor relief to the Assessee by holding that 90% of sundry balances written back should be reduced from Profits of the Business while computing deduction under Section 80HHC of the Act. Being aggrieved, the Assessee has carried the issue in appeal before us. 4. On perusal of the record, we find that while the Assessing Officer has reduced the same from the Profit of the Business for the purpose of computing deduction under Section 80HHC of the Act, the same has not been assessed under the head ‘Income from ITA No.184/Mum/2023 (Assessment Year: 1999-2000) 3 Other Sources’. In other words, the Assessing Officer has accepted the same to be in the nature of business income. In appeal, the CIT(A) has observed that Sundry Balances Written Back are taxable. However, for the purpose of computing deduction under Section 80HHC of the Act, 90% of the same should be reduced from ‘Profits of the Business’ since the Sundry Balances Written Back fall in the category of ‘charges or any other receipt of similar nature included in such profits’ as specified in Explanation (baa) to Section 80HHC(4A) of the Act. CIT(A) admitted that Sundry Balances Written Back was part of the Profits of Business. However, since the same was in the nature of „charges or any other receipt of similar nature included in such profits‟, 90% of the same was to be excluded in view of specific requirement of Explanation (baa) to Section 80HHC(4A) of the Act. However, we are of the view that once the Sundry Balances Written Back are accepted to be business income, the same cannot be reduced from the ‘Profits of Business’ provided there is nexus with the export activity which, both, Assessing Officer as well as CIT(A) failed to examine. Therefore, remand this issue back to the file of the Assessing Officer with the directions to compute deduction under Section 80HHC of the Act without excluding the Sundry Balances of INR 7,32,685/- written back provided the same bear nexus with the export activity. Our view draws support from the judgment of the Hon’ble Bombay High Court in the case of CIT Vs. Dresser Rand India Pvt. Ltd.: 323 ITR 429 (Bombay) followed by the Tribunal in the case of Technocraft Industries (India) Limited Vs. Deputy Commissioner of Income Tax [ITA Nos. 6011, 6012 & 6376/Mum/2007, dated 08.04.2011]. Accordingly, Ground No. 2.1 and 2.2 are allowed for statistical purposes, while Ground No. 1 and 3 are disposed off as being ITA No.184/Mum/2023 (Assessment Year: 1999-2000) 4 infructuous. 5. In result, the present appeal preferred by the Appellant is allowed for statistical purposes. Order pronounced on 26.05.2023. Sd/- Sd/- (Prashant Maharishi) Accountant Member (Rahul Chaudhary) Judicial Member म ुंबई Mumbai; दिन ुंक Dated : 26.05.2023 Alindra, PS ITA No.184/Mum/2023 (Assessment Year: 1999-2000) 5 आदेश की प्रतितिति अग्रेतिि/Copy of the Order forwarded to : 1. अपील र्थी / The Appellant 2. प्रत्यर्थी / The Respondent. 3. आयकर आय क्त/ The CIT 4. प्रध न आयकर आय क्त / Pr.CIT 5. दिभ गीय प्रदिदनदध, आयकर अपीलीय अदधकरण, म ुंबई / DR, ITAT, Mumbai 6. ग र्ड फ ईल / Guard file. आिेश न स र/ BY ORDER, सत्य दपि प्रदि //True Copy// उप/सह यक पुंजीक र /(Dy./Asstt. Registrar) आयकर अपीलीय अदधकरण, म ुंबई / ITAT, Mumbai