Subhash Chander Kathuria, V. DCIT, Cir 25(1),

ITA 2070/DEL/2007

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 52969 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 5 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 07-04-2011
• Assessment Year: 2002-2003
• Appeal Filed On: 25-04-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: Y KAKKAR
• Assessee Lawyers: ASHWANI TANEJA
• Keywords: Business income; Question of law; Reason to believe
• Section: 80HHC; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E NEW DELHI BEFORE SHRI R.P. TOLANI AND SHRI SHAMIM YAHYA ITA NO. 2070/DEL/07 ASSTT. YR: 2002-03 SUBHASH CHANDER KATHURIA VS. DCIT CIR. 25(1), 55-B, RAMA ROAD, NEW DELHI. INDUSTRIAL AREA, NEW DELHI. PAN NO. AAJPK0171B (APPELLANT ) (RESPONDENT) APPELLANT BY: SH. ASHWANI TANEJA ADV. RESPONDENT BY: MS. Y. KAKKAR SR. DR O R D E R PER R.P. TOLANI, J.M: THIS IS ASSESSEES APPEAL AGAINST CIT(A)S ORDER DA TED 28-2-2007 RELATING TO A.Y. 2002-03. 2. FOLLOWING GROUNDS ARE RAISED: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL S), ON ERRONEOUS AND INSUFFICIENT GROUNDS, HAS GROSSLY ERR ED IN UPHOLDING THE TOTAL INCOME OF THE APPELLANT AT RS. 17,18,410/- INSTEAD OF DECLARED INCOME OF RS. 9,62,180/-. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A), ON ERRONEOUS AND INSUFFICI ENT GROUNDS, HAS GROSSLY ERRED IN HOLDING THAT THE NOTI CE ISSUED UNDER SECTION 148 OF THE INCOME TAX ACT, 1961, WAS ON VALID AND SUFFICIENT GROUNDS AND CONSEQUENTLY THE ASSESSM ENT ORDER PASSED UNDER SECTION 143(3)/148 OF THE ACT WAS ALSO VALID. THE LD. CIT(A) FAILED TO APPRECIATE THE FACT THAT THERE WAS NO VALID REASON TO BELIEVE FOR THE LD. ASSESSING OFFICER TO HAVE ARRIVED 2 AT A DECISION TO ISSUE THE NOTICE UNDER SECTION 148 OF THE ACT AND THAT THE NOTICE ISSUED AND ASSESSMENT MADE CONS EQUENTLY ARE BAD IN LAW AND ARE LIABLE TO BE QUASHED. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A), ON ERRONEOUS AND INSUFFICI ENT GROUNDS, HAS GROSSLY ERRED IN UPHOLDING THAT THE DE DUCTION U/S 80HHC OF THE INCOME TAXED ACT, 1961, AVAILABLE TO T HE ASSESSEE IS RS. 26,81,407/- AS AGAINST RS. 33,93,53 9/- CLAIMED BY THE ASSESSEE. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A), ON ERRONEOUS AND INSUFFICI ENT GROUNDS, HAS GROSSLY ERRED IN HOLDING THAT THE TURN OVER AND PROFITS OF BOTH THE DISTINCT AND SEPARATE BUSINESS FOR THE PURPOSE OF CALCULATING THE DEDUCTION U/S 80HHC OF THE INCOM E TAX ACT, 1961 ARE LIABLE TO BE ADDED. THE LD. CIT(A) FAILED TO APPRECIATE THE FACT THAT T HE ASSESSEES BUSINESS BEING CARRIE D ON WAS IN DIFFERENT PROPRIETORSHIP CONCERNS, THE BOOKS OF ACC OUNT AND BANK ACCOUNT WERE SEPARATELY MAINTAINED, SALES TAX BEING SEPARATELY ASSESSED, THE GOODS DEALT BEING DIFFEREN T, SUBJECT TO DIFFERENT RISKS AND RETURNS AND THAT THE TURNOVER A ND PROFITS OF BOTH SEPARATE AND DISTINCT BUSINESS WERE NOT LIABLE TO BE CLUBBED, FOLLOWING THE LAW. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A) HAS GROSSLY ERRED IN CONFIR MING THE DISALLOWANCE OF EXPENDITURE AMOUNTING TO RS. 44,109 /- OUT OF TAX AND PENALTIES CLAIMED BY THE APPELLANT IN HIS P ROPRIETARY CONCERN, M/S ANITA INTERNATIONAL. THAT T HE LEARNED CIT(A) HAS FAILED TO APPRECIATE THE FACT THAT THE AMOUNT PAID AND DEBITED TO THE PROFIT & LOSS ACCOUNT WAS TOWARDS SALES TAX AD DITIONAL DEMAND WHICH IS NOT IN NATURE OF PENALTY AND IS ALL OWABLE IN FULL. 6. THAT THE APPELLANT CRAVES TO TAKE UP NEW GROUNDS OF APPEAL AND ALSO ADDUCES EVIDENCE DURING THE PENDENC Y OF THE APPEAL. 3 7. THAT THE APPELLATE ORDER IS AGAINST THE LAW AND THE FACTS OF THE CASE AND MERITS TO BE QUASHED. 3. GROUND NOS. 1,2 & 5 ARE NOT PRESSED. GROUND NOS. 6 & 7 ARE GENERAL IN NATURE AND NEED NO ADJUDICATION. THAT LEAVES GROUND NOS. 3 & 4 ABOUT COMPUTATION OF DEDUCTION U/S 80-HHC. 4. IT MAY BE MENTIONED THAT THIS APPEAL WAS HEARD A LONG WITH ASSESSEES OTHER APPEAL FOR A.Y. 2001-02, CHALLENGING CITS 26 3 ORDER IN RESPECT OF THE SAME 80-HHC ISSUE. THAT ISSUE WAS DECIDED BY US VID E ORDER DATED 20-5- 2011 RENDERED IN ITA NO. 1747/DEL/06. INADVERTENTLY THIS APPEAL, WHICH WAS HEARD TOGETHER WITH ITA NO. 1747/DEL/07, COULD NOT BE DISPOSED OF IN THAT ORDER. CONSEQUENTLY, IT WAS REFIXED AND BOTH PARTIE S WERE HEARD. 5. BRIEF FACTS ARE THAT ASSESSEE IS A PROPRIETOR OF VARIOUS CONCERNS, OUT OF WHICH M/S ANITA INTERNATIONAL IS ENGAGED IN THE DOM ESTIC BUSINESS WHEREAS M/S SYNERGY INTERNATIONAL IS ENGAGED IN THE EXPORT OF TRADING GOODS. ASSESSEE MAINTAINS SEPARATE BOOKS OF ACCOUNT OF EAC H OF ITS PROPRIETARY CONCERNS WHICH ARE AUDITED AND ACCEPTED BY THE DEPA RTMENT. IN ITS ORIGINAL RETURN OF INCOME THE ASSESSEE CLAIMED DEDUCTION U/S 80-HHC IN RESPECT OF EXPORTS OF RS. 33,93,529/-WHICH WAS ACCEPTED U/S 14 3(1). 5.1. LATERON AO ISSUED NOTICE U/S 148 ON THE PLEA T HAT ASSESSEES DEDUCTION WAS ALLOWED U/S 80-HHC INASMUCH AS THOUGH THE ASSESSEE HAS CLAIMED DEDUCTION ON THE BASIS OF EXPORT TURN OVER AS DERIVED FROM ITS EXPORT BUSINESS ON THE BASIS OF AUDITED BOOKS, HOWEVER, AS PER FORMULA PROVIDED BY SEC. 80-HHC, THE SAME WAS TO BE REDUCED. AO, ACCORD INGLY REDUCED THE DEDUCTION TO RS. 26,81,407/-. 5.2. AGGRIEVED, ASSESSEE PREFERRED FIRST APPEAL WHE RE ORDER OF AO WAS CONFIRMED. IT MAY BE PERTINENT THAT A.Y. 2001-02 WA S REVISED U/S 263 BY 4 CITS ORDER DATED 17-3-2006 AND THE PRESENT 148 NOT ICE WAS ISSUED ON 27-3- 2006 THEREAFTER .AS MENTIONED EARLIER, 263 ACTION H AS BEEN QUASHED BY US. 6. LEARNED COUNSEL FOR THE ASSESSEE CONTENDS THAT T HE ASSESSEES FIGURES OF TURN OVER, P&L A/C AND OTHER BOOK RESULTS OF THE EXPORT BUSINESS HAVE BEEN ACCEPTED BY THE DEPARTMENT TOGETHER WITH THE FACT THAT THEY ARE SEPARATELY AND DISTINCTLY MAINTAINED. NO DISPUTE HA S BEEN RAISED IN THIS BEHALF. AT THE RELEVANT TIME TWO HIGH COURTS JUDGME NTS WERE AVAILABLE ON THIS ISSUE. HONBLE MADRAS HIGH COURT IN THE CASE O F CIT VS. MADRAS MOTORS LTD. (2002) 257 ITR 60 (MAD), HELD THAT WHIL E COMPUTING DEDUCTION U/S 80-HHC, THE FIGURE OF TURN OVER TO BE ADOPTED I S EXPORT TURN OVER ONLY AND NOT THE TOTAL TURN OVER OF ASSESSEES BUSINESS. THIS VIEW HAS BEEN FURTHER FOLLOWED BY THE HONBLE COURT IN THE CASE OF SHIVA DISTILLERIES 293 ITR 108. 6.1. HONBLE KERALA HIGH COURT IN THE CASE OF PARRY AGRO INDS. LTD. 257 ITR 41 HAS TAKEN A CONTRARY VIEW. 6.2. THE ITAT WHILE DISPOSING OF ASSESSEES 263 APP EAL FOR A.Y. 2001-02 VIDE ITS ORDER DATED 20-5-2011 IN ITA NO. 1747/DEL/ 06 HAS HELD AS UNDER: 6. WE HAVE HEARD THE RIVAL SUBMISSIONS OF THE PAR TIES & HAVE THROUGH THE ENTIRE MATERIAL BEFORE US. THE ASS ESSEE MADE CLAIM U/S 80 HHC, BOOKS OF THE EXPORT DIVISION ARE SEPARATELY MAINTAINED WHICH CONTAINS COMPLETE DETAILS OF EXPOR TS, TURNOVER, REALIZATION AND EXPORT PROFITS. BOOK RESU LTS OF EXPORT UNIT HAVE BEEN ACCEPTED BY AO AND HAVE NOT BEEN DOU BTED, WHILE FRAMING THE ASSESSMENTS AO HAS APPLIED HIS MI ND WHICH IS EVIDENT FROM THE ABOVE CORRESPONDENCE. THE VIEW ADOPTED BY AO IN RESPECT OF EXPORT TURNOVER AND ALLOW ABILITY OF DEDUCTION U/S 80HHC IS IN CONSONANCE OF MADRAS HIGH COURT JU DGMENT. IN OUR CONSIDERED OPINION IT CAN NOT BE HELD THAT A O COMMITTED AN ERROR IN CALCULATING DEDUCTION U/S 80-HHC MORE S O WHEN THE METHOD ADOPTED CONFORMS TO HONBLE MADRAS HIGH COUR T, THOUGH ANOTHER VIEW OF HONBLE KERALA HIGH COURT EX ISTED. IN THIS EVENTUALITY ALSO HONBLE SUPREME COURT IN VEGE TABLE 5 PRODUCTS CASE (SUPRA) HAS HELD THAT WHEN MORE THAN ONE MEANING IS POSSIBLE, THE VIEW FAVORABLE TO ASSESSEE SHOULD BE ADOPTED. CONSEQUENTLY THE IMPUGNED ASSESSMENT ORDER CAN NOT BE SAID TO BE ERRONEOUS. THIS VIEW IS SUPPORTED BY HONBLE SUPREME COURT DECISION IN THE CASE OF CIT VS. MALAB AR 243 ITR 83 HOLDING THAT REVISIONARY JURISDICTION U/S 263 C ANNOT BE EXERCISED UNLESS THE VIEW ADOPTED WAS WHOLLY UNSUST AINABLE IN LAW OR ON FACTS. 6.3. IT IS PLEADED THAT ITAT HAS ALREADY TAKEN A VI EW THAT IN CASE THERE ARE TWO DIVERGENT OPINIONS ON A PARTICULAR ISSUE, THE O NE FAVOURABLE TO THE ASSESSEE SHOULD BE ADOPTED AS HELD BY THE HONBLE S UPREME COURT IN THE CASE OF VEGETABLE PRODUCTS 88 ITR 192. 7. LEARNED DR RELIED ON THE ORDER OF ITAT IN THE CA SE OF PEARL POLYMERS LTD. VS. DCIT (2002) 80 ITD 1 (DEL.)(SB) AND THE O RDER OF CIT(A). 8. LEARNED COUNSEL FOR THE ASSESSEE IN THE REJOINDE R CONTENDS THAT THE SPECIAL BENCH OF ITAT IN THE CASE OF PEARL POLYMERS LTD. (SUPRA) WAS DEALING WITH THE ISSUE -WHETHER AMENDMENT IN SEC. 8 0-HHC WAS RETROSPECTIVE OR PROSPECTIVE IN NATURE. BESIDES, TH E JUDGMENT WAS RENDERED ON 12-11-2001 WHEREAS THE MADRAS HIGH COURT JUDGMEN T IN THE CASE OF MADRAS MOTORS LTD. (SUPRA) IS RENDERED SUBSEQUENTLY ON 4-3-2002, WHICH IS AGAIN FOLLOWED IN SHIVA DISTILLERIES (SUPRA) JUDGME NT. THE DIVERGENCE OF JUDICIAL OPINION AS RENDERED BY TWO HIGH COURTS I.E . MADRAS HIGH COURT AND KERALA HIGH COURT STILL EXISTS ON THIS ISSUE IN ASS ESSEES CASE. THEREFORE, THE RATIO OF DECISION OF HONBLE SUPREME COURT IN THE C ASE OF VEGETABLE PRODUCTS (SUPRA) IS SQUARELY APPLICABLE TO ASSESSEE S CASE. WE HAVE HEARD RIVAL CONTENTIONS AND GONE THROUGH TH E ENTIRE MATERIAL AVAILABLE ON RECORD. WHILE DECIDING 263 MATTER IN A SSESSEES OWN CASE, WHICH WAS HEARD TOGETHER WITH THIS APPEAL, WE HAVE ALREADY EXPRESSED OUR 6 OPINION THAT WHEN TWO DIVERGENT VIEWS OF HIGH COURT S ARE AVAILABLE, THE ONE FAVOURABLE TO THE ASSESSEE IS TO BE ADOPTED. BESIDE S, THE DECISION OF SPECIAL BENCH OF ITAT IN THE CASE OF PEARL POLYMERS LTD. (S UPRA) DEALS ONLY WITH THE ISSUE OF PROSPECTIVITY OF THE PROVISIONS. THE CONTROVERSY IN QUESTION IS NOW SETTLED BY HONB LE DELHI HIGH COURT IN THE CASE OF CIT VS. PADMINI TECHNOLOGIES 2011 ITOL- 606-HC-DEL-IT, HOLDING AS UNDER: 10. IT IS PERTINENT TO NOTE THAT THE REVENUE HAS N OT ASSAILED BEFORE US THE FINDING OF FACT RETURNED BY THE TRIBU NAL THAT IN SO FAR AS THE TWO BUSINESSES WERE CONCERNED, THEY WERE CARRIED ON IN TWO SEPARATE UNDERTAKINGS. IT WAS ALSO NOT DISPU TED THAT IN RESPECT OF THE SAID UNDERTAKINGS, THE ASSESSEE MAIN TAINED SEPARATE BOOKS OF ACCOUNTS AND ALSO PREPARED SEPARA TE PROFIT AND LOSS ACCOUNTS AND BALANCE SHEETS. IN THE JUDGME NT OF MADRAS MOTORS LTD. (SUPRA), THE RATIONABLE GIVEN IS THAT THE WORD BUSINESS WHICH FOLLOWS THE EXPRESSION TOTAL TURNOVER WOULD HAVE TO BE CONFINED TO ONLY THOSE GOODS TO WH ICH THE SECTION APPLIES. THEREFORE, BY NECESSARY IMPLICATIO N, THE TOTAL TURNOVER OF BUSINESS WOULD ONLY MEAN TOTAL TURNOVER OF BUSINESS OF GOODS TO WHICH THE SECTION APPLIES, INCLUSION OF TURNOVER OF GOODS TO WHICH THE SECTION DOES NOT APPLY, WOULD BE DOING VIOLENCE TO THE LANGUAGE OF SUB-SECTION (3)(B). SUB -SECTION (3) IS INSERTED ONLY TO DETERMINE THE DEDUCTIBLE PROFIT S OUT OF THE TOTAL PROFITS OF BUSINESS WHICH CAN BE ATTRIBUTED T O THE EXPORT BUSINESS. WE ARE IN RESPECTFUL AGREEMENT WITH THE R ATIONABLE ADOPTED BY THE MADRAS HIGH COURT IN MADRAS MOTORS L TD. (SUPRA). AS A MATTER OF FACT, THERE COULD BE A CIRC UMSTANCE WHERE ONE UNIT IS COMPLETELY ENGAGED IN EXPORT AND NOT PARTIALLY AS WAS THE CASE IN MADRAS MOTORS LTD. (SU PRA). IN THOSE CIRCUMSTANCES, THERE WOULD BE NO OCCASION FOR DISALLOWING A PORTION OF THE EXPORT EARNINGS BY ADO PTING FORMULA PROVIDED IN SECTION 80HHC OF THE IT ACT. TH IS VIEW WAS TAKEN BY THE MADRAS HIGH COURT NOT ONLY IN RATH ORE BROTHERS (SUPRA) BUT ALSO IN M. GANI & CO. (SUPRA) WHICH IN TURN FOLLOWED YET ANOTHER JUDGMENT OF THE MADRAS HI GH COURT 7 IN THE CASE OF CIT VS. SURESH B. MEHTA (2007) 291 I TR 462= (2007-TIOL-84-HC-MAD-IT). 11. IN OUR VIEW, THE VIEW TAKEN BY THE TRIBUNAL IS IN CONFORMITY WITH THE DECISION OF THE MADRAS HIGH COU RT, WITH WHICH WE ARE IN RESPECTFUL AGREEMENT. THEREFORE, WE DO NOT PROPOSE TO FRAME A QUESTION OF LAW ON THIS ISSUE. I T IS ORDERED ACCORDINGLY. SINCE THE ISSUE IS NOW COVERED IN FAVOUR OF THE ASS ESSEE, RESPECTFULLY FOLLOWING THE DECISION OF HONBLE DELHI HIGH COURT (SUPRA), WE HOLD THAT THE ASSESSEES SEPARATELY MAINTAINED BOOKS OF ACCOUNT F OR EXPORT BUSINESS; AND TURN OVER FIGURES OF EXPORT HAVING NOT BEEN DISTURB ED, RESPECTFULLY FOLLOWING HONBLE MADRAS HIGH COURT JUDGMENT IN THE CASE OF M ADRAS MOTORS AND SHIVA DISTILLERIES (SUPRA), WE HOLD THAT DEDUCTION U/S 80HHC CLAIMED BY THE ASSESSEE ON EXPORT TURNOVER IS TO BE ACCEPTED. ASSE SSEES GROUND ON THE ISSUE IN QUESTION IS ALLOWED. 10. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLO WED. ORDER PRONOUNCED IN OPEN COURT ON 30-09-2011. SD/- SD/- ( SHAMIM YAHYA ) ( R.P. TOLANI ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 30-09-2011. MP COPY FORWARDED TO: (1) ASSESSEE (2) AO (3) CIT (4) CIT(A) (5) DR 8