ACIT, CHENNAI V. M/s. Medopharm, CHENNAI

ITA 2110/CHNY/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 51715 (ITAT-CHENNAI)
• Duration Of Justice: 8 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-08-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 10-08-2011
• Assessment Year: 2000-2001
• Appeal Filed On: 10-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K ME GHANATH CHOWHAN
• Assessee Lawyers: D ANAND
• Keywords: Business income
• Section: 80HHC

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BENCH C CHENNAI BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND SHRI GEORGE MATHAN, JUDICIAL MEMBER .. I.T.A. NOS. 2108 TO 2111/MDS/2010 ASSESSMENT YEARS : 1998-99 TO 2001-02 THE A.C.I.T CIRCLE IV CHENNAI. (APPELLANT) V. M/S MEDOPHARM, NO. 1, THIRU VI KA ROAD CHENNAI 600 006. PAN : AAAFM 4227 H (RESPONDENT) APPELLANT BY : SHRI K. MEGHANATH CHOWHAN, JCIT RESPONDENT BY : SHRI D. ANAND DATE OF HEARING : 10.08.2011 DATE OF PRONOUNCEMENT : . 08.2011 O R D E R PER N.S. SAINI, ACCOUNTANT MEMBER : THESE ARE FOUR APPEALS FILED BY REVENUE FOR THE AS SESSMENT YEARS 1998-99 TO 2001-02 AGAINST SEPARATE ORDERS OF THE LD. CIT(A)- XII ALL DATED 27.09.2010. I.T.A. NOS. 2108 TO 2111/MDS/10 2 2. GROUND NO. 1 IN ALL THE FOUR APPEALS IS GENERAL IN NATURE AND HENCE REQUIRES NO ADJUDICATION BY US. 3. GROUND NO. 2 OF THE APPEAL IN ALL THE APPEALS IS DIRECTED AGAINST THE ORDER OF THE LD. CIT(A) DIRECTING THE A SSESSING OFFICER TO DELETE THE DISALLOWANCE OF RS. 27,18,978/- IN ASSE SSMENT YEAR 1998-99, RS. 24,36,614/- IN ASSESSMENT YEAR 1999-2 000, RS. 27,98,010/- IN ASSESSMENT YEAR 2000-01 AND RS. 41,1 8,740/- IN ASSESSMENT YEAR 2001-02 AND HOLDING THAT THE ASSESS EE IS ELIGIBLE FOR CLAIMING DEDUCTION U/S 80HHC OF THE INCOME-TAX ACT, 1961 [IN SHORT, THE ACT] IN RESPECT OF EXPORTS MADE TO RUSS IA. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS CLAIMED EXPO RT MADE TO RUSSIA. THE CENTRAL ECONOMIC INTELLIGENCE BUREAU A S WELL AS COMMISSIONER OF CUSTOMS [C] HAS FOUND THAT THIS CON SIGNMENT TO RUSSIA DID NOT REACH THE DESTINATION AS IT WAS DIVE RTED TO SOME OTHER DESTINATION. EXPORT TO RUSSIA WAS IN INDIAN R UPEES. THE SPECIAL TREATMENT FOR SECTION 80HHC OF THE ACT DEDUCTION FO R EXPORT TO I.T.A. NOS. 2108 TO 2111/MDS/10 3 RUSSIA INDIAN RUPEES IS NOT AVAILABLE IF THE CONSIG NMENT WAS DIVERTED. HE FURTHER OBSERVED THAT WHEN THIS WAS P OINTED OUT TO THE ASSESSEE, THE ASSESSEE EXPLAINED THAT SHIPMENTS HAVE BEEN MADE AGAINST LETTER OF CREDITS REGISTERED WITH THE RESERVE BANK OF INDIA, MUMBAI AFTER SHIPMENT BILLS WERE FORWARDED T O RBI, WHO MADE PAYMENTS. ALL EXPORTS WERE ON FOB BASIS AND TH AT RESPONSIBILITY OF THE ASSESSEE CEASES ONCE THE GOOD S ARE HANDED OVER TO THE CARRIER. THE ASSESSING OFFICER OBSERVE D THAT THE ASSESSEE PLEADS IGNORANCE ABOUT THE DIVERSION OF DE STINATION. ACCORDING TO ASSESSEE, IT HAD NO CONTROL OVER THE T RANSFER OF GOODS AND THEIR MOVEMENTS ONCE THEY ARE HANDED OVER TO TH E CARRIER AS DIRECTED BY THE PURCHASER. THE ASSESSING OFFICER, THEREFORE, HELD THAT AS IT IS NOT DISPUTED THAT CONSIGNMENTS WERE D IVERTED TO A DESTINATION OTHER THAN RUSSIA, EXPORT CEASED TO BE ELIGIBLE FOR EXEMPTION U/S 80HHC OF THE ACT AND HENCE DENIED DED UCTION U/S 80HHC OF THE ACT TO THE ASSESSEE. I.T.A. NOS. 2108 TO 2111/MDS/10 4 4. ON APPEAL, THE LD. CIT(A) NARRATING THE FACTS, H ELD AS UNDER: THE FACTS OF THE CASE ARE THAT DURING THE YEAR THE APPELLANT HAS MADE SALES TO THE EXTENT OF RS.27.45 CRORES TO 24 COUNTRIES ON DIFFERENT SHIPS AND OCCASI ONS. ALL THESE SHIPMENTS OF THE APPELLANT WERE ON FOB BA SIS ONLY I.E. THE LIABILITY OF THE APPELLANT CEASES TO EXIST ONCE THE GOODS ARE CLEARED BY THE CUSTOMS AUTHORITIES BY WAY OF ISSUE OF BILL(S) OF LADING AND THE GOODS A RE PLACED ON BOARD OF THE SHIP. ON AN EXPORT TURNOVER OF RS.27,44,49,910/-, APPELLANT HAD SHOWN AN INCOME OF RS.66,53,450/- ON WHICH THE APPELLANT CLAIMED INCOME OF RS.52,84,032/ - AS DEDUCTION U/S 80 HHC. AS EXPORTS TO RUSSIA HAD NOT REACHED THE DESTINATION RUSSIA AND WERE DIVERTED BY THE PURCHA SER TO ANOTHER DESTINATION, THE ASSESSING OFFICER HAS DISALLOWED THE AMOUNT OF RS.27,18,978/- VIS--VIS, T HE CLAIM OF THE APPELLANT U/S 80 HHC OF THE INCOME-TAX ACT, 1961. THE MAIN CONDITION FOR THE ELIGIBILITY OF THE APPELLANT U/S 80 HHC CLAIM WAS THAT THE GOODS SHOULD I.T.A. NOS. 2108 TO 2111/MDS/10 5 BE EXPORTED OUTSIDE THE COUNTRY AND THE FOREIGN EXCHANGE CONSEQUENT TO THAT SHOULD BE RECEIVED IN IND IA WITHIN A SPECIFIED PERIOD OF TIME. THE ASSESSING OFFICER HAS NOT GIVEN THE WORKING AS TO HOW HE HAD DISALLOWED THE CLAIM OF DEDUCTION U/S 8 0 HHC AND ON WHAT BASIS HE HAD ADDED THE PROCEEDS ON THE SALES MADE TO RUSSIA AS INCOME OF THE APPELLANT, WHEN THE SAME WAS ALREADY INCLUDED IN THE GROSS SALE S LEADING TO DOUBLE TAXATION. THE DISALLOWANCE, EVEN AS PER THE VIEW-POINT OF THE ASSESSING OFFICER, SHOULD HAVE BEEN THE PROPORTIONATE PART OF THE TURNOVER DONE TO RUSSIAN, VIS- -VIS THE TOTAL EXPORT TURNOVER (THE RATIO) SHOULD HA VE BEEN ADOPTED ON THE TOTAL CLAIM OF THE APPELLANT U/S 80 HHC, WHICH SHOULD BEEN WORKED OUT AS UNDER: SALE PROCEEDS TO RUSSIA X CLAIM OF 80 HHC TOTAL EXPORT SALE PROCEEDS I.E. 27,18,978 X 52,84,032 27,44,49,9010 = RS.52,349/- I.T.A. NOS. 2108 TO 2111/MDS/10 6 HOWEVER, GOING INTO THE LARGER ISSUE, FOR THE CLAIM OF DEDUCTION U/S 80 HHC, THE APPELLANT HAD TO EXPORT GOODS AND GET FOREIGN EXCHANGE INTO THE COUNTRY WITH IN THE STIPULATED PERIOD. THE CLAIM GETS VITIATED ONLY WHEN IT IS PROVED THAT NO GOODS HAVE BEEN EXPORTED AND THE ENTIRE TRANSACTION IS A SHAM ONE. THE ASSESSIN G OFFICER HAD NO DOUBT REGARDING THE FACT THAT THE GO ODS HAVE BEEN EXPORTED AND THE FOREIGN EXCHANGE HAD BEE N RECEIVED IN THE COUNTRY WITHIN THE STIPULATED TIME L IMIT. AS THE LC IS ON A FOB BASIS, THE LIABILITY OF THE APPELLANT CEASES AND ONCE THE APPELLANT HAD PLACED THE GOODS ON THE BOARD OF THE SHIP AFTER CUSTOMS CLEARAN CE BY WAY OF ISSUE OF BILL OF LADING, IT IS THE DISCRET ION OF THE PURCHASER WHICH PART OF THE WORLD HE WISHES TO T AKE IT. FOR THE CLAIM OF DEDUCTION U/S 80 HHC, NOWHERE THE ACT HAS SPECIFIED DESTINATION OF THE GOODS TO T HE EXPORTED COUNTRY AS THE CRITERIA. IN VIEW OF THE SA ME, THE CLAIM OF THE APPELLANT ON 80 HHC IS A PERFECTLY ELIGIBLE CLAIM AS THE APPELLANT HAS MET ALL THE CONDITIONS STIPULATED THEREIN, AND HENCE, THE CLAIM OF THE APPELLANT U/S 80 HHC IS HEREBY ALLOWED. I.T.A. NOS. 2108 TO 2111/MDS/10 7 5. THE LD. D.R. SUPPORTED THE ORDER OF THE AO WHER EAS THE LD. A.R. SUPPORTED THE ORDER OF THE LD. CIT(A). 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIAL AVAILABLE ON RECORD. IN THE INSTANT CASE, ACCORDING TO THE ASSESSING OFFICER, G OODS EXPORTED TO RUSSIA BY THE ASSESSEE WERE DIVERTED TO SOME OTHER DESTINATION. THE ASSESSEE HAS RECEIVED EXPORT CONSIDERATION IN I NDIAN RUPEES. THEREFORE, ACCORDING TO THE ASSESSING OFFICER, ASSE SSEE WAS NOT ELIGIBLE FOR DEDUCTION U/S 80HHC OF THE ACT. 7. ON APPEAL, THE LD. CIT(A) DELETED THE DISALLOWAN CE OF DEDUCTION U/S 80HHC OF THE ACT BY OBSERVING AS UNDE R: THE FACTS OF THE CASE ARE THAT DURING THE YEAR THE APPELLANT HAS MADE SALES TO THE EXTENT OF RS.27.45 CRORES TO 24 COUNTRIES ON DIFFERENT SHIPS AND OCCASI ONS. ALL THESE SHIPMENTS OF THE APPELLANT WERE ON FOB BA SIS ONLY I.E. THE LIABILITY OF THE APPELLANT CEASES TO EXIST ONCE THE GOODS ARE CLEARED BY THE CUSTOMS AUTHORITIES I.T.A. NOS. 2108 TO 2111/MDS/10 8 BY WAY OF ISSUE OF BILL(S) OF LADING AND THE GOODS A RE PLACED ON BOARD OF THE SHIP. ON AN EXPORT TURNOVER OF RS.27,44,49,910/-, APPELLANT HAD SHOWN AN INCOME OF RS.66,53,450/- ON WHICH THE APPELLANT CLAIMED INCOME OF RS.52,84,032/ - AS DEDUCTION U/S 80 HHC. AS EXPORTS TO RUSSIA HAD NOT REACHED THE DESTINATION RUSSIA AND WERE DIVERTED BY THE PURCHA SER TO ANOTHER DESTINATION, THE ASSESSING OFFICER HAS DISALLOWED THE AMOUNT OF RS.27,18,978/- VIS--VIS, T HE CLAIM OF THE APPELLANT U/S 80 HHC OF THE INCOME-TAX ACT, 1961. THE MAIN CONDITION FOR THE ELIGIBILITY OF THE APPELLANT U/S 80 HHC CLAIM WAS THAT THE GOODS SHOULD BE EXPORTED OUTSIDE THE COUNTRY AND THE FOREIGN EXCHANGE CONSEQUENT TO THAT SHOULD BE RECEIVED IN IND IA WITHIN A SPECIFIED PERIOD OF TIME. THE ASSESSING OFFICER HAS NOT GIVEN THE WORKING AS TO HOW HE HAD DISALLOWED THE CLAIM OF DEDUCTION U/S 8 0 HHC AND ON WHAT BASIS HE HAD ADDED THE PROCEEDS ON THE SALES MADE TO RUSSIA AS INCOME OF THE APPELLANT, I.T.A. NOS. 2108 TO 2111/MDS/10 9 WHEN THE SAME WAS ALREADY INCLUDED IN THE GROSS SALE S LEADING TO DOUBLE TAXATION. THE DISALLOWANCE, EVEN AS PER THE VIEW-POINT OF THE ASSESSING OFFICER, SHOULD HAVE BEEN THE PROPORTIONATE PART OF THE TURNOVER DONE TO RUSSIAN, VIS- -VIS THE TOTAL EXPORT TURNOVER (THE RATIO) SHOULD HA VE BEEN ADOPTED ON THE TOTAL CLAIM OF THE APPELLANT U/S 80 HHC, WHICH SHOULD BEEN WORKED OUT AS UNDER: SALE PROCEEDS TO RUSSIA X CLAIM OF 80 HHC TOTAL EXPORT SALE PROCEEDS I.E. 27,18,978 X 52,84,032 27,44,49,9010 = RS.52,349/- HOWEVER, GOING INTO THE LARGER ISSUE, FOR THE CLAIM OF DEDUCTION U/S 80 HHC, THE APPELLANT HAD TO EXPORT GOODS AND GET FOREIGN EXCHANGE INTO THE COUNTRY WITH IN THE STIPULATED PERIOD. THE CLAIM GETS VITIATED ONLY WHEN IT IS PROVED THAT NO GOODS HAVE BEEN EXPORTED AND THE ENTIRE TRANSACTION IS A SHAM ONE. THE ASSESSIN G OFFICER HAD NO DOUBT REGARDING THE FACT THAT THE GO ODS HAVE BEEN EXPORTED AND THE FOREIGN EXCHANGE HAD BEE N RECEIVED IN THE COUNTRY WITHIN THE STIPULATED TIME L IMIT. I.T.A. NOS. 2108 TO 2111/MDS/10 10 AS THE LC IS ON A FOB BASIS, THE LIABILITY OF THE APPELLANT CEASES AND ONCE THE APPELLANT HAD PLACED THE GOODS ON THE BOARD OF THE SHIP AFTER CUSTOMS CLEARAN CE BY WAY OF ISSUE OF BILL OF LADING, IT IS THE DISCRET ION OF THE PURCHASER WHICH PART OF THE WORLD HE WISHES TO T AKE IT. FOR THE CLAIM OF DEDUCTION U/S 80 HHC, NOWHERE THE ACT HAS SPECIFIED DESTINATION OF THE GOODS TO T HE EXPORTED COUNTRY AS THE CRITERIA. IN VIEW OF THE SA ME, THE CLAIM OF THE APPELLANT ON 80 HHC IS A PERFECTLY ELIGIBLE CLAIM AS THE APPELLANT HAS MET ALL THE CONDITIONS STIPULATED THEREIN, AND HENCE, THE CLAIM OF THE APPELLANT U/S 80 HHC IS HEREBY ALLOWED. 8. THE LD. D.R. COULD NOT POINT OUT ANY SPECIFIC ER ROR IN THE ORDER OF THE LD. CIT(A). 9. WE FIND THAT IN THE INSTANT CASE, IT IS NOT IN D ISPUTE THAT THE ASSESSEE EXPORTED GOODS ON THE BASIS OF LETTER OF C REDIT REGISTERED WITH SBI. THE SBI MADE PAYMENT OF EXPORT TO THE AS SESSEE ON THE BASIS OF THE SAID LETTER OF CREDIT WHICH WAS TAKEN FROM RUSSIA. IT IS I.T.A. NOS. 2108 TO 2111/MDS/10 11 THE CLAIM OF THE ASSESSEE THAT THE GOODS WERE SOLD ON FOB BASIS AND THE BILLS OF LADING WERE PREPARED FOR DELIVERY OF G OODS TO RUSSIA. THE ASSESSING OFFICER HAS BROUGHT NO MATERIAL ON RE CORD TO CONTROVERT THE ABOVE EXPLANATION OF THE ASSESSEE. NO MATERIAL WAS BROUGHT BEFORE US BY THE REVENUE TO SHOW THAT THE C ONDITIONS FOR ALLOWING DEDUCTION U/S 80HHC OF THE ACT IN THE CASE OF TRADE IN INDIAN RUPEE WITH RUSSIAN BUYER IS THAT THE GOODS M UST REACH RUSSIA ONLY. IN THE ABSENCE OF ANY SUCH MATERIAL, WE DO N OT FIND ANY GOOD REASON TO INTERFERE WITH THE ORDER OF THE LD. CIT(A ). IT IS CONFIRMED. GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 10. THE ISSUE INVOLVED IN GROUND NO. 3 IN ALL THE F OUR APPEALS IS THAT THE LD. CIT(A) ERRED IN HOLDING THAT THE INTER EST RECEIVED BY THE ASSESSEE ON FIXED DEPOSITS WAS TO BE INCLUDED IN TH E BUSINESS TURNOVER AND CONSIDERED FOR PURPOSES OF COMPUTATION OF DEDUCTION U/S 80HHC OF THE ACT. 11. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER OBSERVED THAT INTEREST RECEIPT WAS TO BE ASSESSED UNDER OTH ER SOURCES AND I.T.A. NOS. 2108 TO 2111/MDS/10 12 SHOULD BE EXCLUDED FROM SECTION 80HHC OF THE ACT C OMPUTATION AND HE, THEREFORE, EXCLUDED RS. 4,25,877/- IN ASSESSME NT YEAR 1998-99, RS. 11,71,235/- IN ASSESSMENT YEAR 1999-2000, RS. 10,38,373/- IN ASSESSMENT YEAR 2000-01 AND RS. 19,58,000/- IN ASS ESSMENT YEAR 2001-02 WHILE COMPUTING BUSINESS PROFITS FOR CALCUL ATING DEDUCTION U/S 80HHC OF THE ACT. 12. ON APPEAL, THE LD. CIT(A) HELD THAT INTEREST IN COME EARNED BY THE ASSESSEE ON FIXED DEPOSITS MADE WITH THE BANK F OR OPENING LETTER OF CREDIT WAS INCOME FROM BUSINESS AND THERE FORE, DIRECTED THE ASSESSING OFFICER TO TAKE INTO CONSIDERATION SU CH INTEREST INCOME WHILE COMPUTING DEDUCTION U/S 80HHC OF THE A CT. 13. THE LD. D.R. SUPPORTED THE ORDER OF THE AO WHE REAS THE LD. A.R. SUPPORTED THE ORDER OF THE LD. CIT(A). 14. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE FIN D THAT IN THE INSTANT CASE, IT IS NOT IN DISPUTE THAT THE ASSESSE E EARNED INTEREST INCOME ON FIXED DEPOSITS MADE BY IT WITH THE BANK. IT IS ALSO NOT IN I.T.A. NOS. 2108 TO 2111/MDS/10 13 DISPUTE THAT THE SAID FIXED DEPOSITS WERE MADE IN T HE COURSE OF BUSINESS OF THE ASSESSEE FOR OBTAINING LETTERS OF C REDIT. IN OTHER WORDS, IT IS NOT IN DISPUTE THAT THE FIXED DEPOSITS ON WHICH THE ASSESSEE EARNED INTEREST WERE BUSINESS ASSETS OF TH E ASSESSEE. THE ASSESSING OFFICER TREATED THE SAID INTEREST INCOME AS INCOME FROM OTHER SOURCES, AND CONSEQUENTLY DISALLOWED DEDUCTI ON U/S 80HHC OF THE ACT IN RESPECT OF THE ENTIRE INTEREST INCOME . 15. ON APPEAL, THE LD. CIT(A) DIRECTED THE ASSESSIN G OFFICER TO TREAT THE SAID INTEREST INCOME AS BUSINESS INCOME A ND ALLOW DEDUCTION U/S 80HHC AS PER LAW. THE LD. D.R., BEFO RE US, COULD NOT CONTROVERT THE FACT THAT THE FIXED DEPOSITS IN QUES TION WERE BUSINESS ASSETS OF THE ASSESSEE AND CONSEQUENTLY IN TEREST INCOME ARISING OUT OF BUSINESS ASSETS WERE ASSESSABLE UNDE R THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. 16. WE WOULD LIKE TO CLARIFY THAT EVEN WHEN SUCH IN TEREST INCOME IS TREATED AS BUSINESS INCOME, 90% OF SUCH INTEREST INCOME ARE TO BE EXCLUDED FOR COMPUTING PROFITS OF BUSINESS IN TERMS OF PROVISIONS OF I.T.A. NOS. 2108 TO 2111/MDS/10 14 EXPLANATION (BAA) TO SECTION U/S 80HHC(3) OF THE AC T. WITH THE ABOVE CLARIFICATION, WE DO NOT FIND ANY OTHER ERROR IN THE ORDER OF THE LD. CIT(A). THEREFORE, THIS GROUND OF APPEAL O F THE REVENUE IN ALL THE YEARS IS DISMISSED. 17. IN THE RESULT ALL THE FOUR APPEALS OF THE REVEN UE ARE DISMISSED. ORDER PRONOUNCED IN THE COURT 12 TH AUGUST, 2011. SD/- SD/- (GEORGE MATHAN) (N.S. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 12 TH AUGUST, 2011. VL COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT(A)-XII, CHENNAI (4) CIT, (5) D.R. (6) GUARD FILE